The cafe business market is expanding, with consistent success. With a projected compound annual growth rate (CAGR) of 3.7% from 2022 to 2032, the market could reach $243 billion by 2032.
Success hinges on astute planning, attention to customer experience, quality products, and adaptability in our digital age. This guide will cover key steps – from crafting your business plan to designing your space and menu to budgeting smartly. While competition varies by location, the rewards of operating your café often outweigh the demands.
This guide will walk you through how to start a cafe. Topics include market research, marketing, customer focus, registering an EIN, obtaining business insurance, and forming an LLC. Here’s everything you need to know to start your own cafe business.
1. Conduct Cafe Market Research
Market research is important for newcomers to the cafe business market. It offers insight into your target audience, local coffee shop trends, and market saturation. There are two types of market research, primary research you do yourself, and secondary research compiled by a third party.
Some details you’ll learn through market research include:
- Several key drivers feed the skyrocketing demand for cafés and specialty coffee shops.
- Consumers increasingly view cafés as “third spaces” outside work and home to socialize, remote work, or simply enjoy high-quality drinks and snacks.
- The millennial cohort in particular fuels growth – young generations drive trends like specialty brews, mobile ordering, and sustainability that cafés readily incorporate.
- While chains like Starbucks, Dunkin’ Donuts, and Caribou Coffee dominate, independent cafés thrive by offering unique atmospheres and hyperlocal community connections.
- Market saturation remains relatively low, indicating room for new café entrepreneurs to carve out territory with creative differentiation and localization.
- The most lucrative café segments currently include specialty coffee, Latin coffee shops, dessert cafés, and automated mobile cafés.
- Keys to continued success and profitability include astute site selection, efficiency, customer loyalty programs, and social media integration.
- Adaptability also proves vital – café owners who rapidly implemented online ordering and contactless payment during COVID-19 mitigated revenue drops by up to 60%.
In summary, industry analytics overwhelmingly confirm the café sector’s resilience and viability for aspiring business owners. While big chains present competition, the broad market appeal, relatively low barriers to entry, and manifold opportunities for innovation symbolize a bright future.
2. Analyze the Competition
Competitive analysis is an important part of building a business. It helps you assess your pricing structure, build a thorough business plan, and develop services and products based on successful coffee shop ventures.
Some ways to learn more about other coffee shop owners include:
- Drive around town with fresh eyes – note coffee shops already operating, and jot down specifics like size, appearance, hours, and menu options visible. Also check whether or not they offer additional services such as hookahs and other leisure areas, or if they let cats stay at the cafe, essentially doubling as a cat cafe. This can increase your overall reach and business attractiveness to new customer groups.
- Covertly observe the in-store customer experience at multiple times of day – how busy do they seem, what offerings get ordered most, is the atmosphere inviting?
- Search online reviews for existing cafés on Yelp, Google, and Facebook to gather customer sentiment.
- Pay attention to what people rave and complain about to identify unmet needs a new entrant could satisfy.
- Study their social media engagement across platforms – follower counts, post reactions, and user-generated content featuring their brand.
- Assess the polish and functionality of online ordering platforms and mobile apps.
- Consider search engine visibility by plugging “cafés near me” into Google Maps – where do rivals rank?
- Incorporating both offline and online investigative work allows founders to realistically evaluate direct and adjacent competition while informing their positioning.
- A SWOT analysis can then synthesize findings to illuminate viable differentiators – maybe an avant-garde drink menu, monthly comedian nights, and reservable workspaces.
- Data and creativity together enable new cafés to stake out a distinctive niche.
Use details gleaned through competitive analysis to build up your coffee shop business. From forming a coffee shop business plan to sourcing ingredients for your coffee shop menu, competitive analysis helps your new coffee shop secure a place among independent coffee shop owners.
3. Costs to Start a Cafe Business
When launching a café, the majority of initial expenses stem from real estate, build-out, equipment, inventory, and permitting. Here, we’ll break down the coffee business expenses you may encounter as you begin your own coffee business.
- Total start-up costs often range from $80,000-$250,000+ depending on size and services offered.
