ON THIS PAGE
- How to Start a Coffee Shop
- 15 Steps To Start a Coffee Shop Business
- How Big is the Coffee Shop industry?
- What are the Key Segments of the Coffee Shop industry?
- What External Factors affect the Coffee Shop market?
- Who are the Key Competitors in the Coffee Shop industry?
- What are the Key Customer Segments in the Coffee Shop industry?
- What are the Key Costs in the Coffee Shop industry?
- What are the Typical Startup Costs for a new Coffee Shop?
- Keys to Coffee Shop Success
- Helpful Videos
- Additional resources in the Coffee Shop industry
How to Start a Coffee Shop
If you’re looking to start a Coffee Shop, you’ve come to the right place. Since we’re going to show you exactly how to do it.
We’ll start with key Coffee Shop industry fundamentals like how big the market is, what the key segments are, and how revenues and profits are generated.
Then we’ll discuss keys to not only starting a Coffee Shop business, but succeeding in it!
And don’t forget to look at our coffee shop business plan template if you need a plan to start or grow your coffee shop.
15 Steps To Start a Coffee Shop Business
Starting a coffee shop can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful coffee shop.
1. Choose the Name for Your Coffee Shop Business
The first step to starting a coffee shop is to choose your business’ name.
This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your coffee shop:
- Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also, check to see if a suitable domain name is available.
- Keep it simple. The best names are usually ones that are easy to remember, pronounce, and spell.
- Think about marketing. Come up with a name that reflects the desired brand and/or focus of your coffee shop.
2. Determine the Type of Coffee Shop Business You Will Launch
When determining the type of coffee shop you will launch, consider factors like your interests, target market, location, and the atmosphere you want to create.
Here are several types of coffee shops you can consider:
- Traditional Coffee Shop/Café: A classic coffee shop that serves a variety of coffee beverages, pastries, and light snacks. It offers a cozy and relaxed atmosphere for customers to enjoy their coffee.
- Espresso Bar: Specializes in serving high-quality espresso-based beverages like lattes, cappuccinos, and macchiatos. Emphasizes the art of coffee making.
- Specialty Coffee Shop: Focuses on sourcing and brewing specialty coffee beans, often from specific regions or single origins. Educates customers about coffee quality and flavor profiles.
- Drive-Thru Coffee Stand: A convenient option for customers on the go. Offers quick service with a limited menu, catering to those who want to grab coffee without leaving their vehicle.
- Coffee Truck or Mobile Coffee Shop: A mobile coffee business that can move to different locations, such as events, festivals, or busy street corners. It’s versatile and can reach a variety of customers.
- Coffeehouse and Bakery: Combines coffee offerings with a selection of baked goods like muffins, croissants, and pastries. Appeals to those seeking both coffee and snacks.
- Coffee and Bookstore: Integrates a coffee shop with a bookstore, creating a relaxing environment for customers to read, study, or socialize.
3. Develop Your Coffee Shop Business Plan
One of the most important steps in starting a coffee shop is to develop your business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.
Your business plan should include the following sections:
- Executive Summary: This section should summarize your entire business plan so readers can quickly understand the key details of your coffee shop.
- Company Overview: This section tells the reader about the history of your coffee shop and what type of coffee shop you operate. For example, are you a traditional coffee shop, espresso coffee shop, or coffee and bookstore business.
- Industry Analysis: Here you will document key information about the coffee shop industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis: In this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing products or services like the ones you will offer?
- Competitive Analysis: Here you will document the key direct and indirect competitors you will face and how you will build a competitive advantage.
- Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
- Product: Determine and document what products/services you will offer
- Prices: Document the prices of your products/services
- Place: Where will your business be located and how will that location help you increase sales?
- Promotions: What promotional methods will you use to attract customers to your coffee shop? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
- What startup costs will you incur?
- How will your coffee shop make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
You can download our coffee shop business plan PDF template here. This is a business plan template you can use in PDF format.
4. Choose the Legal Structure for Your Coffee Shop Business
Next you need to choose a legal structure for your coffee shop and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a business entity in which the owner of the coffee shop and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.
A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a coffee shop together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.
3) Limited Liability Company (LLC)
A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a coffee shop include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.
4) C Corporation
A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a coffee shop is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.
5) S Corporation
An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.
Once you register your coffee shop, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.
5. Secure Startup Funding for Your Coffee Shop Business (If Needed)
In developing your coffee shop business plan, you might have determined that you need to raise funding to launch your business.
If so, the main sources of funding for a coffee shop to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a coffee shop that they believe has high potential for growth.
