5 Step Coffeeshop Business Plan

5 Step Coffeeshop Business Plan

Making a coffee shop plan

Those who fail to plan, plan to fail…

Or something to that effect, right? Yes, it is true that failure to plan will definitely affect your future success, but what do we plan and in what order?

I’m aiming this post for those at the beginning; my favorite place to find people. Before they’ve had a chance to screw up, build it wrong, order the wrong machine or otherwise set themselves on a path toward…well, frustration at best, failure at worst. I love finding people who say, “I want to serve the absolute best coffee”, but are ready to pull the trigger on a super-automatic espresso machine. You get the picture…or at least you soon will.

So, let’s put together a 30,000 foot view checklist to coffeeshop ownership. This is not so much a checklist to getting open as it is a self-assessment on keys to opening correctly. And opening correctly means understanding yourself and your project at a philosophical level as much as does the step-by-step process of opening any retail store.

1. Tell me your story – Typically when I work with people who are in the “dream stage” of their business planning I ask them to close their eyes, “see” their business when it is open and then describe it to me. From that story everything else flows. What level of quality they are going for, how big a store, and whom they will serve all flow from the vision inside their head. And when they describe to me what they see I can answer all their questions and give them advice, accurate to what they want to create. I need to know what they want to create: a specialty coffee store, a coffee cafe serving food, a drive thru or kiosk, or other variation on a coffee business. We humans tend to follow our heart in our actions, even when our head tries to send us in a different direction, so helping people connect the real story in their heart to a tangible brick and mortar reality is, in my opinion, one of the most important things I can do to ensure the best chance for success.

2. Menu – your menu will determine everything else in your business. Where you are going to locate your store, how big it will be, how much it will cost to create, what equipment you need, how much storage, how much and what kind of seating – everything comes from the menu. I don’t need to know specifically how many flavorings you’ll serve or exactly how many varieties of soup, but a category listing and ballpark figure for each is essential. Will you serve tea, smoothies, chai, milkshakes, granita or fresh squeezed juices? What about baked goods: muffins, scones, Danishes and more? What about bagels, Panini sandwiches, wraps or soup? How about ice cream or gelato? And we haven’t even addressed your coffee or espresso menu. And one thing I’ll add here – and this is free – the consistency and quality of your coffee and espresso beverages will decrease in direct correlation to the increase in other menu items. I’m just saying. That alone was worth the price you paid for this read! One last thought on menu is this – to say “menu is critical” is an understatement. This one topic deserves much thought, much planning and accurate, consistent, quality execution. Restaurants are everywhere today and consumers are savvy, educated and have options. You must get this right!

3. Location – you may have lots of choices or few or you may already own your building. But, where your business is located will be a determining factor in the creation of your business. If you will be roasting coffee at your store, a downtown location may not be the best selection. If a drive thru is important to you, your options will be limited to locations with an end-of-the-building setup or stand alone building with proper driveway access. If you want a community coffee shop, a social gathering place, you’ll benefit most from a downtown location or a place where the people in your demographic congregate. Location is more than “this one leases for $2,000 a month compared with that one for $4,000 a month”. Occupancy as a percent of your overall gross revenues is important (less than 10% is the target, 6-8% is good, under 6% is very good and below 5% is great. Over 10% is either a death-knell or puts you in the “difficult to prosper” category), but cost cannot drive the decision.

4. Square footage – creating a coffee shop with the idea of being the “Cheers” of your community requires more than 25 seats. Whereas being a coffee-only place where the focus is purely coffee (no food, salads, sandwiches, etc.) 25 seats may be perfect. The larger your space, the more it costs to build it out, equip it and then once you are open, to clean it. On the other hand, 40 actual seating spots in a business will never equal 40 people in a store. With 40 seats a “full” or “packed” store will still leave a few unoccupied seats and even normal busy would be an average 20-25 people. If you have a lot of food options, your table size will need to be bigger than if you are “coffee only” or coffee and a few snacks/baked goods. Too big a store can leave customers feeling like the place is always empty, where a smaller space, if done well, can be efficient and have the “it” factor if it is typically packed.