- Appropriate commercial space is essential, be it leasing, buying, or even a food truck. Average small café lease rates run $15-$30 per square foot annually.
- Purchasing an existing restaurant property can require $100,000-$500,000+ depending on location and features. Food trucks have lower barriers to entry around $50,000.
- Build-out costs to furnish, renovate, and optimize the site layout add another $15,000-$38,000.
- Specialized equipment constitutes a significant fixed cost. High-volume espresso machines range from $8,000-$15,000.
- Fridges, ovens, dishwashers, and other kitchen appliances add a few thousand each. Ventilation, fire suppression systems, point-of-sale setups, and dining furniture also add up quickly. New cafés can expect to invest $20,000-$45,000 in key equipment.
- Ingredient inventory must be purchased upfront before opening day. Estimate $5,000-$10,000 to stock coffee beans, bakery items, produce, dairy, paper products, utensils, and more until cash flow stabilizes.
- Cafés with liquor licenses require extra capital for wine, beer, and spirits – at least $3,000 initially.
- Various permits and professional services facilitate a smooth launch. Filing fees for LLC formation and food service licenses cost $500-$1,500.
- Lawyers and accountants may charge $2,000-$5,000. Designers, architects, and contractors also have pricey fees but prove worthwhile for space planning and efficient build-outs.
Altogether, a 1,200 sq ft counter-service café with mostly second-hand equipment may launch for $80,000 if opting for a basic built-out space. A 2,500 sq ft full-service site with entirely new equipment and custom architecture could demand upwards of $250,000.
Also worth noting that smaller cafes are often present in movie theaters, whether in-house or external (e.g. Starbucks). Consider branching out as you’ll constantly have a steady influx of customers at such a hot spot.
Once opened, cafés face numerous ongoing operating expenses split into fixed and variable costs:
- Rent/Mortgage – $24,000-$100,000+ annually
- Loan repayment – $8,000-$30,000
- Equipment leases – $2,000-$10,000
- Payroll including taxes and workers comp – $60,000-$250,000+
- Insurance – $4,000-$8,000
- Utilities – $6,000-$15,000+
- Point of sale fees and subscriptions – $1,000-$4,000
- WiFi and music licensing – $600-$1,500
- Accounting and legal retainers – $500-$5,000
- Advertising – $2,500-$15,000+
- Food/beverage inventory – 30-50% of monthly sales
- Janitorial supplies and shop upkeep – $1,000-$4,000
Careful financial planning and cost control will help offset slim profit margins in the competitive café sector. But for owners who curate an in-demand concept and brand identity, the earnings potential remains highly stimulating.
4. Form a Legal Business Entity
As you open a coffee shop, owners must weigh options on the legal business entity. The four primary formations each impact taxes, regulations, liability protection, and expansion capabilities differently. For coffee shops specifically, limited liability companies (LLCs) tend to offer the best balance of flexibility and owner protection.
Sole proprietorships represent the simplest yet riskiest entity. They involve minimal paperwork and cost nothing to initiate. Owners report profits or losses on personal tax returns. However, solo presenters bear unlimited financial liability – meaning their homes and assets get tied up if sued.
Partnerships allow the sharing of operations and expenses across two or more founders. But similar to sole proprietors, general partners remain personally liable for debts and legal issues.
On the incorporated side, C-corporations have the highest start-up costs – incorporation filing fees plus annual franchise taxes. They provide limited liability shielding but face double taxation on company earnings and shareholder dividends. S-corp election avoids double tax but adds accounting complexity with strict ownership rules that can prove overly restrictive for café growth.
Limited Liability Company (LLC)
By comparison, Arizona State University’s business experts hail LLCs as the best option for small hospitality firms like cafés. LLC registration protects owners’ assets if sued, avoiding sole proprietorship exposure. Taxwise, earnings, and losses pass to members’ returns without corporate double taxation. Operations governance brings flexibility akin to partnerships but with the liability limits of a corporation.
5. Register Your Business For Taxes
All new business owners must obtain an Employer Identification Number (EIN) from the IRS, which functions like a Social Security Number for your company. This unique 9-digit number identifies your LLC, corporation, or other legal business structure for federal tax purposes.