6. Secure a Location for Your Business
Finding the right space for your coffee shop is crucial to its success. When considering potential locations, take the following factors into account:
- Foot Traffic: Assess the volume of foot traffic in the area. A location with high foot traffic, such as a busy street or near a transit station, can attract more customers.
- Proximity to Other Businesses: Consider nearby businesses, offices, schools, and residential areas. Being close to complementary businesses, like bookstores or boutiques, can help drive traffic to your coffee shop.
- Competition: Research existing coffee shops and cafes in the vicinity. Determine if there is room in the market for your coffee shop concept and whether you can differentiate yourself.
- Visibility and Signage: Ensure your coffee shop is visible from the street. Effective signage can attract passersby and make it easier for customers to find you.
- Parking Availability: Assess the availability of parking for your customers. Having nearby parking options can be a significant advantage, especially in areas with limited street parking.
7. Register Your Coffee Shop Business with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
8. Open a Business Bank Account
It is important to establish a bank account in your coffee shop’s name. This process is fairly simple and involves the following steps:
- Identify and contact the bank you want to use
- Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
- Complete the bank’s application form and provide all relevant information
- Meet with a banker to discuss your business needs and establish a relationship with them
9. Get a Business Credit Card
You should get a business credit card for your coffee shop to help you separate personal and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
10. Get the Required Business Licenses and Permits
Starting a coffee shop involves obtaining various licenses and permits to operate legally and serve food and beverages. The specific requirements can vary depending on your location and the scope of your coffee shop, but here are common licenses and permits you may need:
- Business License: Obtain a general business license from your city or county government to legally operate any type of business, including a coffee shop.
- Food Service Permit: A food service permit, also known as a food handler’s permit or food establishment permit, is typically required for preparing and serving food and beverages to the public.
- Health Department Permit: Comply with local health department regulations by obtaining a permit that ensures your coffee shop meets food safety and sanitation standards.
- Zoning Approval: Verify that your chosen location is properly zoned for a coffee shop or restaurant business. Check with your local zoning department for compliance.
- Signage Permit: If you plan to display signs or banners advertising your coffee shop, you may need a signage permit from your local government.
- Outdoor Seating Permit (if offering outdoor seating): If you plan to have outdoor seating on a sidewalk or patio, obtain a permit to comply with local regulations.
- Sidewalk Cafe Permit (if applicable): Some areas require a separate permit for sidewalk cafes or outdoor seating.
- Fire Department Permit: If your coffee shop uses open flames (e.g., candles), you may need a fire department permit to ensure safety compliance.
Depending on the type of coffee shop you launch, you will have to obtain the necessary state, county and/or city licenses.
11. Get Business Insurance for Your Coffee Shop Business
Other business insurance policies that you should consider for your coffee shop include:
- General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
- Product Liability Insurance: If your coffee shop sells food items or products, consider product liability insurance to protect against claims related to foodborne illnesses or product defects.
- Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
- Commercial property insurance: This covers damage to your property caused by fire, theft, or vandalism.
- Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
- Professional liability insurance: This protects your business against claims of professional negligence.
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
12. Buy or Lease the Right Coffee Shop Business Equipment
To run a coffee shop successfully, you’ll need a variety of equipment to prepare and serve coffee and related products.
Here’s a list of essential equipment for your coffee shop:
- Espresso Machine: This is the heart of your coffee shop. Choose a high-quality espresso machine to make espresso shots and espresso-based drinks like lattes, cappuccinos, and Americanos.
- Coffee Grinder: Invest in a burr grinder to ensure consistency in coffee particle size for espresso and drip coffee. Consider having a separate grinder for decaffeinated coffee.
- Coffee Brewers: Choose coffee brewers suitable for your desired coffee offerings, such as pour-over coffee makers, drip brewers, or batch brewers for large quantities.
- Steam Wand: Essential for frothing milk for lattes and cappuccinos. Espresso machines typically come with built-in steam wands.
- Coffee Beans Storage: Use airtight containers to store coffee beans and keep them fresh. Consider clear containers to showcase your coffee beans.
- Coffee Filters: Stock a supply of appropriate coffee filters for your brewing equipment, whether it’s drip, pour-over, or a specific brewing method.
- Water Filtration System: Ensure your water is of high quality and free from impurities that can affect the taste of your coffee.
- Refrigeration Units: Invest in refrigerators for storing milk, creamers, syrups, and other perishable coffee shop items. Consider separate units for dairy and non-dairy options.
- Ice Machine: If you offer iced coffee or blended beverages, you’ll need a reliable ice machine.
