It’s hard to imagine a place anymore that doesn’t have a coffee shop. In major cities, you can easily find more than one at every corner. It may seem like a saturated market with all of the retail chain coffee brands and independent shops, but don’t let that deter you from launching a new coffee business.
The coffee industry in the United States is estimated to generate almost $96 billion in revenue this year. By 2025, it’s estimated that 89% of spending in the coffee business will be on out-of-home consumption. This is proof that the vast majority of people who drink coffee will be spending their money on buying it from a business.
There’s incredible potential for growth in this business. Countless examples exist of small coffee businesses that went on to become billion-dollar global chains. Being in the coffee business goes beyond opening up a physical location. You can launch a coffee roasting business as well. Now that you have confidence in the market, it’s time to educate yourself on how to start a coffee business.
Why Start a Coffee Business
The coffee business doesn’t suffer from a demand problem. There’s an ever-growing number of people who buy their cup of joe from the coffee shop. Grabbing a cup on the way to the office is part of their daily routine. These customers also tend to be quite particular about their coffee. If they like a coffee shop, they’ll keep coming back to it.
Most people like to drink coffee multiple times a day. It’s a part of their routine to walk to their favorite coffee shop during lunch break or on the way home. They’ll gladly recommend it to others too. A big advantage of being in the coffee shop business is the sense of loyalty it can generate in customers. Give your customers a consistent quality product and they’ll hardly go a day without it.
The business of selling coffee has been around for generations but is perhaps now in one of its most exciting phases. The younger generation is uniquely interested in more than a quick cup of coffee. They’re passionate about the origins of coffee beans and support sustainability initiatives for people involved in coffee production.
This has also led to a greater interest in third-wave coffee, where the focus is primarily on high-quality gourmet coffee, through intricately paired blends and delicate roasting. Customers are caring more about the flavor profiles and extraction methods than just wanting a quick caffeine hit. They’ll pay higher prices for specialty coffee too.
Types of Coffee Business
Your options in the coffee business aren’t just limited to opening up a shop. It can be a difficult endeavor and the costs run higher. It’s great for those who can manage it but don’t feel that this business is not for you if you can’t. Your coffee business will typically be one of the following:
Opening up a coffee shop at a great location is what most people who want to get started in this business set their sights on. It can become the go-to destination for locals to grab a cup on their way to work or to hang out with their friends. A coffee shop that has ample space also functions as a co-working space for its customers. It’s not uncommon to see groups huddled around the table with laptops out, working away while enjoying their favorite coffee.
For the coffee shop owner, this means business and a lot of it. If the location is big enough for a drive-thru then they’re also able to serve customers who prefer the convenience that it offers. Since there’s more space, it’s also possible to offer additional items such as pastries, cakes, and light food options to further increase sales.
There are many considerations you need to be aware of before starting your coffee shop. The first is location. Without a good location, it will be difficult for the business to survive, as customers won’t come if they can’t find it. The rent for such high-traffic locations tends to be high, particularly in major cities, leading to an increased start-up cost.
Furnishing the location based on the concept you have in mind is going to be another major expense. You’ll also need to hire skilled baristas, servers, and other employees to ensure that operations run smoothly. As with any business, there will be a lot of paperwork to handle as well.
If you’re a skilled coffee roaster, consider launching a wholesale coffee business. The consumer-facing part of the business doesn’t need to be much more than a website and social media profiles if you want to keep it that way, thereby reducing your start-up cost. You also have the flexibility to sell to both coffee shops and individual customers. A lot of independent coffee shops don’t roast their coffee and source it from a coffee roaster.
The primary advantage is being able to sell in higher quantities as customers are incentivized to purchase more with competitive wholesale pricing. A wholesale coffee business can be run without the need to hire additional employees, thus reducing costs and allowing the business to retain higher profit margins.
Mobile Coffee Cart
A mobile coffee cart is a great way to increase visibility and build your brand since you’re dealing with customers directly. Everything you need to make good coffee can fit in a cart. The biggest advantage of a coffee cart is that it’s mobile. You’re not limited to a fixed location. The cart can be set up at high-traffic locations and moved around as need be. This can be a great way to set yourself up for eventually opening a brick-and-mortar coffee shop in the future.
Customers can also engage you to set up the cart at their parties and other events. Do consider the street vending regulations in your city before starting. There are strict rules in place, particularly in major cities and there may be significant fines involved for not complying with them.
How Much Does It Cost to Start a Coffee Business
The costs to start a coffee business will depend on the type of business you choose, but the expenses will typically be in the following range:
- Coffee shop: Between $100,000 – $500,000 depending on the location and size
- Mobile coffee cart: Between $25,000 – $50,000
- Wholesale coffee business: Between $100,000 – $150,000
Keep in mind that these are just estimates and that the startup cost for your business will vary based on a variety of factors, including but not limited to location, equipment, number of employees, etc.
