The decision to open any type of business is not one to be taken lightly. Starting a coffee shop business is no exception. While it is easy to dream about the perfect business, it is quite another thing to actually put in the time and energy it will take to make your dream a reality. However, if you have the right amount of passion and determination to succeed, it is absolutely possible to do. This article dives deep into each step that is needed to start your very own coffee shop. It was written for someone who is just getting started in hopes of supporting them along their way.
How to Start a Coffee Shop
- Do Your Homework
- Specialize Your Shop
- Write Up a Plan
- Make it Legal
- Establish Funding
- Build Your Inner-Circle
- Go Above and Beyond
- Market Yourself Constantly
Eight steps may seem like a short trip to owning and running your coffee shop, but it may also seem like a lifetime away. Stay focused and take each step one at a time and you will get there in no time.
Step 1: Do Your Homework
As with any new major endeavor, you need to do your homework before you jump in. In the process of starting a business, this is called market research.
When starting a coffee shop, it is important to listen to what your community wants in a coffee shop before you simple decide what they need. This will be important to the future relationship you share between your business and your customers.
Think of asking these questions of your community as “doing your homework.” It is a necessary part of the business ownership process, but not always the most exciting, especially if you are eager to get started. However, just like the learning that happens during homework better prepares you for a test, the learning that happens during market research will make your business all the more suited for your community.
There are a couple of important questions that need to be asked before you begin your business. Use the questions below as guides to get you started:
Does the Community Want a Coffee Shop?
This is a fantastic place to start.
Just because you enjoy coffee and have always wanted to start a business, does not mean the local community is ready for it. Asking this question very seriously of people in your target area will give you a better sense of how many people want a coffee shop and how excited they are about the potential of one coming in.
The important piece of asking this question is that you are willing to accept “no,” as an answer. If you do not set out honestly seeking the most accurate response from your community, you may be blind to their potential rejection of your business.
Will the Community Pay Enough?
This question is just as important as the first.
Not only does your community need to want this business and be willing to pay for the coffee you provide, but they need to pay enough to make it worthwhile for you to start this business.
This means you will likely want to go through your pricing before you even begin selling, to make sure the amount of expected income you will make will provide enough money to make your coffee shop profitable.
Who is My Target Customer?
As you ask your market research questions, it will quickly become clear what demographic is most interested in your coffee shop. Trends within gender, age, and lifestyle will more than likely develop. Pay attention to this formula as it will likely tell you who your target customer should be.
Make note of your target customers description:
- What age range are they in?
- Do they work in a specific field?
- What does their lifestyle look like?
- How much income do they bring in?
As you notice who your target customer is, you can specifically target this kind of person with additional thought-provoking questions surrounding what they may like to see in a coffee shop. Write down everything they say as this information will be key for you later when you are deciding what your shop should look like.
What Do Other Local Coffee Shops Look Like?
Market research not only involves asking questions of your community, but also investigating the coffee shop industry in your area.
If you are not sure where to start, try these questions:
- How many coffee shops are in your local area?
- Which coffee shops have been most successful and what has made them so?
- Do any of these coffee shops have a niche? What is it?
- Do any of these coffee shops work with other local businesses?
While these questions are mostly about the coffee shop industry, you can probably come up with many of the answers by asking around town. It may also be helpful to find some people that used to (or still do!) work at these coffee shops as well as people who buy coffee from various shops.
Can You Make Money Doing This?
While you may have already asked this question of yourself when asking people how much they would pay for your products and services, it is important to very clearly know the answer to this question at the end of your market research.
There is always a chance that as you speak with more people and coffee shop employees, you will discover new costs or prices you did not anticipate. For this reason, you need to ask yourself at the end of your research, once and for all: can you make money opening this coffee shop?
If the answer is no, do not give up just yet. Work with the numbers a bit first. Can you cut costs any further? Can you find a way to bring in more income?
If the answer is still no, pay attention to whether or not that answer will change over time. Some businesses set out knowing that they will not be profitable, but knowing it is possible to become profitable within the first few months or years.
If you are able to ride out the first few months or years losing money for the promise of extremely profitable years ahead, this may be worth the temporary sacrifice.
On the other hand, it is important to know if you need to turn a profit immediately for your business venture to be worthwhile or possible for you. As long as you know what you are financially able to do and you are aware of your business’s planned financial trajectory, you are on a good path.
Step 2: Specialize Your Shop
Now that you have done your homework, you can decide how you want to specialize your coffee shop. This means consciously deciding what will make your shop special when compared with any other shop in your area. This will help your business stand out in customers’ minds so they are more likely to remember and return to you.
