How Much Does It Cost To Start a Coffee Shop? (A Guide to Starting a Cafe)
Congratulations, you’ve set your eyes on opening a coffee shop. You have the design in mind, maybe even a name, and you know what kind of coffee you’d like to sell. But how much is this business venture going to cost?
Once you start factoring in all the requirements, the overall expenses quickly pile up. There is the venue lease, interior decoration, coffee shop gear, not to mention staff and supplies. All of this might sound a bit scary, but if you plan things right, your budget will stay within reasonable limits.
Opening a Coffee Shop: A Breakdown of Expenses
To put things into perspective, you are looking at an investment ranging between $25,000 and $300,000. This, of course, depends on the type of coffee shop you’d like to open. At the lower end, coffee stands, kiosks, or food trucks may set you back between $25,000 and $75,000, although some smaller coffee stands reportedly opened their business for as low as $5,000 (1).
However, the bar of entry for traditional cafés that include a seating area is closer to $80,000. The venue size is one of the primary determining factors. Simply put, the bigger the place, the higher the lease. There’s also more investment in the interior and you need more staff to cover the grounds.
I think a lot of people just get in over their heads by taking a lot of money… They just get in over their heads and it just doesn’t work out.
It All Begins with a Good Plan
Getting in over your head is surely something you want to avoid. This is why it’s crucial to devise a sound business strategy which begins with a business plan (2). In a nutshell, a business plan is like a step-by-step guide that covers every aspect of your coffee shop investment.
The way I do a business plan, a lot of times I used to just look at my business (only). But in life, everything’s kind of connected.
A good plan factors in equipment cost and purchase options, staff expenses, lease, advertising, and all the minute details that can make or break your coffee shop. Enrolling in some coffee classes can also be helpful as they give you a glimpse of the how-to’s of running a coffee business. Once you have all the figures on paper, it’s easier to determine how much money you need to start and what the break-even baseline is. To make things clear, here is a list of things that need to be in the business plan:
- The location/venue cost – Shouldn’t go above 15% of your sales projections.
- Equipment to run and stock the café – Might go over 50% of the total budget. However, goods like coffee, drinks, and milk necessary to stock the venue should be under 40% of the sales projections.
- Staffing cost and professional services – These include your employees and contractors for the initial coffee shop setup.
- Taxes – In general, they are about 35% of the operating profit.
- Other overhead – This is where you account for permits and licenses, different supplies (cups, sticks, glasses, etc), insurance, and maintenance, to name but a few items.
The equipment you shouldn’t skimp on includes the commercial espresso machine, grinder, water filtration system, and coffee drip machine.
Venue Considerations
The location/venue is one of the things that have a major impact on the success of your coffee shop and thus also your overall investment. This is why you need to conduct a thorough analysis before you sign a lease.
The first thing to look for is the demographic, i.e. what kind of people live and work in the area. In other words, the location should be close to your target customers. Ideally, there should be little-to-no competition, and the coffee shop needs to be in an area with low crime rates. It also pays to be as near to the suppliers as possible. Finally, you need to consider the municipal/city zoning plans and regulations.
With all of this out of the way, you need to take a close look at the venue itself. For example, if it already features all the plumbing and installations, you’ll be saving a lot of money from the get-go.
It is also advisable to hire a lawyer who can help you with all the legal proceedings, permits, and licensing (3).
I purchased my building for the coffeehouse. It was built in 1922 and has a lot of character. (…) With the purchase and updating of the building, equipment, furnishings, and products, I spent around $130,000.
Final Thoughts
The café business has been booming in the past few years. If you plan carefully and play your cards right, opening a coffee shop can be very lucrative. But remember, you’ll need all the help you can get at the start, so don’t hesitate to hire lawyers, architects, and consultants. This may cost more in the beginning, but it will save you a lot of money in the long run.
FAQs
To open a coffee shop, you need all the necessary equipment including an espresso machine, grinder, a drip coffee maker, refrigeration, etc. Here’s a full list equipment for getting started. In addition, there are several licenses and permits you must obtain before you can start working. Finally, you need trained staff to help you run everything. You can also see our list of the best cafes in the world to get some ideas.
Yes, you can open a café with no money. A lot of coffee shop owners apply for loans to get the initial start-up capital. There is also an option to find an investor or try your luck with crowdfunding. Your biggest costs will be rent, and a good espresso machine – heres what you can expect to spend.
A café makes between $60,000 and $170,000 a year. This is the income that it will generate for you, assuming it’s a small-to-medium size coffee shop and you manage it on your own. Of course, the given figures are just average estimates, so they should be taken with a pinch of salt. We delved deeper into this topic here.
References
- How to Start a Coffee Shop. (2019, June 21). Retrieved from https://howtostartanllc.com/business-ideas/coffee-shop
- Valuetainment. (2016, December 8). How to Write a One Page Business Plan [Video File]. Retrieved from https://www.youtube.com/watch?v=hdGKAHvgBqo
- WebstaurantStore. (2019, May 8). Restaurant Licenses and Permits. Retrieved July 2, 2019, from https://www.webstaurantstore.com/article/107/restaurant-permits-and-licenses.html
