How To Budget for Your Coffee Shop Business
Congratulations! If you are exploring how to start you own coffee shop or coffee stand, you're at the right place.
In addition to helping you figure out your coffee shop budget, we are dedicated to providing you with some great “starter information” and real-world expertise to help you take the first steps in starting your coffee shop successfully.
In the coming discussion, consider taking a moment to write down all the little things that you will need to figure out so that you can open your coffee shop efficiently.
A coffee business has many moving parts. Learning about each of them is important. We hope the list we share will bring together your entire business concept, menu, and location, among others.
Once you lay everything on the table, you will quickly see how all of these things needed to start your business determine your startup costs.
Certainly each expense you incur or factor into your spending plan, will begin to whittle down your overall budget. If you're not careful, expenses can grow rather quickly and impact your ability to have any funds left over to see you through to profitability.
In fact, many new coffee business (or any business in the beverage & food industry) often fail due to the inability to get enough cash to see them through to sustainability.
Therefore, we strongly recommend writing everything down clearly in a coffee shop business plan, that way you can see where exactly you can adjust your purchases to suit your budgetary needs.
When it Comes to Your Coffee Shop, Don't Be Afraid to Face Your Startup Costs
Confronting the coffee shop startup costs may be difficult for many to do, but if you do, it will empower you to understand and control your budget.
The mistake we often see is that new coffee business owners don’t anticipate the number of “little things” they will need for their coffee shop. The little things can quickly add up.
By the time some realize the necessity for more money, they are already way too deep to back out completely. Of course, this leads them to a desperate situation of looking for money to bridge the gap.
Evading this error can be made early on by simply deciding that you want to see all of the startup costs before moving forward with you coffee shop business.
Our Recommendations to start things off: Write everything down that you will need to set up your coffee shop or coffee stand. If you don't know what you need, consider getting our Coffee Shop Startups Kit to help give you a bit more understanding on what you'll need to start your coffee business.
Much of your financial needs will vary depending on your menu, your concept, and your location, the condition of the location you plan on setting up.
Additionally, you will also want to factor many of the small but important things too. From the fixtures and furniture pieces, to the plumbing, lighting, and coffee inventory, you will find that these items cannot be overlooked. So budget them in and be liberal with the amount you will need to spend for each them. It’s better to over-budget than to find yourself knocking on your neighbor's door for more money because you figured the costs would be lower.
We also recommend that you separate your personal finances with your business finances as early as possible. As you plan your coffee shop budget and start thinking about where you are planning to get the money from, you will need to know where that “red line in the sand” is with the money that you can contribute to your business startup. This will ensure that your business efforts do not destroy your personal finances.
Give yourself some slack!
We cannot emphasize enough that you should consciously give yourself a little financial “slack”. When it comes to your coffee shop budget, you need a buffer. That is, you need to provide yourself a little margin of error on all your calculations.
Perhaps, you may want to do this by over-estimating each item on your costs list. Provide yourself some “slack” (that's my technical term) of, say 10%, of the anticipated costs. Again, it's better to have a few more dollars in your account after everything is paid for, then to be a few dollars short.
Here is the key: Always be honest with yourself about the costs. All the costs. Putting everything “on the table” will help you to make appropriate business and financial decisions – and keep you from of extending yourself too far.
Knowing how much things are going to cost, will help you plan for contingencies (if necessary), provide you with information when it comes to borrowing and raising capital for your business.
Keep in mind that this is a real business investment that you plan to grow and make a handsome profit. There are always risks. You should work hard to minimize those risks with planning and educating yourself on the retail coffee business.
Of course, the reward is that you create a robust coffee business that appreciates and generates healthy profits and cash flow. In essence, you are budgeting for your future growth and profits.
Know what kind of coffee business you want
If you have daydreamed about opening your own coffee shop, you will have probably kicked around some ideas in your head about the kind of coffee business you want. Your coffee business concept will impact your startup costs considerably. Whether you want a coffee stand or if you want a full-fledged café and bookstore, the startup costs and day-to-day operational costs will vary. Of course, as you learn more and more about starting a coffee shop, your business plan or business concept may change.