What Were Your Target Customers Lacking?
Now that you have determined who your target customer is and learned what they were interested in seeing in a coffee shop, you can consider what these people think is lacking in your local community.
Often times, the best businesses are born from a need that people want filled. Listen to your target customers for any indication of why they do not love their current coffee shop or why they have not frequented the options they do have.
The areas where something is missing may be areas where your business can fill a hole. If this solution is especially desired, you may even make your entire business model about providing it.
Pay Attention to What You Love
When considering your specialization, you should also keep in mind what makes you tick. This could be a helpful indication of what theme you might be particularly gifted in basing your coffee shop on.
For example, if you are particularly focused on organic or natural foods, you might consider making your coffee shop reflect this passion. You could offer only clean foods and drinks to your customers and even provide additional products and services which would promote healthier lifestyles.
While there may be some people who are not at all interested in a health-focused coffee shop, other health nuts will likely flock to your shop. You would also likely be able to charge more money for certain products because of this unique specialization.
A note on pursuing your passion:
While it is important to consider your personal interests when deciding how to specialize your business, make sure that this does not make you blind to what your potential customers are interested in seeing.
For example, if you are particularly interested in organic and natural foods and are considering starting a health-focused coffee shop, but in every interview you conduct you only hear about the need for a coffee shop with sugary drinks and lots of pastries, you may need to put your own interests on hold. Fulfilling the local need always needs to be prioritized. That, and profitability.
In case you are still struggling with ways to specialize as a coffee shop, we have listed some ideas below. As mentioned, be sure to take both the needs of the community as well as your own interests into consideration.
If you cannot get behind a product, much less a business theme, you are not going to be successful in the long run. Similarly, if your community does not see any need for your business specialization, you are going to have a difficult time selling to them.
The Coffee Shop with Whacky Drinks
For some communities, there are too many “typical” restaurants, bars, or coffee shops. Rather than seeing yet another standard shop come into town, they want to see someone provide them with something more interesting.
There are all sorts of businesses that offer whacky food and drinks. From time to time you will see ice cream shops with a medley of flavors – some regular, some more unique, and others just plain made up.
If your community is looking for someone to shake things up, you may be able to do so with your drink mixes and food provisions. You could name them based on seasons, holidays, employees, special community events, television programs, or news related items. As long as you have a sense of humor and/or creativity, this will be no problem for you.
The best part is, your drinks do not necessarily need to be that complicated. Simply slapping an interesting name onto your item will spark interest in the eyes of customers and community members. If they enjoy it, they will be even more likely to spread the word!
The Healthy/Natural Coffee Shop
As mentioned, you may decide to make your coffee shop a health-conscious one. Should this theme be of interest to you and your community, do not be afraid to push this niche as far as possible. There is much that can be done with a healthy, organic, or natural focus. From your coffee to your cleaning products, your provisions to your packaging, let your place be known for its focus on healthy living.
The Coffee Shop with Delivery
When was the last time you heard of a coffee shop offering delivery?
Perhaps you have been exposed to this in the past, but to most people, coffee shops are places you drive-thru or go inside, not somewhere you receive delivery orders from.
However, this does not have to be the case! Especially if, during your market research, you hear of a need for coffee delivery services.
Some people simply do not have an extra minute to spare in their day to wait in line in a coffee shop. These same people may be willing to pay top dollar to have their coffee delivered. In fact, some offices or workplaces may decide to sponsor coffee for their employees if they know it will be delivered. It might not happen every day of the week, but even once a week or once a month would provide a large boom for business.
The Coffee Shop with the Community Events
While inviting the community in is a great way to get additional eyes on your products, services, and coffee shop, it is also a wonderful trait to be known for.
Most people are very proud of the community they live in. When a business makes a point to support and welcome in various community groups or events, they show their own pride in the community as well.
Between showing your community pride and welcoming extra eyes into your places of business, being known as “The Coffee Shop with the Community Events,” might not be such a bad thing. Here are a few gatherings you could host as a way of inviting the community into your coffee shop:
- Girl scout meetings and events
- Comedy clubs
- Poetry readings
- Town halls
Another way of showing town/city pride is by offering various local merchandise for sale in your coffee shop. This might mean selling t-shirts for your local restaurant or golf course. It might mean having local fruit or goodies for sale. It might even mean having coupons to local events on your counter.
No matter how you decide to sell local products, you are bound to not only create a positive relationship with local customers, but also with the local businesses who you are partnering with. They may even be willing to sell some of your coffee mugs or coupons in their shop in exchange.
