You love your morning coffee. Who doesn’t? And now your love of coffee has transcended into a desire to open a coffee shop. You must be wondering, “Where do I start?”
The 5 vital things you need prior to opening your coffee shop include:
- Handle the legal aspects of your business.
- Get your business finances in line
- Learn how to properly hire and maintain employees.
- Have a soft opening event.
- Create a marketing and advertising plan.
If you’re thinking about opening up your own coffee shop, you’ve probably realized there’s many things to get done in order to be successful. We’ll cover everything from finances to hiring your staff and more!
Legal
Before opening day, there are quite a few things you need to get done before you can even legally open up your shop. Though not always required, getting an LLC for your establishment is highly suggested.
Take Note
It’s highly suggested to take note in this category, read through everything and then read through it again. There are things you may not think of like bean importing or compliances, but as a business owner, you will need to be educated on such legal aspects and have them easily accessible if or when they will be needed.
Permits and Licenses
For starters, you will need permits and licenses. The specific ones you will need to acquire will depend on your state and your city as each will have different requirements and you will need to do the research to find out which ones you will need for your city and state. Licensing a coffee shop is usually in the same category as a restaurant license, even if you’re not serving food.
Lawyer Up
It cannot be stressed enough to get a lawyer when you’re a business owner. Not only can they help you with all other legal parts needed to open an awesome shop, but they will also know many legal aspects that you may not and be very helpful. Since you are in the business where people are consuming items made in your establishment, it’s smart to have a lawyer in case a patron gets sick from something served at your shop and decides to take legal action. Yes, this is pretty rare for coffee shops but like the saying goes: it’s better safe than sorry.
Employees
This section is different from the “Staff” section you’ll read about below. Since this is a legal topic, you must consider what you need to have when hiring and maintaining employees, assuming you’re not going to be the only one working from 6:00am – 10:00pm 7 days a week. Consider providing insurance for employees, set up a plan of what needs to happen if an employee gets injured on the job, and all other policies needed for having a staff.
Finances
It’s not rocket science: opening up your own business takes money and a lot of it. Money can be the whole motivation behind having your own coffee shop in the first place, and if not, it’s still one of the most vital components in the business.
Banking
First, get a completely separate business bank account. Even if you are the only owner, you will need it separate from your personal bank account. You can have it at the same bank as your personal account. In fact, that could benefit you if the staff knows you already. Compare different types of business accounts and their interest rates at different banks or within the same one. Many banks offer several different account types and it’s worth looking into since you will be using this account constantly.
Loans and Investors
Whether this is done at the bank of your choosing or at an entirely different company, nearly everyone needs loans and investors. Since opening up a coffee shop isn’t something you’d necessarily see on Shark Tank, you’ve got to go and find the loans and investors yourself. Decide how much you still need and-if necessary-how much equity you’re willing to spare to investors. Be honest and ask many questions because having the right loans and investors can make or break your shop. If his is done incorrectly and you handle money poorly, this could land you in legal trouble. Be open with how much you have, the work that needs to be done on the shop, and when you plan on breaking even. This leads us into the next point.
Break-Even Point
A break-even point is very smart to project when opening up your own business. Take the amount of money that will be spent opening up your shop including everything such as rent, employees, inventory and licensing and see how much product you will need to sell in what amount of time until you make all of your money back. This includes loans and investments. It has been said to have enough to be able to run the shop for 2 years without running out of money. Some people can have a very low break-even point and hit it within a few months. Though this is rare given the short time frame, it is definitely possible.
Read more about starting a coffee shop here.
Staffing
Some people believe when opening up a coffee shop or any business when it comes to staffing, the only thing to do is hire people. Those folks couldn’t be more wrong. There is so much involved when hiring and maintaining employees.
Overtime
The Fair Labor Standard Acts sent in a new rule to protect overtime pay and minimum wage. This means that under Federal Law, you have to pay overtime to anyone that makes a salary of $47,476 or more annually. This rule was overturned in November 2016 as the new rules were seen as an unconstitutional exercise of power. It still stands under the Fair Labor Standard Act that you must pay overtime to anyone who makes a yearly salary of $23,660 or more.