Know what your budget is (or will be) and how much you will need to get up to break-even
How much money do you have access to start your coffee shop? Determining just how much money it takes to open a coffee shop depends on a variety of variables including what kind of business you want. Yet, regardless of your business concept that you dream of, you will probably have an immediate understanding or knowledge of money that you have access to in order to start your coffee shop business. For example, you might have $15,000 in savings and perhaps, you will know that you can borrow another $8,000 from your parents.
To determine your profitability, you will first need to understand your break-even point. You will need to add up on the startup costs and day-to-day costs and determine how much you will need to break-even. For more information on determining your break-even point, read this.
Learn everything you can about the retail coffee business
The coffee industry is enormous. As a small retail coffee establishment, you probably don't need to know everything about the industry, but you should still be aware of the supply chain, trends, and important aspects of the business. A great way to learn about what it’s like to run a coffee shop, you might want to listen to our coffee shop startup kit or spend time talking to other coffee shop or coffee stand owners.
Prepare a budget proposal (through a business plan)
Preparing a budget for your coffee shop, doesn’t have to be fancy. Simply write down all of your expenses (and don’t miss anything) in relation to the concept you wish to create. Determine how much your business concept will cost. Then determine how much money you will need to secure. A coffee shop business plan will help you articulate your concept and should allow you to prepare a solid budget proposal.
Adjust your budget as your plan evolves
As you begin to develop your coffee shop concept, your budget will begin to change naturally. You will realize that you will need more resources in certain places and less in others. Don’t be afraid to adjust your budget. Be sure to update your coffee shop business plan to reflect these changes. Don't over complicate your budget. Simple is better. But don't leave anything else either.
Decide on a clear path to execute your plan (Simple is better)
Once you have the budget in line for your coffee shop, consider developing benchmarks that include dates. Begin with the opening date and work backwards. Determine the steps that you need to execute in your business plan. Try not to over complicate things. Simpy create a list and move on to the next step.
Take steps every day towards your goal (learn, research, prepare)
Every day make a step to help you reach every benchmark that you create. Develop your benchmarks and create baby steps for each of them. Everyday choose a step to take and move forward. You’ll be surprised how far you will get if you consistently work on your coffee shop planning.
Starting Your Coffee Shop Business Planning: Are you ALL in?
Your profits will come from your detailed planning, business decisions and passion. Getting it right from the start is important.
Educate yourself on what really matters when it comes to your costs – this includes your equipment costs, your lease signing, and other important details.
When you are starting up your coffee business, you will have many one-time costs, which you may include as fixed costs – and you will have many variable costs that are on-going costs.
These variable costs grow as you grow. For example, as you grow, so too will your inventory needs grow (therefore the cost of your inventory will increase). Additionally, new hires or extra time on the clock will grow. These are variable costs. So, this is a good thing as long as your pricing your items well and managing your labor costs efficiently.
Overall, this variable costs are not a bad thing, as the more profit you will also be making. In addition, you will need additional startups funds that are unique to launching a coffee business. For example, you will need to pay for inspector fees, health department fees, fire department fees, and other items such as insurance premiums, and a deposit for your lease, etc.
These costs are often overlooked by many jumping into their first business. Additionally, and perhaps more importantly, each of these elements vary in the time they take to “check off your list”.
For example, it may take an additional 1, 2, or 3 extra months to simply get your county health department to sign off and give you the green light to open your business if certain things aren't up to code.
Will you have enough to cover three months of your rental lease without making a single sale? Consider the costs of any potential delays. As in anything, consider planning to spend a little more than you actually budget for – and allow for more time so that the necessary paperwork, inspections can get done.
Set Up Your Coffee Shop Business Structure and Bank Account
Before you actually finish your coffee shop business plan or even before you start spending any real money on equipment or leases, you should create an LLC (or a business structure that works for you) in your state. Then establish your bank account.
You can then add money to this bank account and spend money for your cafe using funds from this bank account. If you choose not to legally set business up as an LLC, consider setting it up as a corporation or a non-profit.
Whichever legal structure you decide, make sure its done before you spend any real money. That is anything over several hundred dollars. For more information see Tips to Starting Your Coffee Shop.
In the next sample table, we’ll write these sample costs down (to get your thoughts flowing). You may need to add more or subtract some items (which will vary from coffee shop business to coffee shop business).
Start Creating a Budget (Today)
Creating a budget for your coffee shop doesn’t need to be fancy. However, it does need to be thorough.