Step Three: Write Up a Plan
You might think you are done with your homework after you complete your market research – not so fast!
Writing out a business plan is an essential step for anyone who is beginning any sort of business venture. This is where you write down all of the work you completed in your market research and share it in a clear, understandable way. Writing it all down should give you the confidence you need to take the first steps to actually turn your dream into a thriving coffee shop.
Once it is written down, it also provides you with an outline which you can follow. Rather than doing what feels right at the time, you can use all of your research to make the best decision for your business.
Finally, this document will be valuable if you need to apply for a loan to help your coffee shop start off on the right foot financially. Lenders need to see that you have thought through every scenario before they will agree to fund you. Additionally, they want to make sure your coffee shop is going to be profitable so they know they will get their money back.
While not everyone needs to apply for funding to get started in their business ventures, writing out a business plan is valuable for everyone who is just getting started in business.
The Business Plan Recipe
- Essential Company Data
- Company Mission
- Market Research
- Company Procedures
- Marketing Plan
Some of these topics will be addressed later in further detail. Until then, here are the basics of what you need to know:
Essential Company Data
As you might assume, you need to include the essential information for your company:
- Legal Name
- Contact Information
- Business Structure
- Company Management Set Up
Providing all of this information in an easy-to-follow format will prevent your business plan readers from getting distracted searching elsewhere for it.
Be clear about what your specialization is in this section. Develop a mission statement that you can share repeatedly and get your whole staff behind. You want this mission to be one you can both strive for and live out on the day-to-day.
We covered this in detail earlier – there is no need to report everything from your research in this section. Instead, pull out the most relevant information for anyone who may need to be convinced that there is a need for a coffee shop in your area.
Once again, this is where you convince your readers that your business is going to be profitable. Lenders want to make sure that they will make any money they lend you back, so explain thoroughly how you intend to make a profit.
If there are any policies or procedures that you want to put out there at the start of your business, this is the time to do it. Of course, you can always adjust these procedures as you learn over time. For now, make your best guess about how you will want to run certain aspects of your coffee shop: employee training, kitchen safety, opening/closing procedures, and cleaning policies.
Stay tuned for more on marketing at the end of this article. For now, know that you will need an entire section devoted to this topic.
For an even more in-depth discussion on how to write a business plan, check out our article HERE!
Who Do I Share My Business Plan With?
Because a business plan is exactly what it sounds like – the plan for your business – you need to take special care to keep it private.
You do not want just anyone to know how you intend to make money and make yourself unique in the market. If a competitor were to find it, they could steal your ideas and make them a reality in their own shops before you even have yours started. Obviously, this is not what you want.
Keep the sharing of your business plan limited to those employed in your company, including your lawyer and accountant.
You may also decide to share it with your family. It may be easier for them to support you on your new journey if they see that you have put some time and energy into mapping out your path.
Step Four: Make it Legal
This part of the process can be scary for some entrepreneurs. Legalese can be seen as complicated, intimidating, and even threatening to some who are getting started.
Do not let the fact that you do not know all of the answers right this second stop you from taking action on the steps you do understand and seeking out the answers to the next piece you need.
Decide on a Business Structure
Your coffee shop, just like any business, will need an official business structure for you to get started. This structure affects finances and operation. The best thing you can do if you are uncertain about what structure to apply for is to consult professionals who can guide you along your way. In this case, you might seek out a business mentor, lawyer, and/or an accountant.
Sole Proprietorship is the default of any single person exchanging a product or service for money. This structure is particularly well-suited for someone who is just starting out, but it is the least protective of all structures.
Limited Partnerships are for businesses with multiple owners who are keeping a simple structure. Only one partner has unlimited liability while the others have limited liability and control.
Limited Liability Partnership
Limited Liability Partnerships are for businesses with multiple owners who opt for a slightly more complex structure. Limited liability is offered to all owners.
Limited Liability Company
A Limited Liability Company structure is especially protective of its owners – as long as all rules are followed. It also does not require members to pay corporate tax, although they do need to pay self-employment tax.
There are multiple different corporation structures (C Corp, S Corp, B Corp, Close Corporation, Nonprofit Corporation). Corporations can raise money through stock and in some cases are actually taxed twice. Talk with an accountant about the various types of corporations and whether or not one of them is right for your coffee shop.
Cooperatives often have some sort of board of directors where leaders can vote on the direction of the company. Monies generated through cooperatives are given to the user-owners.
