Monthly Archives: September 2016

How to Start a Coffee Shop or Coffee Business

So you’ve decided to get into the World of Coffee! Coffee can provide a multitude of opportunities and can also apply to anyone wanting to start up a Sandwich Bar, Cafe or Deli. Infact anyone wanting to open any business that features Coffee. Many types of business serve coffee these days, with either a Traditional Espresso Machine or automatic Bean to Cup Machine. Bookshops, Bicycle Shops, Motor Cycle Dealers to name but a few. Any business that attracts like minded people who share common interests is a great place to start a Coffee Shop. It gives people the chance to socialise and talk about their shared interests. This business diversification also provides an additional income for these businesses that are not “out and out” Coffee Shops.

Like any business that people want to start up, it’s usually because they have an interest in some element of their chosen business idea. It’s always a good idea to do something you like doing or have a skill at, otherwise what’s the point? However, just because you have a “passion” and a dream of setting up your own Coffee Shop doesn’t mean that it will be automatically successful. The same rules apply for any business – Doesn’t matter how good your idea is, you need to make sure there is a “need” in your town or geographic area. This research will form part of your “Business Plan”. A business plan is more than just putting a few figures together to get finance. “Your Business Plan” is just that. It’s about getting your thoughts and ideas down on paper and creating a plan of action for business research, marketing research, project managing and forecasts for getting your business open. It should also be business planning for the future to make sure you stay open! There is an old saying in business; “If You Fail to Plan You Plan to Fail”. It’s a known fact that a large proportion of new businesses fail within the first 3 Years.

Get a clear vision of what you would like your business to be. Try and picture it in your mind. Where would you like it to be? What does it look like? What’s the decor and style? Who are your customers? Apart from Coffee what other offering will you have? What is your USP (Unique Selling Point)? Basically, you have to identify how you can be a bit different from any competition that will also appeal to your potential customers. The most important thing to find out from as many people as possible within your “market place” is; Do they agree with your “vision”? and; Are they prepared to become a customer and pay for it? Put a questionnaire together and go and talk to as many people as you can to find out if your coffee business idea is what they would spend their money on. Also ask open questions about what “they” would like to see in their area. They might suggest some things you never thought of. They may also criticise some of your ideas, don’t take it personally. If their criticism is valid learn by it. Remember, it’s not about what you want. Give them what they want and they will spend their money with you rather than someone else. Check out other Coffee Shops to see how they do it. Not only your local “competition” but further a field. Make several visits at different times of the day if possible. Also, try and look at them from a customers point of view. Make notes of not only the things they seem to do right, but what you think they do wrong. Do they have a steady stream of customers all day or just at lunchtimes? Make a note of prices. Once you are aware of the costs of products then you can guess their “mark up”. Do you think they have the customers they need to make a good return from their prices? Of course, this is not the whole profit story. You have to consider overheads and staff wages etc. You will have a better idea once you “cost out” your own business which we will come to shortly. Correlate all of the “plus” points you have found in the competition and combine them with your USP and VISION for your business and see if you think you can do things a bit better.

Once you have a clear picture about your business then apply what is known as the “Four P’s of Marketing”. Product, Price, Place and Promotion. This can expand to the seven P’s for the service industry. There’s lots of information online but basically all the P’s have to match to get the right “Marketing Mix” for the product and/or service. For example: A high cost perfume couldn’t be sold on a market stall. It’s unlikely that the correct pricing could be achieved and there’s a good chance that shoppers wouldn’t believe the perfume to be the “real” thing anyway. The “marketing mix” is all wrong. If you consider the four P’s when seeing how an expensive perfume is sold you will see what I mean. The Product (a top brand), Place (where – high class perfumeries and shops in some of the worlds most exclusive Cities). Promotion (TV, Cinema, Product placement and the Worlds most exclusive media magazines). Therefore the Price is set according to the social and financial level of the customer being promoted to. Basically, it’s that old saying that “If you have to ask the price then you can’t afford it”. The fours P’s match and you have the right marketing mix. Decide what market sector you want your Coffee business to fit in to. If you want your business to be “classy” with a “stylish” decor and serving a range of “top quality” goodies served by immaculate, polite and efficient staff (Product) then to get the “Price” you need or want then you will have to ensure you are in the right upmarket area or Town (Place) that has an upmarket level of customers. The way your business looks on the High Street and your high level of service that would be expected by your upmarket clientele is the correct Promotion in itself. People tend to mix in the same circles as themselves thereby promoting your business by “word of mouth” within an exclusive group of people. These days this process is strengthened with “social media”.

So where do you find all this information if you don’t really know the area where you want to set up? Within the UK, County Councils will have a wealth of information available within the NATIONAL CENSUS reports for the area. For example it can tell you property values and where they are. Socio Economic Groups (A, B, C1 etc). What their Income levels are and where they live in the area. It can tell you the age groups, how many in each group and where they live. All this information and more can be used to find out where to locate your business for the market sector you are looking for.

