Plan a Coffee Shop Budget
“When preparing to travel, lay out all of your clothes and all of your money. Then take half the clothes and twice the money.” Susan Heller
This document could have the title, “top reasons that coffee businesses fail,” if from a different perspective. The same theme is true with our #3 entry: be sure to have enough capital. Starting a new retail coffee business is neither easy nor inexpensive. As the old adage implies it does take money to make money. But how much is enough?
According to the Small Business Administration, 50% of small businesses fail in the first three to five years. Studies show the top two reasons for failure are management inexperience and insufficient capital.
As you plan a budget, it is reasonable to expect that your starting capital will total in the hundreds of thousands of dollars. Every business is different, so just how much will depend on you, your market and complexity of your plans. Unless you’re opening a small location with a minimalist design, $50,000 is likely insufficient. $250,000 is a good minimum goal for suburban North America in 2015. Flashy cafes in prime urban locations can cost $1,000,000 or more to launch.
Budget estimates vary and will depend on:
- Location costs
- Size of the shop
- Complexity of design
- Capital equipment
- Staff costs
- Other local market factors
Remember to invest in the budget areas that generate income first. Expensive furniture and decor can affect the image of a business but it’s better to invest in your location, product and the people who make it. There are many ways to make the decor inviting or ‘cool’ without spending too much money.
If you are not experienced developing a budget, try Amazon.com for ideas or contact a S.C.O.R.E. consultant.
Always be conservative with your income projections and generous with your expenses. Have enough cash on-hand to meet your initial capital expenses and your operating costs for no less than one year. This will improve your chances of success during the formative stages of the business. Any less time and your brand may not have the opportunity it needs to establish itself in the community.
Prepare yourself that it will take 12 to 18 months before a coffee shop will realize a steady and predictable flow of business. During that time, time you will need to self finance some or all operating costs.
If you determine that your available funds are below what is needed to succeed, find another source of funding or quit while you are ahead. Starting an under-capitalized business greatly increases the chances that business will fail.
There is a chance that you will -get lucky- but remember that this is an investment, not a gamble. Smart entrepreneurs knows how to manage risk versus reward.