There are multiple ways you need to register your business before you can get started. This may seem overwhelming, but take a deep breath and plow through it because you will be done with your set up and running your business in no time.
Register with Your State
You will need to register your coffee shop with your state. This is typically a simple task to complete. You may need to file several documents, depending on your state. Some states require what is called an Operating Agreement to be signed before you get started, but not all states demand this.
Register with Your County
Depending on your city or township, you may need additional local permits to operate your business. As a coffee shop, it is highly likely that your local authorities will want you to register in some way.
Register for a Federal Tax ID Number
Unless you are operating as a sole proprietor, you will likely need an Employer Identification Number to file taxes and set up your bank account (coming up next!). This is an easy application done on the IRS’s website.
Setting Up a Separate Bank Account
If you did not need an operating agreement to register your business with your state, you will more than likely need one now. It is important to keep your business financially separate from your personal finances so that you do not become personally liable in case you ever find yourself in legal business misfortune.
Step Five: Establish Funding
Once you know how much money you need to get started, you need to decide how you will come up with it. Coffee shops can range in size and financial need, so there is no right or wrong answer surrounding whether you need funding or how to best get it.
Borrowing money from a lender is a perfectly reasonable solution to your need for money. Pay attention to how much interest potential lenders are asking for and whether the amount is worth it to you or not.
You may also need to actually apply for loans, so be sure to give yourself extra time in case lenders need to review your application, references, or finances.
Ask for it!
Sometimes, people believe in a product or service so much that they are willing to fund it in exchange for a percentage of equity of the business itself. These people are investors; they are investing their money into you and your idea.
Different investors will want different returns on their investment, so make sure you are crystal clear on the exact terms of your agreement before you sign anything.
Apply for it!
Yes, you can actually apply for free money – what a world we live in! Certain businesses may be qualified for what is called a grant. There are various different types of grants out there – governmental grants, state grants, and sometimes even local communities will offer grants to businesses. Check out grants.gov if you are looking for federal grants and ask your local authorities for more information about state or local grants.
While some business owners are financially able to give all of their time, effort, and money to a business without expecting any immediate return, that is certainly not the case for everyone.
Many entrepreneurs start their business endeavors while working another part-time or full-time job. While it may be difficult for you to work while you try to operate a coffee shop, if you do not have any other options, this may be a requirement for your dreams to become reality.
Alternatively, you may need to have a conversation with your family about whether or not they can support you while you invest yourself in the startup phase of your business. If they can carry your weight for a little while, you may end up being able to carry theirs in the future.
Step Six: Build Your Inner-Circle
Setting up the right support system is a fantastic move to make when starting any business. Your coffee shop will need professionals to guide you as well as people who believe in it to encourage you.
Find a lawyer you work well with. This person can walk you through starting up your coffee shop and also assist you if you run into any trouble once you have started out.
This may be an expensive investment, but just think about all of the money in legal fees you will be saving by setting your business up the right way.
With everything else you will need to figure out and do in the startup phase of your business, it is truly in your best interest to hire a credible accountant.
This person can help keep track of taxes and finances so that you do not need to be quite so stressed. Make sure to hire an accountant who you are comfortable asking questions of. You may not understand some of what they do along the way and you will want to work with someone who is willing to teach you as you dive into this new endeavor.
The Backbone of Your Team
Board of Directors
You may or may not need a board according to your business structure, but the idea is valuable even if it is not required. Having a solid group of people backing your company who have various experiences, expertise, and perspectives can only help your business be pushed to the next level.
If you are not interested in a formal board of directors, you would likely still find value in having a few specific guides who can offer their support to you along your journey.
As with the board, make sure your guides offer you a vast range of perspective and expertise. If you only receive guidance from people who think like you, the only person you will be hurting is yourself.
The True Inner-Circle
The true inner-circle of your inner-circle is going to be the people you work with. As a coffee shop owner, there may be times when they are the only people your customers see or deal with. You need to be particular with who you hire as employees even from the very beginning.
Yes, your customers are certainly part of your true inner-circle. In fact, you would not exist without them!
Keeping your customers always at the forefront of your mind is a great way to remember that your business exists to serve them. If you were only making coffee you like to drink or decorating with decorations you want to see, others might not be so interested in coming to your establishment.
Instead, always focus on the customers and their needs and desires. Do as much as you can to constantly serve them and you will be well on your way to owning a successful coffee shop.
Step Seven: Go Above and Beyond
Speaking of serving your customers, do not ever stop at only giving them what they ask for.
