How to Start a Coffee Business in 10 Steps

Does the thought of running your own business make you jittery with excitement? How about going to work every day in a cozy, warm environment full of interesting people and delicious-smelling food and beverages? If you answered yes to both, then starting a coffee shop might be just what the doctor ordered. 

Millions of Americans start their day with a cup of coffee. In fact, it’s the third most popular beverage in the country. But with big consumption comes big competition. There were roughly 38.4 thousand branded coffee shops in the U.S. as of 2022, with major players like Starbucks and Dunkin Donuts taking a big gulp out of the market. 

But hey, you’re an entrepreneur! You laugh in the face of a challenge and are keen to make your mark on your community. Here’s how to start a coffee shop—and be successful doing it—in ten steps. 

 

How to start a coffee shop 

Before we get into how to open a coffee shop, let’s highlight the why. Apart from being delicious, coffee is also BIG business in the U.S. This country is far and away the leader in coffee consumption worldwide, guzzling $85.2 billion worth in 2022—that works out to about two cups for every American, every day. 

Those numbers are enough to make any entrepreneur perk up. But, we’ll have to dampen that a bit. Not everyone drinks coffee at or from a shop. In fact, just 32% of people surveyed by Drive Research said they purchase coffee from a shop between one and three times per week. And many spend less than $20 per month, on average. 

But let’s be real. The volume of coffee consumed every year means there’s enough sales to go around—even for a small coffee shop. That means it’s a viable, and potentially very profitable business venture (hey, Starbucks). The key is to do your research and put a product and experience to the market that’s unique and different from what’s already available. 

Still, like any business, there are pros and cons to running a coffee shop.

Pros to starting a coffee shop

  • You’re independent, and you’re an entrepreneur 
  • You’re bring a vision to life and owning its growth
  • You’re engaging with your local community
  • You’re employing people within your community
  • You’re creating an oasis for people to sit and relax 
  • If you’re really successful, you could turn into the next Starbucks 

Cons to starting a coffee shop

  • Profit margins could be good, bad, and anything in between 
  • You’re the head honcho, in charge of, well, everything
  • There are lots of pins and plates to juggle to run a successful business
  • You risk losing your investment if your business is a failure 

It takes a lot of time and effort to run a coffee shop. But the potential rewards are there, and the feeling of fulfillment from a successful venture is real. 

Steps to starting your own coffee shop

1. Write a business plan for your coffee shop  

The first step in any new business venture is to write up a business plan. Coffee shops are no different. This is a valuable document that details your goals for the business, and outlines how, specifically, you’re going to achieve them. 

A typical business plan includes: 

  • What your business is, and who it serves
  • How you intend to make money
  • Who your target market is (and where) with an analysis of the market potential
  • Your primary competitors 
  • Your sales and revenue projections 
  • Your sales and marketing strategy
  • Key milestones, goals, and timelines for growth
  • Strengths, weaknesses, strengths, and opportunities for your business (SWOT) 

This document will not only help crystalize your business strategy, it’s also often required when seeking loans or investments to help start your business. 

2. Conduct market research  

The next point of order is to conduct thorough market research into your chosen area of operation. The goal of this market research is to answer the following questions (and more): 

  • Is there a need for another coffee shop in your area?
  • Are your target consumers willing to pay the prices you need to sustain a profit?
  • Will you be able to compete with existing businesses? 
  • Will you be able to afford the overhead?
  • What can you do differently to stand out in your market?

There are a lot of different techniques and tools to collect this information, including through interviews with potential buyers, focus groups, street canvassing, and sending out surveys. You can also opt for secondary reach, which includes collecting data through publicly available sources like local governments, research firms, and your business association. 

The goal is to gather as many qualitative and quantitative data points as you can to help you understand your target market and audience in as much detail as possible.  

3. Finance your coffee shop

Now the fun stuff—securing loans and financing (insert confetti explosion of excitement). To do this, we recommend making a list of all potential financing avenues and begin to work through applications and outreach. Your business plan will help you get a clear picture of how much money you need upfront. 

Potential sources for financing include: 

  • Loans. Small business loans are often available through your municipality, county, state, and even the federal level. You can also talk to banks in your area to see what they have to offer. Consults the SBA website for information on what loans are available in your region.
  • Grants. There are many different federal and state-level grants available to small businesses, along with those from private foundations. Check out USBusinessGrants.org for a comprehensive list. 
  • Personal money. Your own savings and investment from friends and families are your third option for financing. If you go this route, make sure you’re clear on investment and payment terms to ensure all parties are properly looked after. 

4. Find a location for your coffee shop 

Based on your market research, funding availability, and business plan goals, start looking for a location that will give you the best chance of success.