While sole proprietors can use their SSNs initially, the SBA highly recommends securing your own EIN even if you don’t plan to hire employees. Having an EIN adds legitimacy for partners, lenders, and vendors. It also enables opening business bank accounts properly titled to your company.
Thankfully obtaining an EIN takes just minutes online. Simply:
- Navigate to the IRS EIN Assistant
- Answer a few basic questions about your LLC or corporation
- Provide your personal identifying information for verification
- Get your EIN immediately upon submitting the form
The online EIN application has no fees or processing delays. You must print/save the final assignment notice from the IRS for record-keeping.
With your federal EIN secured, contact your state revenue office to register for additional tax IDs used in sales tax collection, payroll taxes, alcohol licenses if applicable, and other filings. States charge no registration fees either, though you’ll need to integrate reported sales and income on separate state returns annually.
Streamlining legal compliance from the start helps cafés focus on customers and growth in a complex regulatory environment. An EIN only takes minutes via the IRS portal but unlocks essential business functions down the road.
Let me know if you need any other details about obtaining an EIN, applying for state tax licenses, or navigating business taxes as a new café owner!
6. Setup Your Accounting
With slim profit margins prevailing in the food service industry, café owners must implement rigorous financial systems right from the start. Careful record-keeping, accounting software, fiscal diligence, and retaining a tax professional provide vital foundations for success.
After securing your EIN, invest in user-friendly accounting software like QuickBooks to track all transactions in one place. The cash basis method recognizes income/expenses when money exchanges hands, which simplifies reporting for small cafés. Link your business bank and credit card accounts so payments automatically download into preset categories like supplies, payroll, utilities, etc.
Hire an Accountant
While the software does the heavy lifting, working with an accountant or bookkeeper safeguards accuracy in documenting deductible expenses, estimating quarterly taxes, reconciling accounts, and producing clean financial statements to spot issues.
Expect to invest $100-$250 monthly for comprehensive outsourced accounting or around $700-$1,500 for annual filing prep. An accountant also proves invaluable if audited down the road, supplying evidence to validate deductions claimed.
Open a Business Bank Account
Separating business finances from personal avoids monstrous headaches at tax time. Open dedicated café checking/savings accounts and apply for a business credit card solely for company expenditures. Consumer cards often can’t handle high transaction volumes anyway.
7. Obtain Licenses and Permits
While exciting to finalize menus and décor, new cafés must allot time upfront to navigate licensing requirements. Find federal license information through the U.S. Small Business Administration. The SBA also offers a local search tool for state and city requirements.
At a minimum, register for a baseline food service establishment permit through local health departments before serving anything edible to customers. These prevent foodborne illness by stipulating protocols for ingredient sourcing, prep, storage, cleaning, and employee health policies.
If planning to sell alcoholic beverages, apply for separate liquor licensing through alcohol control boards in your state. Eligibility for beer/wine versus full liquor depends on the cuisine type, seating capacity, and hours. Liquor permits run $500-$2,000 with annual renewals and staff training mandates. Bartenders must obtain additional certification.
Cafés hosting live entertainment or background music require analog music licensing like an ASCAP or BMI Permit. These royalties compensate artists when songs commercially play and cost around $275-$590 yearly. Venues above certain occupancies need concert/event permits for talent shows, trivia nights, or open mic events too.
While not universally mandated, café owners concerned with public health may additionally pursue recognized food safety training and display-related signage. Programs like ServSafe offer evidence you uphold best practices for contamination avoidance, thereby attracting discerning patrons. Some cities even incentivize such voluntary credentialing.
Confirm precise requirements with business licensing departments and schedule adequate lead time. The permitting process held Emilie’s Bakery from a disastrous incomplete inspection at their grand opening ribbon cutting! Confirming regulatory obligations early keeps new cafés compliant and audit-proof.
8. Get Business Insurance
While an unbudgeted expense, business insurance gives café owners peace of mind against scenarios threatening their livelihoods. Policies cover losses from theft, property damage, customer injury lawsuits, and other risks – no small problem given hot liquids, slippery floors, and heavy equipment.