Minimum Wage
At the time of the article’s publication, the Federal Minimum Wage is $7.25. Several states are choosing to raise the minimum wage on their own. For example, California’s minimum wage is currently $10.50 and will gradually increase until it reaches $15 per hour by 2022 for large businesses and 2023 for smaller businesses.
Discrimination
Obviously, it’s illegal to discriminate against who you hire based on race, sex, religious views, and sexual orientation, but there’s a lot more that goes into this than some soon-to-be business owners may like to know. For example, there is the Lilly Ledbetter Fair Pay Act which passed in 2009 that allows employees to file a complaint of unfair wages within 180 days of the employer’s decision on what to pay said employee. Beginning in September 2017, the Equal Employment Opportunity Commission has required businesses with more than 100 employees to submit compensation data to them. If you have a staff with a wide range of diverse people, not only is it a good thing to do as a human but as a business owner. Patrons and employees will take note and you will often be commended for a diverse staff.
Tip Pooling
Tip pooling can be hard to explain with words, but as someone who’s been a barista in shops that split tips differently, it can surprisingly affect your income. There are 2 ways you can do this: per shift or per hour. For example, Jim and Pam are working a shift together and then at noon, Michael will come in to start his shift. When Michael comes in, Jim and Pam will split the tips between the two of them. Then when the next person comes in, Jim, Pam, and Michael will split it and so on. This is the “per shift” method.
The “per hour” method can be more complicated and from my experience, you make dramatically less than being paid under the per shift method. Employees can also see this way as unfair as to how you’re getting the same amount of tips whether you worked an insanely busy rush or a slow Sunday night. Per hour tip pooling is taking all the tips from a week and dividing that by your number of employees that worked that week and the hours worked that week. So if you have 10 employees and $100 in tips for that week. If 5 employees worked 40 hours, and 5 worked 20, that’s almost $1 in tips split for the entire week. Your employees will be really jealous of Jim, Pam, and Michael bringing home the bacon. Per hour worked tip pooling can also be really complicated if you don’t have easy numbers to use like the ones in the example.
Soft Opening
Before opening your coffee shop, you need to have a soft opening. A soft open is an event you hold as the business owner shortly before opening to the public. During this event, you invite your staff, friends, family and even investors. You offer everything you will offer on the menu to the public. This gives a small group of people a chance to try out your product and give you feedback with enough time to take into consideration what they’re saying and make changes if necessary. This will also give them an opportunity to try out the seating, see the lighting and be able to post online about what a great experience they had and how excited they are for all of their friends and family to try your new shop.
A fun way to hold a soft open is by hosting a latte art throwdown. If you don’t know what a latte art throwdown is, it’s basically a latte art competition. If you are hosting this event, have it in your budget to go through a lot of milk and beans that will not be reimbursed by paying guests. This event will give local baristas and coffee fiends a chance to check out your shop. It will also give your baristas a chance to get a little more practice in before the doors open to the general public. This is a good way to get honest reviews about your coffee and pastries. The local baristas are well versed and will be able to tell you in detail everything they like and what could help improve the shop or product. It is an easy way to start getting your name out there, because baristas and shops talk about throwdowns since they’re such fun events that bring the coffee community together.
Marketing and Advertising
Marketing and advertising can make or break the profitability of your shop. Before opening up your shop, it is smart to have your own website and social media accounts for the business. If you live in a populated area, consider if it will be beneficial to run an advertisement in the newspaper or even a billboard. The easiest and cheapest way to get marketing is word of mouth.
Let’s face it: people love coffee, and independent coffee shops are extremely trendy. Not only is word of mouth free but so are most social media platforms. Hyping up your new shop on Instagram before opening will do amazing things for your shop. Post aesthetically pleasing interior photos or a shot with a latte with a rosetta and the menu all while geo-tagging the location of the shop. Have a countdown or a giveaway leading up to the opening of your shop. Getting people excited to try a new coffee spot will get you regulars in no time. This way, once the doors are open and foot traffic is high, you will have social media influencers tagging your shop in a well taken photo and that in and of itself is free advertisement.
