Benefits of Starting a Coffee Shop LLC

Start a Coffee Shop LLC

How to Start a Coffee Shop LLC

Benefits of Starting a Coffee Shop LLC

Starting a coffee shop is an exciting and profitable enterprise. With countless coffee shop concepts to choose from and the potential for profitability, a coffee shop can be an excellent business to start.

But how do you actually “start” your coffee shop business?

In legal terms, the official start of your business begins when you first establish your business as a legal entity within your state. American companies and organizations must be created in one of the 50 states or U.S. territories.

This is usually done through the states' Secretary of State office, which establishes business entities. However, it is possible to register your business in the U.S.  any state, regardless of where you live.

Today, it is pretty standard for many coffee shops to be established as a limited liability company (LLC). But, indeed, there are other business structures you can form to establish your coffee shop. Aside from an LLC, these may include setting up as a corporation, partnership, and non-profit coffee shop. Each of them has its pros and cons.

However, in today's post, we will talk about the benefits of starting a Coffee Shop LLC.

Further reading: How to Start Your Coffee Shop in 30 Steps.

Start a Coffee Shop LLC

Benefits of Starting a Coffee Shop LLC

What is an LLC?

According to the IRS, a limited liability company (LLC) is a business structure allowed through state statute. Each state has its specific regulations and laws concerning the formation of LLCs in their state. For example, Delaware is well-known to be “business-friendly” and a relatively easy state to set up a coffee shop.

An LLC is owned by its members. So if you are starting a coffee shop on your own, the only member is you.

In many states, you can have a single-member LLC. Members can be defined as individuals, corporations, trusts, and even foreign entities. For coffee shop owners, this means that you can be the only member of your LLC.

Often, a state will treat an LLC as a corporation, partnership, or part of an individual's tax return. Double-check to see how your state empowers LLC members.

Setting up your LLC

Over the last couple of years, many states have made the process really easy for individuals to create an LLC for their business – including coffee shops, drive-thru coffee stands, and mobile coffee businesses.

For many coffee shops, an LLC can be set up in your home state. However, if you are considering setting your coffee business structure up in another state, you may want to consult a tax advisor to see how it could impact your taxes and other obligations. Nevertheless, setting up your business in a different state is possible.

After determining that an LLC is a good fit for you and your coffee business, you might consider reviewing your state's Secretary of State website regulations. They will have detailed information on the entire process and payment requirements.

While online legal services can help you fill out your LLC registration form, you can pretty much do it yourself.

In fact, it's pretty easy to set up an LLC on your own.

For starters, simply Google:

“Register an LLC in YOUR STATE”

You may encounter a few ads, but scroll down to the .gov website and click. Next, you must select the official Department of State website and complete the information.

Be wary of many different websites phishing for your personal information, and only go to the official state's website. If you are unsure of the integrity of the website site, give them a call to confirm.

Further Reading: How to Choose the Right Location for Your Coffee Shop.

Should You Start a Coffee Shop LLC?

How to Start a Coffee Shop LLC

Benefits of Starting a Coffee Shop LLC

There are some significant benefits to starting an LLC for your coffee shop that other business structures may not provide.

Do your research and weigh the benefits based on your situation and the manner in which you decide to open your coffee shop. For example, if you choose to fund your coffee shop by partnering with investors, your investor(s) may want to form a corporation instead of a single-member LLC.

Nevertheless, it's essential to research how forming an LLC can help you start your coffee shop business. So, let's take a look at some benefits of setting up a limited liability company for your independent coffee shop.

Commonly known Coffee Shop LLC Benefits

Limits On Your Personal Liability

Life happens. Sometimes things can go wrong. And, when things go wrong at your coffee shop, an LLC can limit your personal liability. So, for example, if an employee acts negligent or a customer happens to run into the glass door and break their nose (it happens!), you will not be personally liable.

Additionally, if some debts or liabilities occur while doing business that your coffee shop can't recover from, your LLC would be a barrier between risking your own home or personal savings. This is because an LLC creates an entirely separate entity apart from you, the person.

Creating an LLC for your coffee company allows you to operate with peace of mind.

Tax Benefits

You will want to check with your tax advisor or accountant on the specifics of your tax benefits. With that said, an LLC can provide tax benefits and flexibility that other business structures cannot.

The primary benefit is the process of having your taxes “pass-through” its members. That is, earnings and profits can pass through members without paying corporate taxes first.

Essentially, this prevents you from getting double-taxed on your business earnings and then on your personal income. The IRS allows the owner or its members flexibility on how they will be taxed. LLCs with more than one member are automatically treated as partnerships. Indeed, each state has its tax collection requirements, so be sure to check with your state on when and how often you will pay your taxes.

Generally, LLCs are Less of a Hassle

Coffee shop LLCs require less work to set up and maintain. For example, when you set up a corporation, you have to create “articles of incorporation” – and elect corporate officers.

Additionally, you will have to have meetings, including annual shareholder meetings. Finally, your officers will have to create and author bylaws for your corporation and hold regularly scheduled meetings that contain minutes or written notes.  

When it comes to coffee shop formations, corporations have their place as a business structure. Some larger coffee chains certainly benefit from having this type of business entity.

However, opening and maintaining a corporation may be cumbersome. On the other hand, it's relatively easy to maintain your LLC by submitting annual filings and renewal payments to the secretary of state.

