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

The alternate title for this guide is “Top Reasons that Coffee Businesses Fail.” Nowhere is this more true than with our #3 entry: be sure to have enough capital. Starting a new retail coffee business is not easy or inexpensive. As the adage implies, it does take money to make money. But how much is enough? You need to have a carefully planned coffee shop budget.

According to the Small Business Administration, 50% of small businesses fail in the first three to five years. Studies show that management inexperience and insufficient capital are the top two reasons for failure.

As you plan a budget, it is reasonable to expect your starting capital to total hundreds of thousands of dollars. Every business is different, so just how much will depend on you, your market, and the complexity of your plans. Unless you’re opening a small location with a minimalist design, more than $50,000 is likely needed. $250,000 is an excellent 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
  • Inventory
  • Supplies
  • 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.

Check out this article from Fresh Cup Magazine for some ideas.

Always be conservative with your income projections and generous with your expenses. Have enough cash to meet your initial capital expenses and operating costs for no less than one year. This will improve your chances of success during the formative stages of the business. If you have any less time, your brand may not have the opportunity it needs to establish itself in the community.

Prepare yourself with enough capital to run the business for 12 to 18 months before a coffee shop will realize a steady and predictable business flow. During that time, you will need to self-finance some operating costs.

If you determine that your available funds are below what is needed to succeed, find another funding source or quit while you are ahead. Starting an under-capitalized business increases the chances that the business will fail.

There is a chance that you will get lucky, but remember that this is an investment, not a gamble. Savvy entrepreneurs know how to manage risk versus reward. Plan your budget carefully.