Imagine a winter pipe burst flooding your newly renovated space, destroying walls, wiring, and custom tile work. Without coverage, the café must pay six-figure repair costs out of pocket. Now imagine a patron spills tea and slips on your vinyl floors.
Thankfully getting insured does not break the bank and prevents catastrophic loss. Start by researching café-specific risks using Hartford’s industry risk profiler. Next, connect with independent insurance brokers familiar with local food-service clients. Standard policies include:
- General liability – covers 3rd party injury/property claims
- Equipment coverage – replaces stolen/damaged appliances
- Workers comp – pays staff medical bills
- Loss of income – continues some profits after a disaster
Ensure adequate limits given major assets like machinery or real estate improvements. For optimal protection, secure policies 30-60 days before opening doors to customers and require certain coverages from vendors. Defending your livelihood deserves priority!
9. Create an Office Space
Although counterintuitive given their physical retail sites, securing office space proves essential for café owners to operate administrative functions outside chaotic kitchens. An external headquarters, be it home-based, shared, or private, offers a space for administrative duties.
Home offices allow bootstrapping cafés to avoid paying rent elsewhere initially. Dedicating space for filing, equipment storage, and food science experiments also enables tax write-offs on a portion of residential bills. However, separating work and personal life often proves beneficial for concentration.
Coworking spaces like WeWork supply turnkey office infrastructure for around $300-$500 monthly. Many provide meeting rooms to interview chefs, kitchen incubators to test recipes after hours, and networking events to connect with fellow entrepreneurs. While budgets tighten, the flexibility and amenities keep startup costs manageable until cash flow stabilizes.
As managers build out management teams over time, leasing a private commercial office better accommodates more employees permanently stationed behind the scenes versus just running the register. Expect monthly rates from $1,000-$1,500 but with no restrictions on hours or storage for extra equipment/records.
10. Source Your Equipment
Outfitting a café requires significant upfront investment in durable commercial-grade inventory spanning furniture, cooking gear, point-of-sale systems, and small wares. Thankfully multiple acquisition options balance quality and affordability.
When buying brand new, beverage-focused sites like Espresso Parts offer barista tools like high-end Italian espresso machines, grinders, tampers, and steaming pitchers often sold in discounted bundles. Commercial kitchen retailers like Webstaurant Store supply heavy-duty ovens, refrigeration, ventilation, prep tables, utensils, and display cases configurable to space.
To conserve startup capital, browse used listings on eBay, Facebook Marketplace, and Craigslist for quality floor models or refurbished wares at 40-60% discounts off retail. Peer networks connect buyers and sellers of specialty baking gear through their online exchange. Try searching locally first to inspect the condition before committing.
Renting essential equipment also limits large outlays while opening helps cash flow early on. National companies deliver commercial dishware, tables, linens, and servers for off-site catering gigs with flexible terms. Rental fees apply to eventually owning certain items too.
Leasing agreements for expensive machinery like high-performance coffee roasters allow spreading payments over 3-5 years until the balance is satisfied. This pay-as-you-go approach prevents major asset purchases from paralyzing young businesses. Credit checks often factor in leases, however.
11. Establish Your Brand Assets
Crafting a distinctive brand platform fuels recognition, trust, and customer loyalty over commodity competitors. While initially daunting, methodically curating visual identity, communications channels, and an online hub need not break tiny startup budgets.
Get a Business Phone Number
Secure an official business line via cloud-based providers like RingCentral for around $30 monthly. Toll-free numbers project credibility while call routing, voicemail transcriptions, and custom greetings operate professionally.
Design a Logo
Design aesthetics likewise convey persona. Have a designer create a timeless wordmark logo evoking your café’s vibe through font, color, and icons from Looka. Expect to invest $200-$500. Vector files adapt easily to signs, cups, ads, and swag. Steer clear of overused visual clichés.