Ideally, you’ll want something that is: 

  • Centrally-located
  • Easy to access
  • Highly visible
  • Receiving consistent foot traffic
  • The right size

Take your time. Make a short list of locations and watch daily traffic to this area. Consider commuter habits in your town, and any other factors that might weigh more favorably on a specific location. Pick the location with the highest level of existing foot traffic and marketability, while balancing that with cost. 

5. Brand your coffee shop 

What type of coffee shop do you want to be? What’s your company’s personality? What will people feel, see, hear, smell, and taste when they enter your shop? 

These are the questions at the heart of your coffee shop’s branding. Think about who you want to be as a business, and write down a brand strategy and identity for your new shop. 

This branding will be the foundation of everything you do—from how you stage your shop, to how you train your staff, to the name and logo you choose, to the marketing material and messages you use to attract new customers. 

6. Get your license and permits in order 

Before you start making coffee and selling sweets, you’ll need to make sure you’ve filed all relevant state and federal applications for licenses and permits—you know, the fun part of running a business. This will all need to be in place before you start operating. 

Permits and licenses vary from state, city, and county. And, you also may need some at the federal level too. Here are some examples of what you might need: 

  • EIN (Employee Identification Number)
  • Business license
  • “Doing Business As” License (DBA)
  • Retail Food Service License
  • Resale License for Sales Tax
  • Sign Permit
  • Insurance
  • Food Handler’s Permit
  • Building Health Permit
  • Live Entertainment License

The U.S. Small Business Administration is a good resource to consult to ensure you’re complying with all regulations. 

7. Order your equipment and supplies  

Next up is creating a list of supplies that you’ll need to source. This should include one-time purchases and products that you’ll need to order on a regular basis.

Examples for a coffee shop include: 

  • Coffee beans
  • Espresso and/or coffee machine
  • Coffee grinder
  • Water filtration system
  • Refrigeration and freezers 
  • Food preparation equipment
  • Point-of-sale systems
  • Furniture 
  • Coffee container – dine in and take out
  • Menu board
  • Display case and display items

This is just a basic list. Think through all of the different products and ingredients you’ll need on an ongoing basis to complete your own list. Be sure to identify and source reliable providers who will be able to keep up with your demand at a fair price. 

8. Hire baristas, cashiers, and other employees 

Unless you’re a one-person show, you’ll likely need to hire staff to keep your business running. This means sourcing and hiring baristas, cashiers, and other employees like inventory managers and back office staff. 

Think through the types of employees you need and draft a job description for each. With an employee hiring and onboarding tool like Homebase, you can make the hiring process easier and more efficient by automatically posting ads to job boards, tracking applicants as they work through the interview process, and creating and deploying employee onboarding programs for new hires. 

9. Market your coffee shop business

Once you’re ready to open your doors, the next step is to launch a marketing campaign for your coffee shop. This is how you’ll create awareness and buzz for your store. Ideally you’ll have created a marketing strategy as part of your business plan, but if not, here are some ideas to get started: 

  • Host an opening day event with prizes and exclusive offers
  • Send out advertisers in local newspapers, flyers, and through your BIA
  • Network and collaborate with other businesses in town to spread the word
  • Create a social media presence to share your journey and interact with the community
  • Create and use engaging signage that aligns with your brand and message

Whichever tactics you use, it helps to create a clear and integrated marketing plan. This will ensure that all tactics are aligned, and deliver the same message to prospective customers. 

10. Get the right tools to run your coffee shop  

Lastly, you’ll want to ensure that you have all of the right tools you’ll need to manage different parts of your business. This includes point-of-sales software, inventory management tools, marketing software, and a payroll, time tracking, scheduling, and teams communication tool. 

If you’re looking for an all-in-one solution to manage your new coffee shop, we invite you to give Homebase a try

How to start a coffee shop FAQs

How much does it cost to start a coffee shop?

The cost to start a coffee shop will vary depending on the size of the shop, the equipment you purchase, the items you offer—and therefore the ingredients you need to purchase—your location, and the tools you use to run your business. According to the Crimson Cup, a successful coffee shop chain, the average cost to start a coffee shop is between $80,000 and $300,000.

Should you open an independent coffee shop or consider franchising?

The decision about whether to open an independent coffee shop or franchise depends on your goals. Both options have their pros and cons. Franchising gives you instant brand recognition and access to the company’s systems, best practices, and supplier relationships. However, there are often high start-up costs and fees that can eat into profit margins.

Are coffee shops profitable?

With proper management and expense control, coffee shops can be extremely profitable due to the relatively low cost of procuring reusable supplies relative to the sale price for a cup of coffee. Average profit margins for coffee shops have reportedly ranged from 2.5% to 6.8%

What tools can help you start a coffee shop?

Tools you need to start a coffee shop include a point-of-sale (POS) system, administrative and finance software, HR tools—including employee scheduling, time tracking, and general compliance—and finance tools. That’s on top of your coffee machines and other essential kitchen tools.

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