12 Steps to Starting a Coffee Business
It may seem simple enough but as with any business, starting a coffee business can be complex. For example, the licensing and regulatory requirements will be different for each type of business and you need to ensure compliance before starting. These steps will help you understand the process to get your business off the ground.
Decide on the Type of Coffee Business
You should first decide the type of coffee business you want to start. Perhaps you like the idea of being a coffee shop owner and are happy to make the effort that it requires, or you may feel that the coffee roasting business is more suitable. Research the advantages and disadvantages of each type so that you can make an informed decision.
Develop a Business Plan
Start out by putting together a detailed business plan. It will provide the roadmap for launch and expansion. The business plan will also include the market research you’ve conducted, what financial projections you can make based on that, and how you intend to grow.
For example, if you’re opening up a shop, your coffee shop business plan should include details about the ideal location, expected footfall, number of employees required, etc. If you’re looking to raise money, investors will want to see a business plan to decide if they want to put money into the business.
There’s no substitute for thorough target market research. It will help you understand whether the market conditions are favorable enough for your new business. Talk with other business owners in the area to gain a better understanding of the challenges and opportunities.
The operational needs of the business will vary by type. For example, if you’re starting a coffee shop, you’ll need to buy grinders and brewing machines. You’ll also need to find roasters that can supply quality coffee. For a roasting business, you’ll need to work on procuring coffee beans and will also require commercial-grade roasters. A mobile coffee cart will require more compact equipment and a mode of transportation, such as a motorbike or pickup.
Starting a coffee business is a capital-intensive endeavor. Top-of-the-line espresso machines and grinders can easily cost over $15,000 and since these will be the workhorse for your coffee shop, it’s always recommended to invest in high-quality equipment. A coffee shop will also require furniture, fittings, and other equipment which can add to the overall cost. It has recurring costs for the POS system, rent, and wages as well.
Commercial-grade roasters can cost over $20,000 and significant investment is also required to buy coffee in bulk from producers overseas. The machine and grinder remain one of the biggest costs for mobile coffee carts, in addition to the mode of transportation.
Understanding market dynamics is crucial to figuring out the pricing structure. Factor what your competitors are charging in your projections. Consider if the target market can absorb a higher price point if you’re looking to provide a higher-quality product. Competitive pricing isn’t about lowering what you charge too much. That can be counterproductive and make customers doubt the product’s quality.
Getting the word out about a new business is crucial to getting it off the ground. Use social media networks to promote your business through targeted campaigns. Content marketing is a great way to build brand awareness and increase organic traffic. You can do that by sharing your knowledge about coffee through blog posts or YouTube videos.
Name of Business
A unique business name is important as it defines your brand identity. It should encapsulate your vision for the business and instantly make it clear what your business is about. The coffee industry is very competitive and a business with a generic name will have a tough time cutting through the clutter. A unique name will make it stand out from the crowd.
Choose Your Business Structure
Figuring out the appropriate structure is one of the most important decisions you’ll make when starting your business. These are the most commonly used entity types for a coffee business:
This is an unincorporated business entity with a single owner. Any profits made by the business pass straight through to the owner who must pay taxes on it through their personal return.
The biggest disadvantage of a sole proprietorship is that the owner and the business are not separate, so they have personal liability for the debts, taxes, and other obligations of the business. The easy setup and minimal paperwork requirement are major advantages.
General partnerships are similar to sole proprietorships. Instead of an individual owner, it has multiple owners who share the liabilities and the profits of the business. It also has similar documentation and reporting requirements, as well as disadvantages. All partners are personally responsible for the liabilities and obligations of the business. Their personal assets remain exposed to seizure or liquidation.
The partners in a limited partnership choose a general partner who is responsible for operating the business. The others don’t take a role in the management and remain hands-off. They effectively function as silent partners, making it possible for them to invest in a business that’s run by a competent operator.
The general partner takes full exposure to all of the business liabilities whereas the other partners have limited liability only up to the amount they’ve invested in the partnership.
Limited Liability Company
LLCs are the preferred option by many small business owners as it separates the business from the owner. The owner has limited liability and their personal assets remain safe if the business is unable to meet its obligations. LLCs are required to be registered with the Secretary of State where they’re based and have increased reporting requirements compared to partnerships and sole proprietorships.
Corporations exist as entirely separate legal entities. They can acquire assets, borrow money, enter into contracts, and more in their capacity. Owners have the maximum liability protection. Corporations can also raise money from investors by selling shares.