With an LLC, You're the Boss

As the owner of a coffee shop, the buck stops with you. But, when it comes to LLCs, this specific formation codifies that you are the boss.

This isn't necessarily the case with corporations where you have a corporate board. Alternatively, LLCs allow you to dictate the management, operation, and disbursement of revenue. Therefore, it will enable you to be as flexible as you need to be to ensure your coffee shop's success. As you can imagine, this flexibility is helpful as you start and grow your business.

Choosing to Start a Coffee Shop LLC

How to Start a Coffee Shop LLC

Before Applying for Your Coffee Shop LLC

Before applying for your coffee shop LLC, you want to have a few things together. Having the following elements will make your application process a cinch.

Choose Your Coffee Shop Name – Choosing a name for your coffee shop is essential before setting up your business. In addition, you may be required to indicate what your dba (doing business as) name is. For tips on choosing your coffee shop name, please read our post, How to Choose a Name for Your Coffee Shop.

Have an Address – When you set up an LLC for your business, you need a physical address. If you have not chosen a coffee shop location, consider using your home address or renting a physical mailing address.

More than One Member – If your LLC will have more than one member, it's good advice to have a pre-written operating agreement. This operating agreement details the division of labor and responsibilities for members of the LLC. For example, one member of your coffee shop would be responsible for roasting coffee and managing coffee brokers, while the other member is responsible for hiring baristas and serving coffee.

You Just Got Your Coffee Shop LLC, What Comes Next?

You opened your LLC. Congratulations! However, during and immediately after applying and receiving your LLC, you will want to make sure you take care of a few more essential odds and ends.

Obtain an EIN

Having an Employer Identification Number is critical to you as a business owner. Often, this could be done during the process of applying for your LLC. However, if your state doesn't allow this option, you can immediately apply to have an EIN given to your business by the IRS.

Open a bank account

Establishing a business-only bank account is an essential next step for your coffee shop business. A bank account separates your personal money from your coffee business money.

In addition to avoiding the co-mingling of monies, it provides the ability to deposit the business funds that you want to put in from your personal savings, investors, or bank loan. In turn, it allows you to pay for your startup expenses from here on out. 

Get Your Website

While it might not seem like a high priority at first, getting your domain name and coffee website up and running can help develop your brand and keep supporters up-to-date.

Get Your Coffee Shop Business License

After establishing your LLC, you can get your business license. Depending on your build-out and your opening timeline, this may not be absolutely necessary to get immediately. However, I always like to establish an LLC and get my business documents at about the same time – so they can be renewed at the same time at a later date (making juggling future paperwork much easier).

How to Start a Coffee Shop LLC

The Benefits of Starting a Coffee Shop LLC

Conclusion

Starting a coffee shop is an incredible opportunity for many aspiring business owners. Unlike other careers, you don't need a college education or years of an apprenticeship program to start a profitable career that lasts a lifetime.

Establishing your coffee shop as a business is among the first steps in realizing your dream.

While we will not recommend a particular business structure that works for you, you should have a pretty good grasp of Coffee Shop LLCs – and what they can do for you.

We recommend that you continue your research and even seek your tax professional's advice before you make your financial decision.

Start a Coffee Shop LLC

Starting a Coffee Shop Business Structure

Additional Questions:

Can I set up a business as a sole proprietor?

It is possible to establish a coffee shop business through a sole proprietorship. However, you pretty much forfeit the ability to limit your personal liability. For example, in case of an accident or employee negligence, you could be held responsible for the entire cost of legal damages or financial losses that your business sustains.

Additionally, a sole proprietorship leaves your coffee business with a poor exit strategy. If you plan on hiring employees and working with customers, it may be wise to consider a business structure that provides a legal and financial buffer between your personal finances and your business activity.

Is it easier to set up a coffee shop corporation than an LLC?

In my opinion, it is easier to establish a coffee shop LLC. This is especially true for single-member coffee shop LLCs. These types of structures aren't required to maintain a board of directors or hold annual meetings like corporations. The process may slightly vary from state to state, but it's nearly the same amount of work. Additionally, come tax time, the preparation can be minimally significant. But again, here you want to double-check with an accountant or tax advisor that can look into your specific situation.

Are coffee shops profitable businesses?

Yes! Coffee shop businesses can be very profitable. A successful small coffee shop can earn $75,000 to $160,000 per year for a coffee shop owner. In some cases, even more.

Your coffee shop revenue will undoubtedly depend on a few essential factors. These include your number of sales and your average ticket price. If you want to improve your revenue, you will want to increase these two elements in a variety of ways:

• choosing a good coffee shop location,
• improving your coffee shop sales,
• developing a high-margin coffee shop menu.

For more information, consider reading our post, How Much Does a Coffee Shop Owner Make?

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This article is for educational purposes only. We are not offering legal advice. Therefore, you will want to check what type of business structure is appropriate for your coffee business.

Coffee Shop Startups

Based in Seattle, Washington, USA, Coffee Shop Startups is dedicated to providing you with the most relevant information on how to start a coffee shop business successfully. Over the last 11 years, we've helped thousands of aspiring coffee business owners worldwide. We harness the experience, wisdom, and knowledge of many successful coffee shop owners to help you increase your chances of success and profits. We support business owners who want to start a coffee business by providing them with valuable information on starting their coffee business successfully.