- Blenders: Blenders are necessary for making smoothies, frappes, and other blended drinks.
13. Develop Your Coffee Shop Business Marketing Materials
Marketing materials will be required to attract and retain customers to your coffee shop.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your coffee shop. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
- Website: Likewise, a professional coffee shop website provides potential customers with information about the products and/or services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
- Social Media Accounts: Establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn, and/or other social media networks will help customers and others find and interact with your coffee shop.
14. Purchase and Setup the Software Needed to Run Your Coffee Shop Business
Running a coffee shop efficiently and effectively often involves using various software tools and platforms to manage orders, inventory, customer relationships, and finances.
Here are some essential software types for your coffee shop:
- Point of Sale (POS) System: A reliable POS system is essential for managing customer orders, processing payments, and tracking sales. Modern POS systems may also include inventory management, customer loyalty programs, and reporting features.
- Inventory Management Software: Inventory management software helps you track coffee beans, supplies, and food items in real-time. It can optimize inventory levels, generate purchase orders, and minimize waste.
- Accounting Software: Use accounting software like QuickBooks or Xero to manage your coffee shop’s finances, including payroll, expenses, and revenue tracking.
- Employee Scheduling Software: Employee scheduling software simplifies the process of creating staff schedules, managing shift changes, and tracking labor costs.
- Customer Relationship Management (CRM) Software: CRM software helps you build and maintain customer relationships by tracking customer preferences, sending marketing emails, and managing loyalty programs.
- Online Ordering and Delivery Software: If you offer online ordering and delivery services, use software or platforms to manage orders, track delivery routes, and process payments.
Choose software that aligns with your coffee shop’s specific needs, budget, and operational requirements. Many software options offer free trials or have different pricing plans, so you can explore and select the ones that best suit your coffee shop’s requirements.
15. Open for Business
You are now ready to open your coffee shop. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.
How Big is the Coffee Shop industry?
The Coffee Shop industry has grown at a rate of 4.3% over the past five years. The industry’s 74,267 establishments are expected to collectively bring in $39.4 billion this year.
What are the Key Segments of the Coffee Shop Industry?
Sales in the Coffee Shop industry are dominated by coffee beverages. At over half of industry revenue, this is the largest product segment. Other beverages and food items make up another 45% of revenue, and other items such as mugs and packaged coffee round out the remainder of industry revenue.
What External Factors affect the Coffee Shop Industry?
A number of factors affect the performance of the Coffee Shop industry. These drivers include:
Consumer spending – Like any business in the food service industry, coffee shops depend on consumers’ willingness to spend discretionary cash. As such, times of economic growth tend to benefit the industry.
Healthy eating index – Consumers are becoming more aware of the health issues associated with a poor diet. Therefore, coffee shops that offer healthier alternatives alongside other menu items will benefit.
Per capita coffee consumption – Coffee shops depend on coffee drinkers. Per capita coffee consumption in the US has remained fairly steady over the past five years, and is expected to rise slightly in the next five years.
Who are the Key Competitors in the Coffee Shop Industry?
Starbucks leads the Coffee Shop industry, with a 39.8% market share. In second place, Dunkin’ Brands has captured a 21.9% market share.
What are the Key Customer Segments in the Coffee Shop Industry?
The key customer segments in the Coffee Shop industry are Households with the highest income quintile and Households in the three middle income quintiles (>50%)
What are the Key Costs in the Coffee Shop industry?
Purchases – The greatest expense for Coffee Shops is the purchase of food and beverages, and account for over 1/3 of revenue.
Wages – Wages are the second-largest expense for the industry. This is due in large part to the labor-intensive nature of the business.
Other expenses include equipment depreciation, rent, advertising, and sometimes franchise royalties.
What are the Typical Startup Costs for a new Coffee Shop?
- Lease deposit
- Building upgrade
- Equipment purchase – including espresso machine, brewing equipment, refrigerator, POS system, etc.
- Permits and licenses
- Starting inventory
- Equipment maintenance
- Inventory replacement
- Utilities – including wireless internet
Keys to Coffee Shop Success
The Art of Pour Over Coffee by Joe Bean Coffee Roasters
What’s it really like to own a coffee shop?
How to run …a coffee shop
Secrets of a coffee shop – Workshop Coffee London
Additional resources in the Coffee Shop Industry
For additional information on the Coffee Shop market, consider these industry resources:
- National Restaurant Association: www.restaurant.org
- National Coffee Association USA: www.ncausa.org
- US Bureau of Labor Statistics: www.bls.gov
- Specialty Coffee Association of America: www.scaa.org
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