As you will see below, I have created a very simple sample budget for you to consider. Depending on your business concept, your menu, your design, and a cost of other important factors, items will need to be added and costs will need to be adjusted. Take a moment to consider the following sample budget for a coffee shop or coffee stand. What items will you need to add?
Your “Sample” Coffee Shop Start Up Costs
|First Month’s Lease||$1500|
|Second Month’s Lease||$1500|
|Insurance Premiums||$ 250|
|Inspector Fees||$ 400|
|Utility Connection Fees/ Deposits||$ 200|
|LLC Fees and Other Business License Fees||$ 400|
Please note: In addition to these basic fees, you will need to spend money on a variety of things to ensure your business is ready to launch. Some items will take care of themselves, other items may be needed to be added.
Either case, I have added some sample costs below (again, to get your thoughts churning as you plan your own coffee shop or coffee stand business).
As you begin to go through them, you may start considering your own coffee shop menu, the condition of your location, and of course, your overall budget. Consider, what items you will need to add? What items will you seek to avoid?
Remember Your Coffee Shop Business Lease
The signing of your coffee shop business lease is important! Our Coffee Shop Startup Kit offers an excellent one-hour interview on the subject of your coffee shop business lease. (You should not miss it!)
Considering the location and the condition of your location is essential to your budget. Depending on your vision and your budget and the current state of your location, you may need to spend money to get it ready to use. Your lease ultimately impacts your bottom line, your ability to conduct business, and your ability to increase your profitability.
Okay, let's continue by considering the following sample coffee shop business items below:
Your Sample Coffee Shop Startup Cost (Budget) – Part 2
|Your Leasing Space (Physical Space)|
|Mop sink and Install||$400|
|Convection Oven (If needed)||0|
|Commercial Drip Coffee Maker||$300|
|Computer, Printer and POS system||$1000|
|Chairs and Tables||$1000|
|Dishwasher (If needed)||$700|
|Internal Displays and Signage||$200|
|Outside Signs and Displays||$800|
|Coffee Beans Inventory||$1000|
The above list is certainly, incomplete. The complete list of course, varies for every coffee business establishment. Feel free to add/edit it. Simply running down the list, you’ll see that everything will need to be in place before you open your business. If you are still in the planning stages of your coffee business, it’s a good list to keep updated.
Nevertheless, if you put the lists together ($5,700 + $30,100 = $35,800), you will need about $36K before you even pour you're first drink. (This also does not include your time, your labor costs, and other miscellaneous expenses.)
Also note, this may be a very conservative figure depending on your business concept and the remodeling costs to ensure your appropriate vision. Building out your coffee shop takes planning – and perhaps the hiring of contractors – which adds additional costs.
Remember, about adding additional slack of at least 10% to help with costs that run higher than expected. So, if you wish, consider adding an additional $3600 as your slack account. This additional money should be used for your startup costs. And hey, if you go under budget, you can use that money to help sustain your business as you move toward profitability.
However, if you plan early, you will be able to make better decisions that will save you money over time. That’s why we recommend our Coffee Shop Business Plan Guide.
Your Coffee Shop Break-Even Point
To be able to determine your break-even point of you coffee business you will need to be able to:
- Forecast your expenses
- Forecast your sales
Your “break-even point” really means the point at which you generate enough revenue to cover all your expenses. To be sure, investors, bankers, or serious partners will ask you what your break-even point will be. By figuring out your break-even point beforehand, you can see if your sales forecast will be high enough to finance your operating cost.
But as in many different things, the devil is in the details. While the fact is true: your break-even point is the point where your revenue covers all your costs – many will often play with the “costs” figures.
I encourage you with the help of an accountant, to amortize your equipment costs over time (breakup the costs over the span of a few years) and embed those costs within your annual and monthly expenses. OR… at least acknowledge their existence by categorizing them with your cost structure.
For example, by embedding your startup costs (variable and fixed costs) within your operating expenses in a manner that works best for you – you can be sure that your revenue will not only be covering your day-to-day operational costs but the costs associated with starting your business.
To be sure, most of your costs are controllable based on your needs, we often call these variable costs. They include such expenses as your payroll, your costs of sales (what it costs to deliver coffee and snacks to your customers), utilities, inventory, administrative expenses, and your promotional costs).
Your fixed costs and variable costs, and embedding your “one-time” startup costs, should be added all together and divided by a specific amount of time that you choose (annually, monthly, weekly) and then calculated with your sales (or estimated sales).
