Starting a Coffee Shop: Buy A Coffee Shop or Start Up From Scratch?
Start Coffee Shop? Should You Buy An Existing Coffee Business or Start Up From Scratch?
Generally, people move in one direction or another. Certainly, both have their merits and should be considered carefully when you want to start a coffee shop business.
Of course, depending on the business you want and the availability of existing coffee businesses, both have their positive reasons and slightly negative reasons to move forward with your planning, development, and perhaps purchase.
Taking extra time to think through the pros and cons of each may help you save money and maintain your overall vision and profitability. The focus should be on your ultimate success, so you will need to determine what method is best for your current circumstance.
This would include your personal finances, the general market place, your target market outlook, your competition, and the success of the existing business, and the potential for long term profitability, etc.
Here is a brief write up on the pros and cons of each:
Without stating the obvious a current coffee shop or current espresso stand business is one which is currently in operation and has a daily stream of current customers.
Additionally, you will want to check that the current business is still operational when it comes to their business license, their health department permit, their building permit, etc.
Pros of buying a coffee shop business:
Starting any business from the ground up takes a lot of work. After all, the original coffee business owner took his business from nothing to something. And there is value in that.
However, you want to be sure you are buying a successful “something” and not a failing business.
When you buy a coffee shop, and if the business has been operating legitimately for some time much of the time, most likely your business will have the right permits and licenses. However, you will always want to check – and double check on this.
Generally, all of your permits and licenses should be easily transferred. Much of the paper work including the lease may need to be altered to accommodate any changes and product offerings – but chances are you wont have as much work to do when compared to starting from scratch.
As mentioned in point one, your lease might already be established but check, re-check, and check your lease again to ensure that it works in your favor.
An established customer base – whether or not, local residents and customers enjoyed the coffee shop you’re going to buy, you will already have established yourself as a location to get coffee.
Much of the construction and retrofitting is already done. Chances are the current location has already met the requirements of the local health department, fire department, and other local agencies to run a business as a coffee shop.
If you look at data, you’ll be able to determine your income and cash flow (though not all the time – it’s best to look at data from the last year and do your own research).
Your equipment may be included in the package – Your coffee shop equipment matters – a lot. So, when you buy a coffee shop, be sure to negotiate for existing equipment – if it is the type of equipment you will need. This of course, should be assessed on a case-by-case basis.
Cons of buying an existing business:
The coffee shop might have a bad reputation, poor goodwill, and known for delivering bad service and bad coffee. Breaking such a reputation may be difficult in some communities. Renovation may be needed if you want to implement your own look and feel to the coffee shop.
The existing lease may be unfavorable and be driving the business to leave. A quick sale will ensure that the business owners don’t lose everything – leaving you with their problems. Major upgrades and repairs may be needed. While the existing equipment might be worth something – it may require costly maintenance.
The customer base in this existing coffee shop location might not be viable for achieving profitability – do your own market research.
Pros of Starting a Coffee Shop From Scratch?
Starting a coffee shop business from scratch – or a coffee stand, means that the business (the legally defined entity has never been formed before). A location that may have once housed a coffee shop or cafe but closed can be opened to an entirely new coffee business.
Choosing the space and location is ultimately your choice and very appealing to many coffee shop owners.
You get to start your own branding and marketing from scratch, which is great opportunity to connect with new customers and the community as a whole.
Your coffee shop can provide a new and exciting community space that delivers profitability and human connections.
New or lightly used equipment and coffee shop design is entirely determined by your creativity and budget. Making a profitable business and generating community goodwill in a new location can be exciting.
Starting a coffee shop on your own can sometimes be cheaper too. The owners of a previous coffee business may want to make a profit on literally everything. For example, let's say a coffee shop owner bought a used espresso machine for $3000. Let's say he's used it for 4.5 years.
With his taxes, he (or she) has probably depreciated it 60%-80%… placing the value about $1000. But, the owner will want to sell it to you for $3300. He's justifying his increase in profit, despite having used it for nearly five years as “goodwill”. However, is the business' goodwill worth it?
Cons of starting a coffee shop business from scratch
The startup costs will be more apparent as you need to buy equipment and pay for essential construction costs. In other words, if the general structure or “build out” is already in place, you could save money.
However, if the build out is completely different from what you're wanting, then you might have to pay for the total remodel.
Negotiating a lease with a landlord might be more difficult and exhaustive if there has never been a coffee shop in the space before.
Paperwork, permits, and successful passing of all requirements may be lengthy and costly. Customers may not be used to having a coffee shop or coffee business in that location, so you may need to do extra marketing or promotions to “get the word out” about your new business!
Coffee Shop Start Ups – whether you buy a coffee shop or you are starting from scratch there are certainly pros and cons. Both can be a feasible step to a profitable coffee shop business but it needs to be looked at seriously under the context of what your budget is, what your vision is, and what spaces are available.
Whatever direction you choose, do your homework! The many hours you put into getting as much information on starting a coffee shop business, the better!
Look at the existing or potential lease, look at the permit requirements, study the demographics in your area. Leave no stone un-turned when it comes to your ability to get out of a bad situation. Your due diligence may take extra time and money – but it will be worth it.
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