Time to look at yourself and any partners there might be. You need to determine everybody’s “Strengths and Weaknesses”. Make a list under each heading. A strength doesn’t have to be a fully fledged “Barista” at this stage. You can be trained in that area – more on Barista Training later. However, for now, coffee making skills might be a weakness until you receive training. For example; a strength is any quality or skill you may already have that can be applied to your new coffee shop business. You might naturally be a good organiser and have great “people skills”. These are great for managing your business and staff. People skills are pretty important in a “hospitality” business! The same theory applies to your “Weaknesses” list. If you are a disorganised person then you need to be able to delegate to someone who is a good organiser or learn the skills required to discipline yourself into the everyday management of your business. “People skills” is a skill that can be learnt. There are many courses and books available in this are of personal and business communications, customer service and hospitality industry courses. In general, analyse yourself and partners to determine if there are any qualities, knowledge or skills that are lacking to run your business then get the training you need. Don’t forget Accounting skills. This seems an obvious skill that a business needs but can easily get brushed aside in the midst of excitement about starting a new business. No matter how big your dream is of being part of the “Cafe Culture” you need to know how to look after the “pennies” and control your “Cashflow Forecasts” and “Profit + Loss” Accounts. Continue building your list of Strengths and Weaknesses with anything you can think of that will be required to run your business. If you’re not sure how to think about, and compile your list, then once again guidance is available in many business books etc.

Before discussing Barista Coffee Skills; an area which you need to explore depending upon your location and the nature of products that you may sell is food hygiene. Check out the relevant Food Standard Authority in your geographic location. In the UK it’s the Food Standards Agency. See http://www.food.gov.uk You need to consider Food Hygiene training and learn about the regulations in this area. Back to making coffee; You don’t need to be a fully qualified Barista before you can make excellent Espresso based coffees and have customers flocking back for more. However, if you have no previous experience, you will need some training and time for some practice before you open your door to customers. With my business, you would be taught some basic skills at the time of your Espresso machine installation. This would involve training on the machine and coffee bean grinder; how to operate them and “best practice” use of the equipment. Day to day maintenance and cleaning schedules will be explained to ensure trouble free use of the equipment. The next step is to show how to prepare a range of the most popular speciality coffees I.e. Lattes, Cappuccinos, Espressos, Latte Macchiato, Mochas etc. including Steaming and Stretching the milk to obtain the perfect micro-foam. Once you get some work experience and have an understanding of the processes then you can take advantage of more advanced Barista Training if you feel the need.

I’ve already suggested you visit other Coffee businesses in your area for market research and gathering vital intelligence on the competition. At the same time decide if you need other “Coffee Shop Skills” by being a “customer”. If it’s a good Coffee Shop then observe the general skills that the staff have and how they attend to customers. Now we come to the cost!

So you now have a clear vision of your business. You can now see your “dream” more vividly in your minds eye but can you afford it? Your initial SET UP costs are going to be for “Premises” – Lease costs. Rent will be a “Fixed Cost”. Property renovations and fixtures, fittings and equipment and potentially uniforms with be “Set Up” costs. Make a list of ALL the equipment you are going to need. Not to mention a Coffee Machine and all related coffee equipment. If your business is to be a Coffee Shop, Coffee Lounge or any business dedicated to the excellence of coffee then you will require a Traditional Espresso Machine set up. If it’s going to be Fast Food, Takeaway etc where staff are doing several jobs at once. McDonalds staff for example, then a Bean to Cup machine would be a better choice because of operational needs. See my article on How to Choose Commercial Coffee Machines – Espresso Machines, Bean to Cup, Bulk Brew . If you are starting from absolute scratch you are going to need counters, chilled display cabinets and serve over counters. Food prep equipment (Stainless Steel tables etc.) Grills, Ovens, Refridgerators, Water Boilers, Dishwashers; the list goes on and will be specific for your business. All will have to be “commercial” specification as opposed to domestic equipment. FIXED COSTS, surprise, surprise, are those costs that will hopefully not change too much and are not related to sales. The “cost” of sales is a “variable cost”. Fixed costs are Shop Rent, Business Rates, Insurance, Electric and Gas services if arranged on a fixed monthly plan, Staff Wages, National Insurance (check out all costs relating to employment). Don’t forget your own wages! Telephone Rental, Broadband tariff, WiFi costs – you get the idea. VARIABLE COSTS are related to the cost of producing and providing anything that you sell. For example: Coffee beans, milk, sugar, coffee syrups and sauces, disposable cups. Crockery cups would be a fixed cost but that would depend upon if you and staff have “butter fingers”. All other drinks, food and any other consumables that are used as a result of you making “sales”. Other variables that are not quite as obvious are Advertising and Promotion. It may not be something you do all the time therefore it is “variable”. Please note that any advertising and promotion should be monitored to establish success of campaign and cost per customer. Over time you will have an idea of your customers average spend. Relate that to the average cost of getting a customer and will be able to evaluate if your “campaigns” are worthwhile. All these “variable” costs need to be built in to your Financial Projections which should be for at least 12mths and beyond. Financial Projections should be in the form of a “Profit + Loss” spreadsheet. This is important in assessing the viability of the business. A “Cashflow” Forecast is also very important in the real world, not only for your initial projections but also as a working “day to day” document once you get your business open. There is plenty of information available in business books and online on how to put these projections together. If you have an Accountant, discuss all things financial with them. There is an old business saying that “Turnover is Vanity”. Make sure you are always looking at the “bottom line” of Profit in any financial figures you put together. As mentioned; your Business Plan should extend into the future. A 5 year plan is a good idea. Outline your ideas and vision for future growth. Set business goals and evaluate if you achieved them. Your Business Plan should be a “dynamic document” to respond to the “marketplace” and your ideas. If you you don’t know where your going how will you ever get there!

For those just starting out in any business, I hope this article has given you some insights. Good luck with your future ventures and please feel free to contact me.