Bold entrepreneurs always keep their eyes open for the next profitable opportunity that will springboard their bank accounts into millions of dollars.
Hospitality is among one of those opportunities and is one of the most profitable industries that you will find. It is a win-it-all-or-go-home, high stakes venture that can be extremely rewarding and profitable. It may just be possible for you to hit pay dirt and launch the next big cafe or restaurant in your local neighbourhood.
Within the food industry, a coffee shop may be a profitable and comfortable start-up that can attract a number of potential investors. Another benefit is how fast you can get a cafe up and running; you just need to have a prime location, great espresso machine, an experienced barista, and the right attitude.
This article is a guide on how to open a coffee shop of your own. We will whet your appetite by discussing all of the benefits that this type of endeavour provides, and then talk about what you need to do in order to get started with this type of business.
Benefits To Opening A Coffee Shop
1. High profit margin
Think about how Starbucks got started back in the dreary days in Seattle. The coffee empire got its start as a small business that a few friends who were passionate about coffee owned.
There is a very good reason for its incredible success: the number one export from Colombia has one of the biggest possible profit margins. There are hundreds of accounts of young individuals who have made investments into the bean industry and been able to earn huge profits within a few months.
Coffee shops are potentially great rags-to-riches stories. Profit margins are one of the most significant aspects when it comes to growing a successful business. However, there are other important factors as well.
2. Be your own boss
When you own a business of your very own, you aren’t stuck on the treadmill of a nine-to-five job any longer. You are able to set your own schedule, and are compensated based on the value you add, rather than getting a fixed salary. So, the harder that you work, the higher profits you can earn.
Of course, it can take tons of hard work to get a hospitality business started, but you are able to make your own rules, unlike when you work in a cubicle.
3. Express your creativity
When you own something unique and new it will help you get your own environment created that reflects your personality. Decorate your coffee shop however you want. Give your drinks creative names, and tap into all different kinds of things like your favourite movies or bands.
Coffee shops that are successful have the ability to spread over the entire country. For example, Toby’s Estate, an Impos client, started out in Woolloomooloo, Sydney from his Mum’s garage before opening his very first Toby’s Estate cafe in 2001.
Since that time, the successful cafe empire has gone from one strength to the next and has now opened cafes all across Australia. Toby’s Estate even operates cafes in New York and Singapore now as well.
How Much Money Does Opening a Coffee Shop Cost?
One key ingredient when you are trying to open a successful coffee shop is getting a concept developed based on your planning and research.
In order to get a brand created that stands out from the rest of the crowd and offers something new, you must combine deep creativity with solid planning. It is critical to not get a coffee shop started without thinking through all of the key issues first.
There are two main financial questions that hospitality entrepreneurs think of when considering spending their money on a new venture. What is the cost? And what is my return?
When it comes to the coffee industry, it is fairly easy answering the first question while the second one is at best speculative and subjective.
It is estimated by consultant Matt Milletto that a new coffeehouse can cost from $150,000 up to $500,000. A coffee cart, in comparison, may cost from $5,000 up to $20,000.
Let’s break the figures down to see precisely where you will be spending your money. Generally speaking, your initial budget needs to at least take into account the following distinct checkpoints, since each is as important and critical as the others.
This includes everything that concerns the space you are going to use for your shop. It not only involves your ongoing rent, insurance, utilities and maintenance, but also design and construction costs. As a general rule of thumb, rent should be 15% or less of your projected sales.
There is usually tons of red tape that has to be sorted out before your cafe can be opened. There is a price tag that comes with every metre worth of government oversight, such as compliance fees, licensing, legal fees, lawyers, etc. Although those costs vary according to location, you need to be aware of them at least before you get started.
High-quality semi-automatic espresso machines will cost you about $2,000 – $5,000 a piece, while super-automatic espresso machines cost $5,000 up to $20,000 each. And that is only your espresso machines.
You still will need to purchase point-of-sale equipment, refrigerators, blenders, restaurant equipment (stools, chairs, tables, etc.), cooking equipment, grinders, and hundreds of various other items that definitely add to your total start-up cost.
There will also be a good amount of disposables that you will also need to consider. You will more than likely be using pastries, muffins, fruit, sugar, beans, cream, dishwashing liquid, paper cups, and more every day. Those will be recurring monthly costs that will need to be accounted for.
When your cafe is first opened you will need to come up with creative ways of letting people know about your new business. There are many options to choose from, including attending local events, printing flyers, social media ads, and many other options.
Tax and Payroll Costs
The government needs to be paid. Your employees need to be paid. If they are not, neither group is going to be happy.
You need to have extra cash on hand to cover any extra costs from your initial plan. After your airtight budget is finished, add on 20% more at least; that will be your rainy day fund.
Determining Your Profit Margin
The moment of truth has come. After all of your hard work, how much profit are going to bring in? As previously stated, that question is a rather subjective one. Three elements need to be taken in account to calculate your estimated profit margin.
Coffee has a higher markup compared to a majority of food items. Only craft beer rivals it in terms of markup. It costs less than one dollar to make the average cup of coffee, but usually will sell for about $3.50. Other menu items will have profit margins that are much smaller. Coffee sales should comprise 25% to 35% of your gross sales.
Location, location, location, is a saying in business that has turned into an axiom for success. Prime real estate is the defining characteristic between a successful coffee shop and one that fails.
According to Steve Fisenko, a coffee expert, a store that is well managed in a financial district can potentially earn a $500,000 gross annual income during its initial 2 years. That same well managed cafe in its third year may net more than one million dollars.
It is possible, of course, for a coffee shop to not earn a profit. However, as long as you conduct your research, make your plans accordingly, and then get an outstanding team in place, you can keep your shop profitable quite easily.
Opening up your own coffee shop can energise you in many ways beyond what you can get from a cup of coffee. You have the opportunity to start something that really matters, and can turn into a central hub for your community.
You also have the change to make a good income.
It is a win-win situation.