I worked at a trendy shop in Saint Paul, and I can’t tell you how many customers would say things like, “I found you guys through Instagram,” or, “I saw so-and-so post this drink and said it was delicious.” I know some people can roll their eyes at social media, but as a business, it is a wonderful, easy, and relatively free way to market and advertise your business.
Final Words
So, those were 5 vital things you need prior to opening your coffee shop. Did you learn something new? Was there a lot more to staffing or finances than you thought? It may seem intimidating at first, but these things are vital for a reason and will better your experience as an owner in the long run.
Does owning a coffee shop sound like the right thing for you? If you feel stressed after reading this article, know that this is normal. Owning a coffee shop is not for everyone, but even if you’re the person for the job, it will take research, hard work and plenty of time and effort.
Do you think there are more vital things needed prior to opening up shop? Of course we didn’t cover absolutely everything you need to do before opening shop. There are things to do such as search for the right location, designing the interior or buying equipment. The 5 things listed in this article are what are seen as the most vital and necessary prior to opening your doors.
We hope you were able to learn something, take some notes, and be even more educated on your way to opening up your own shop. Remember to be good with your money, treat your staff equally, get all the permits you need, enjoy a soft open with some friends, and, of course, get all the free promotion you can!
Frequently Asked Questions
According to the Coffee Shops Startup Blog, the number of sales and the cumulative receipt total for each sale are the two keys to high profit margins in the coffee shop business. After accounting for fixed expenses such as lease and variable expenses like Cost of Goods Sold, a steady coffee shop business can glean about $5,000 to $20,000 per month for an owner. You can read more about your potential for earning money as a coffee shop owner here.
According to the Shop Keep blog, here is a list of basic equipment and supplies you will need in order to successfully run a coffee shop:
● Milk and water
● Industrial coffee grinder
● Automatic drip coffee machine
● Espresso machine
● Ovens, toasters, or any cooking devices
● Refrigeration system
● A point of sale system
● Industrial blenders
● Freezer and refrigerator storage
Interested in learning more about how to open your own coffee shop? Click here for even more tips and tricks.
Please note: This blog post is for educational purposes only and does not constitute legal advice. Please consult a legal expert to address your specific needs.
Hi! I’m Shawn Chun
My adventure in coffee began when I first launched my first coffee shop back in the early 2000s. I had to figure out so many things on my own and to make it worse within 2 years of opening two large corporate coffee chains moved in just blocks away from me!
As I saw smaller and even some larger coffee shops in the neighborhood slowly lose customers to these giant coffee chains and slowly close up shop, I knew that I had to start getting creative…or go out of business.
I (like you may be) knew the coffee industry well. I could make the best latte art around and the foam on my caps was the fluffiest you have ever seen. I even had the best state-of-the-art 2 group digital Nuova Simonelli machine money could buy. But I knew that these things alone would not be enough to lure customers away from the name brand established coffee shops.
Eventually, through lots of trial and error as well as perseverance and creativity I did find a way to not only survive but also thrive in the coffee/espresso industry even while those corporate coffee chains stayed put. During those years I learned to adapt and always faced new challenges. It was not always easy, however, in the end, I was the sole survivor independent coffee shop within a 10-mile radius of my location. Just two corporate coffee chains and I were left after that year. All told the corporate coffee chains took down over 15 small independent coffee shops and kiosks and I was the last one standing and thriving.
Along the years I meet others with the same passion for coffee and I quickly learned that it is not only “how good a barista is” that makes a coffee shop successful, but the business side of coffee as well.
Hence why I started this website you are on now. To provide the tools and resources for up and coming coffee shop owners to gain that vital insight and knowledge on how to start a coffee shop successfully.
Stick around, browse through my helpful blog and resources and enjoy your stay! With lots of LATTE LOVE!
Shawn