5. Finances – This is really kinda number one, but not really. It is more of an overriding critical factor to the whole notion that you are going be able to do anything at all. See, I’m a debt-free kind of guy. Doesn’t mean I haven’t used it, doesn’t mean I don’t think anyone else should. Entrepreneurs are risk takers by nature. But, it is easy to get in trouble by overextending one’s self. I say it this way; debt adds risk. The more debt you take on, the more risk of failure there is. 100% cash has only one risk – loss of capital. And even at that, the business or assets can be sold and the overall loss minimized. But, investing 10% your money and 90% bank money (if that is even possible) leaves you in a nasty position if failure occurs, as well as a lengthy and painful repayment process. Taking on a large percent of your project in debt means more of what will eventually be operational money being initially diverted to debt service. If this goes on too long, it will make it hard to remodel, update, refresh and replace equipment when you need to 5 years down the line. One of the best services we offer at On Track Coffee Consulting is our Pre-Opening Financial Evaluation. Simply, it is a service to help you create an accurate financial plan for your project. To this day it still amazes me how many current coffeeshop owners have little or no financial understanding of their business. You better know what your BS, P&L and COGS are and know how to use them – and it all starts before your project does.

You really didn’t think that?

5 steps to a coffee shop? Of course not. There are hundreds and even thousands of steps to get from dream stage to serving customers. But, these 5 steps are certainly critical and often missed items that set the stage for all that is to follow. I could go on and on about the steps to getting open, but to get those you’ll have to either attend our 5-Day New Business Owner Class, or wait till I post them (hint – I probably never will ☺︎).

 

 

8 Comments

  1. John C. Vicol:

    Well I like what you’ve writen. I agree with most of it. I’m sure that your in a better position to right these things. And seeings how I’m prepareing to pull the trigger myself, I’m very interested in what you have to say. But the part that puzzels me is the finanicing part yu mentioned. I do have a lot of resources, but I got great ideas that I know are going to work. Right now I’m figureing out everything that I don’t know so I can get them figured out. That’s where somebody like you would come in. Like I said, “I know what I want,” but I don’t know the industry. Maybe I should just kidnap a Starbucks employee. But this is the problem, I know that if I write the right business plan I could get a S.B.A. approved loan. But I’m open to ideas in this area. I know where I’m going, right now it’s just figuring out how I’m going to get there

  2. I have two opposite and opposing views…that are compatible.

    First, I am a fan of being debt-free. If you have no debt, you have no payments. If you have no payments, you have more to pay invoices, labor and yourself.

    Second, entrepreneurs are risk-takers (IE, they often take on debt). Debt = Risk. If you take on a lot of debt, you compound your risk. If you take on little debt and have more cash, you have much less risk. If you pay cash for everything, you have “no risk”. In other words, the only risk is the capital investment, there is no “I failed and have to pay the bank for the next 10 years”.

    I recognize it is the rare person who can finance an entire project (we have worked with some) and that most people will take on some debt to open their business. If you take on debt make absolutely sure to crunch your numbers. Get solid figures for your total investment, debt load, financial projections and break even. And lastly look realistically at worst case scenario. Do you really want to be James Bond at the craps table saying, “All in”?

    As much as I want everyone to be able to live their dream, I don’t want that dream to become a nightmare.
    Jack recently posted..5 Step Coffeeshop Business PlanMy Profile

  3. IP:

    I have to disagree with the idea of ​​debt free. My accountant always says to me, “Keep your money in your pocket.” Interest on loans is low and installment as well. Counting each installment of income as interest rates are lowered. You are protected because you have your own money. If you go bankrupt bank takes furniture and equipment or sell everything and he devoted most of you repay the loan. Because it pays to pay off the loan in its entirety, you take a loan to pay off the amount lacking or pays own money. There is no way of repaying the loan for 10 years. hope I was able to correctly write :) and it makes sense.

  4. Chad DeShazo:

    Hey there. Love the blog. I have a big of a more specific question for you.

    I’m an active coffee roaster with a start up cafe. Looking to buy a solid espresso machine (in the range of the Rancillio class 7 or the Nuevo Simonelli Aurelia II). BEFORE I make this large investment, do you tend to recommend any brand in particular as a whole? Like I read in one of your posts, I’m trying to get info before I commit to the wrong machine/company. This is my attempt to plan and avoid the “plan to fail” principle.

    -Chad

  5. Chad DeShazo:

    **bit of a specific question

    Sorry for the typo :((

  6. You can’t go wrong with either one…although is comparing the Classe 7 to the Aurelia is my only choice, I will choose the Aurelia. If I can go Classe 9 Xcelsius, I would choose that.
    jpscoffee recently posted..Give the People What They Want!My Profile

  7. Interesting business idea, it is a good way to take off in the world of online business, plus it offers the possibility of independence and provision of proper time.

    Great information!!!
    Antony recently posted..How to Develop Effective Banner Advertising?My Profile

  8. I definitely agree with the steps, although there will be much more than five. Coffee business as every other one needs both creativity and rational thinking. If there is only creativity, you would probably fail to run business properly. If it’s only about numbers, counting and saving, cafe will probably be unattractive for visitors. Coffee lovers want to smell and taste the story, so you need to be a teller.

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