The strict reporting and paperwork requirements are the biggest disadvantage which is why many small businesses would only convert into corporations once they’ve achieved enough scale for them to be viable.
The money to start your coffee business has to come from somewhere. You may already have been saving up to start a business so tap into those savings. You can also seek out loans from banks and other financial institutions as most offer a variety of funding options for small businesses.
They will need to see a comprehensive business plan and some may also require you to provide a personal guarantee for the loan. You can also seek out investments from friends and family, allowing them to invest in your business at a favorable rate to secure significant returns in the future.
Choose a Location
If you’re opening up a coffee shop or mobile coffee cart, the location will play a major role in its success, as it has a direct impact on the number of customers your business can get. The demographics of the area also impact the type of customers you get.
For example, if you’re looking to set up a shop in the city center, you may get a lot of office workers and tourists, but rent for the location will be higher compared to other areas. Do consider competitors in the area and ascertain how that could impact demand.
Register Your Business
Business registration requirements vary by state and city. This step usually requires some paperwork to be filed with the relevant government departments. For example, an LLC needs to be registered with the Secretary of State. An Employer Identification Number (EIN) will be required as well, it can be obtained easily from the Internal Revenue Service (IRS).
Obtain Licenses and Insurance
Depending on the business structure you choose, there may be a need to apply for a federal, state, or local business license. A “Doing Business As” (DBA) license will be needed if you want to operate the coffee business under a name different from its legal name.
A retail food service license is necessary for coffee shops and mobile coffee carts since you’ll be selling directly to customers. A food service permit will be needed as well if you’re selling food products. For wholesale businesses, a wholesale food service license will be appropriate. Depending on the products you’re offering, there may also be a need to obtain a liquor license and a live entertainment license.
Open a Business Bank Account
Every guide on how to start a small business mentions that you need to open a business bank account and with good reason. This ensures that your personal and business finances are kept separate, an important requirement that you must meet. It also provides full visibility into the business finances so you can keep track of the money coming in and going out.
You can open a business bank account at your preferred bank. They’ll require you to visit a branch in-person with the relevant business formation documents and personal ID documents. With doola Banking, everything is done entirely online, enabling you to open a US-based business bank account even from abroad.
Purchase Equipment and Supplies
There are going to be a lot of equipment that you need to buy for your coffee business. This includes espresso machines, grinders, brewers, thermal servers, ice machines, frothing pitchers, bakery display cases, tea and coffee mugs, takeaway cups, lids and straws, aprons, napkins, etc. Much of these will be recurring expenses, so ensure that you budget for these purchases accordingly.
Hire and Train Employees
Finding the right employees for the business will be a challenge so take the time to sort through the candidates. If you’re opening up a coffee shop, you’ll need baristas, managers, servers, and other staff members. Baristas will be the most important hires you make since they will be making your product.
For those in the roasting business, they’ll need to find people who understand the art of roasting and can deliver consistency in the product. Hire the right people and provide them with comprehensive training so that they can be an asset to your business.
Market Your Coffee Business
With everything set up, it’s now time to get customers and one of the best ways to do that is to market your coffee business online and offline. These are a few of the methods you can follow to increase brand awareness and visibility:
- Launch a well-designed website
- Make social media accounts and post regularly
- Do SEO-focused content market
- Run paid ads on social media networks
- Use traditional marketing such as print ads
- Attend local events
It’s Time to Wake Up and Smell the Coffee
By now you should have a good idea of everything it entails and how you should go about opening up a coffee business. Bookkeeping is essential to operating a successful business. The business owner needs to have full clarity about the income and expenses so that they’re able to make informed decisions.
doola Bookkeeping is a powerful income and expense-tracking solution for businesses. Apart from perfectly managing the books, it helps make tax season stress-free. The powerful tools that doola offers can be used to create reports for monitoring trends to adapt the business as and when required.
Are coffee shops profitable?
Coffee shops that have a good influx of customers can be very profitable as coffee is typically sold at a higher profit margin compared to other food products. If the overheads are low, this can further contribute to increasing the profits.
How much capital is needed for a coffee business?
Depending on the type of coffee business, the costs can vary from $25,000 to hundreds of thousands of dollars, as the resource requirements for each business type are unique.
Is starting a coffee business worth it?
Starting a coffee business is worth it, not just because it can be a lucrative endeavor, but because it enables you to share your love and passion for coffee with customers and make a successful business out of it.
Is owning a coffee shop stressful?
As with any business, there will be challenges with owning a coffee shop, but they’re a part of the process and to be expected. Owning a coffee shop isn’t going to be uniquely stressful.