Instead, try to consistently provide more than what they ask for. Try to envision what they might need before they ask or even before they personally know.
There are many ways to provide extraordinary service as a coffee shop:
- Give customers as much time as they require – some days there may be more questions than others
- Offer free samples to customers who are not sure what to order
- Teach your customers about coffee when they visit your business
- Give large quantities (and often!)
- Remember as many names and orders as possible
- Work whatever hours they are most interested in having a coffee shop open for
- Use your down time to clean up tables or clean equipment
- Compliment your guests – they will remember it!
While this is not the marketing section of our article, it is worth noting that providing this kind of service is really the best marketing that you can do.
This type of marketing is personal, meaningful, and it is tough work! However, it will truly make all of the difference for your business. Once the word gets out that your coffee shop is not just “good,” but “the best coffee shop they have ever been to,” customers will be flocking to see what you are all about!
Step Eight: Market Yourself Constantly
Hopefully you are not too tired out from all of the work of serving you need to do for step seven, because step eight is just as important.
If you are finding yourself already operating at max capacity, this might be a good time for you to hire some help. It might just be the most valuable decision you can make for your business to have an employee solely focused on marketing your coffee shop.
Give, Give, Give
While we were already fairly clear that serving constantly is the best form of marketing, it is worth repeating in the official marketing section.
Even your online and offline marketing can provide some sort of value. The worst thing you can do is use all of your marketing energy and money to tell people to come to your shop. This does not give them anything… in fact, it asks something of them.
Instead, give to them – even in your marketing! Teach them something, tell them a heart-warming story about your business beginnings, make them laugh with something funny that happened at the store that day, share an incredible offer, contest, or discount.
Give to your people constantly and eventually, (though not all at once!) they will give back to you too.
When people think of marketing, they typically think about knocking on doors, hanging up signs, buying local commercials, and sending mail to everyone in the area.
These tactics all have value and should not be discounted just because we have many more avenues to market to potential customers these days.
What might be helpful, to make sure you are efficient with your time and energy, would be to ask a few of your target customers where they are most likely to see and/or receive an advertisement. If all of your target customers watch local tv, commercials might be your best bet. If none of them watch tv, but they all get ice cream at a particular ice cream shop, it might be better to invest in some higher quality flyers or posters to place there.
The internet is a wonderful place for you to continue to provide value.
While you can and should give of yourself to your customers when they are in your coffee shop, giving of yourself to potential customers online widens your reach exponentially.
This can be accomplished through many ways. Some restaurant and shop owners find it easiest to teach their customers something of value either through a written blog post or a recorded video.
It can be frustrating to get a decent reach but not have your local sales increase. If you find your digital presence is picking up steam, consider selling to your online followers in some way. This could be a product delivered or a course downloaded.
There is nothing wrong will making sales online as long as you continue to serve your local community well. In fact, the more streams of income you have into your coffee shop, the better!
No More Steps – Just Action
One of the most important steps for any potential coffee shop owner is actually to stop reading about the steps to get started and finally take action. Don’t get us wrong – we are thrilled you read through our steps for starting your coffee shop in the best way possible.
However, this is the most important section out of everything you read.
Now is the part where you need to get started. Whether you do so with complete confidence or fumbling along the way, just take one step forward. It may not always feel like the most graceful experience, but if it is necessary to make your coffee shop dreams turn into reality, then it is certainly one that is worth it.
Frequently Asked Questions
As we mentioned, the type of guides you ask to mentor you in starting your coffee shop will likely have a lot to do with who you are personally.
If you are already well-experienced in making money, you might find yourself more in need of a mentor who can help you form relationships with customers.
If you already know how to make exceptional coffee, you might find yourself in need of someone who knows how to run a business.
If you already know how to market effectively, you might find yourself in need of someone to keep you motivated.
Look for mentors who can offer you what you do not already have. Pay special attention to anyone who has already started a coffee shop successfully or served customers in a way that you would like to.
While there is no perfect number of employees for your coffee shop or any coffee shop, the general rule of thumb is that you have enough employees to cover the needs of your shop but not too many that you are not making any money.
Having too many employees can actually be problematic if you are spending more money than you are making. It can also be a problem if employees are not kept busy.
To learn more about labor costs, click here.
Additionally, having too few employees will quickly cause you to overwork yourself.
The best thing you can do is try to find a balance and the only way you will do so is through trial and error. Be as observant as you can and listen to multiple perspectives as you make your decisions. Eventually, you will find the right amount of employees to help your coffee shop run smoothly and successfully.
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!