Print Business Cards
Print 500-1000 business cards for under $20 from Vistaprint to share during guest interactions, vendor meetings, hiring fairs, and community networking. Cards enable quick captive messaging after pleasant café encounters.
Prominent exterior signage also drives lucrative foot traffic – illuminate hours, menus, and brand insignia outside. While pricier than print materials, quality metal and neon signage lasts for years with proper installation.
Get a Domain Name
Digital real estate equally enables discovery by neighborhood patrons and tourists alike. Register an intuitive .com domain with your name via Namecheap for about $12 annually. Use this consistently across platforms like GMB, social media, and email.
Design a Website
Building out an owned website on Wix or WordPress enables showcasing menus, events, catering details, e-commerce, and contact options without third-party interference. Expect to invest $100-$500 launching with custom branding. If funding is extraordinarily tight, you can also commission affordable site development on Fiverr.
12. Join Associations and Groups
While competitive, the food and beverage industry encourages remarkable collegiality. Connecting with community resources, complementary businesses, and hospitality pros pays dividends for novice café owners through traded secrets and elevated visibility.
Joining the local chapter of the Specialty Coffee Association offers workshops on brewing techniques and customer retention alongside peer networking. Membership fees of around $100-150 prove worthwhile for insider tricks. Restaurant alliances additionally lobby for legislative changes benefitting eateries.
Attending regular startup meetups via Meetup enables you to meet fellow entrepreneurs plus sponsor Booths featuring your scones or pour-overs and get your brand directly in front of potential customers and vendors like commercial linen services. Expect to invest $50+ monthly to maximize exposure at multiple events.
For free perpetual advice, join hyper-targeted Facebook Groups like RESTAURANT BUSINESS OWNERS and Coffee Shop Owners Only alongside local conversations. Learn from peers globally in managing staff, marketing on Instagram, saving money, and preventing common pitfalls.
13. How to Market a Cafe Business
While tempting to focus solely on perfecting recipes and interiors, dedicating time to strategic marketing proves indispensable for attracting initial customers and sustaining patronage long-term. By tapping personal connections alongside targeted digital and print channels, new ventures can amplify visibility and sampling.
Start close to home, most small businesses earn new clients from word-of-mouth sources like friends, family, neighbors, and colleagues. Savvy owners incentivize referrals by offering free drink cards to existing patrons who check in on social media and tag new guests.
- Run hyperlocal Facebook and Instagram ads highlighting signature breakfast sandwiches or oat lattes
- Claim and optimize free business profiles like Google My Business, Yelp and TripAdvisor
- Produce snackable behind-the-scenes café culture videos for TikTok and YouTube
- Send limited-time reopening offers via SMS and email collection
- Partner with workplace offices, fitness studios, and apartment buildings nearby to fuel referral rewards
- List catering menus on gig marketplaces like UberEats for expanded visibility
- Distributing menus and flyers at the public library, rec center, and local colleges
- Placing radio ads spotlighting trivia nights on community stations
- Sponsoring Little League teams and putting up banners at games
- Staking signs at busy neighborhood intersections
The most effective strategies entice trial from a fusion of existing networks and targeted local outreach. Space limitations prevent covering everything here but let’s brainstorm other ideas that could uniquely work for your café!
14. Focus on the Customer
In an increasingly commoditized food service sector, stellar customer service stands out as a competitive differentiator for cafés striving to build loyalty and earn referrals.
Some ways to improve customer focus as a coffee shop owner include:
- Tactics like greeting every patron by name, customizing orders for regulars, and gift card bonuses after frequent visits make customers feel individually appreciated, not just processed.
- Baristas might also deliver samples of new whole bean arrivals to spark conversation and showcase expertise.
- Little service touches spotlight the care and pride owners place in their neighborhood oasis.
- A memorable send-off like “Your lunch is on us today, we so appreciate your continued support!” demonstrates genuine recognition of patronage that earns huge dividends offline and on platforms like Yelp.
- Putting people first with thoughtful hospitality and attention powers expansion more than any single marketing tactic alone ever could.
Let’s discuss additional ways we can wow your café guests! Delivering consistently excellent service remains every entrepreneur’s secret weapon.