Your sales will need to cover these cumulative costs. You must use these factors to determine your break-even point.
Starting Your Coffee Shop: How do you forecast your sales?
Okay, so we know that to do our “due diligence” for our coffee shop business planning, we're going to need some data – or some information to base our decisions on. There are many data points that we'll need to consider when it comes to determining our coffee shop budget. But how do you determine your future sales? How can you even arrive at the point of figuring out your actual sales receipts?
Answer: Well, to be sure, it's a bit of an art and a science. If you are buying an existing business, you will want to see the last couple of years of sales receipts or profit and loss statements. Getting this hard data will play an important role in determining your own sales as you take over the business.
Of course, you will want to make some adjustments to future sales as you change your pricing, your menu, and your marketing. Additionally, you should learn to count customers during the process of buying an existing stand or selecting a specific location to start a coffee shop or espresso drive-thru stand.
While it's not the scope of this article, consider this brief article on counting customers for your coffee business here.
It Always Comes Down To The Math
Coming up with the data will be your job. But it's easier than it sounds and its the numbers. The feasibility of realizing your coffee shop dream always comes down to the math. Learn to play with the numbers. Don't be intimidated by the math. The numbers aren't out to “get” you. They don't have any power over you.
By starting early in getting your data points, you will be able to open your coffee shop with confidence. You will be able to approach investors or barrow money with the confidence you will need.
Highly Recommended: DO NOT GLOSS OVER YOUR RESPONSIBILITY TO DETERMINE YOUR STARTUP COSTS and BREAK-EVEN POINT.
Yeah, We Got You Covered! Further Reading:
Keep Reading: Calculating Your Break-Even Point for Coffee Shops.
Is Your ‘Coffee Shop Business Planning' Causing You Anxiety or Stopping Your Dream Altogether?
Don't let the numbers get you down. After all you are creative, you are industrious, your are a tenacious soon-to-be coffee shop business owner! Let's see how we can get this done!
Starting your coffee business plan can be a formidable barrier for any new and aspiring entrepreneur. It may not be the most exciting thing.
Interestingly, we have found that “cracking the books” and sitting down to simply think about the nature of your coffee business is harder than it is.
Much of the reasoning is because many simply don't know where to start. Many have never seen a business plan or what it has inside.
The truth is that a business plan isn't a magical document. Rather it is a practical one where all the sections help you spell out your business ideas (for yourself and other stakeholders).
Our coffee business plan template (PDF and MS Word) offers you an easy way to simply open your document, fill each sections and print!
But what's more is that is also provides you with with sample Excel documents that you can use (if you choose) or simply follow as a guide to your pro forma financial documents. In addition, we know that by starting your own coffee business, you will want to general information about what it's like to start your own coffee business.
We offer this to you with our exclusive audio interviews (available via streaming audio you can listen anywhere!). Each one-on-one audio interview brings to the table some very important topics that each new and aspiring coffee shop business owners should know.
From leasing agreements to coffee equipment to navigating your health department. We know that by the end of listening to nearly 15 hours of interviews you will have a greater background information that you can use to start your coffee business planning!
The Free Coffee Business Startup Business Plan & Budget Template
In our Coffee Shop Business Plan Guide and Audio Package, we provide you with a bonus Coffee Business Plan Template and essential audio interviews that we recommend everyone interested in starting a coffee business to listen to.
We also provide a number of free sample budget templates (financial business documents) to help you establish your personalized budget for your coffee shop business.
We are proud to offer this affordable resource to help get your business planning off the ground! We believe the coffee business interviews will give you an in-depth look at various topics when it comes to opening and planning your coffee business.
By getting a vast array of information, you will then be able to write and plan your coffee shop business more effectively and efficiently. Our free business plan template comes in a PDF and MS Word File, allowing you to fully write, edit, and print out your plan.
Our Affordable Coffee Shop Business Startup Kit & Audio Series Should Be The First Step You Take Towards Opening Your Coffee Shop:
Learn how launch and open your own coffee shop business with the help of coffee business experts. We've created a comprehensive and affordable startup package to help you better understand the retail coffee industry – and help get your business planning done right.
Our very affordable coffee shop business planning kit will better prepare you and strengthen your planning – and potentially save you dozens of hours and thousands of dollars.