What’s a good budget to open a coffee shop?

Choosing to open a coffee shop is an extreme adventure. And no matter how well you plan, how good you are at executing your plan, and how much luck you have, you no doubt need to have a solid, well-thought-out budget to be open your business with a realistic expectation that you can survive the challenge of entrepreneurship. Every business is different, so one cannot assume there’s a simple answer to a complicated question.

After more than 10 years of business, the coffee professionals at Reverie Coffee Roasters have participated in opening over 30 coffee shops. And in our experience in working with and advising business owners opening coffee shops, most owners/operators underestimate their startup costs by about an average of 2/3. Our advice off-the-cuff is to suggest that owners triple their budget in order to securely prepare to open (or take over) their business.

You can expect to spend as little as $25,000 for a turnkey operation to as much as $1,000,000 for a new construction build with real estate.

Here’s a short list of considerations you may have when budgeting a coffee shop startup or takeover.

Equipment Costs

Coffee shop gear can range in price from a few thousand dollars for a small setup to as much as $40,000 depending on the style of business you wish to operate. The more automation you need, the higher quality of product you wish to prepare, the more reliable you hope your equipment to be, the more the cost will be. And you shouldn’t skimp on the equipment that is likely to drive most of the sales you will earn. Low-cost equipment can cost you lost sales due to more frequent breakdown, lost productivity due to capacity or speed efficiencies, and more. The difference in a 2-group and 3-group espresso machine could be directly correlated to ticket times. And a quality grinder can also be faster. Five to ten seconds grinding espresso adds up if you have a line of customers expecting their beverage in just a few minutes. A quality coffee roasting partner, such as Reverie, can help you determine which equipment is best for you to choose as you design your business.

Beyond coffee gear, you will need to consider equipment such as refrigerators, freezers, ice machines, dishwashers, and more. You can buy new or pre-owned (used) equipment to save money up front, but there could be unexpected costs in repairs and maintenance. This goes for coffee equipment, too. If you have any questions about new versus used equipment, reach out to our team and we can give you our opinions.

Café Design and Construction

Great physical business design can make for a great customer experience. The organization of your workspace and how customers flow through the space can impact short and long-term outcomes in customer feelings and frequency of returned visits. Great bar design, for instance, can improve workflow and reduce barista fatigue from making too many steps for routine tasks. Hiring an architect, interior designer and/or engineer can help to increase the effectiveness of your business design. And while there are definitely costs associated with design services, they are generally important to creating long-term results that pay more than their value. In fact, a good piece of advice is if you feel you will not recoup the costs of advice you receive, you probably should avoid it.

Construction is expensive no matter if you hire professional contractors or do it yourself. If you are short on time, contactors can be helpful to say on task. And there are some tasks you simply cannot do without the help of a licensed contractor. Just be sure to get several quotes for the work, ask for references and do some digging around to see what challenges you may face with a hired contractor. And of course, be prepared for surprises. I’ve never been involved in a new build or rehab that didn’t have surprise costs in both terms of money and time delays (which really is just money).

Real Estate

To purchase real estate with bank loans, will likely need to supply at least 20% down for a commercial loan. And if you intend to finance the construction and improvements, you would need at least 10% down on the budgeted cost of improvements. There are several ways to obtain commercial loans, but that discussion should begin with a trusted banker that focuses on small business and real estate loans. Ideally, you work with a lender that has access to many financial instruments, including Small Business Administration (SBA) loan packages.

Working Capital

One of the biggest mistakes new entrepreneurs make is by not having enough working capital available to manage the business once it’s open as you begin to develop the customer base you anticipated when you are fully operational. Let’s be real, most businesses open with less customers than they need. It takes time to gain an audience and often more than you anticipate. You must be prepared to weather a big storm of slowness after you open.

Working capital is generally used to cover the expense of being open while your cash flow is below your cost of operation. Rents, labor, supplies, costs of goods and more are all associated with working capital. Having a fund to pull as you build your bottom line may be the difference between making it or not. Running out of money as you open your business can be prevented with a bit of realistic planning.

Summary

Budgeting for a new café or takeover coffee shop will be expensive. Taking time to be realistic with your costs will help you to plan for a more successful start to your new business. And no matter what you think you will need, plan on it costing more…perhaps way more than you expected. The sooner you are at being honest with yourself about the costs the sooner you will be to getting your project up and successful. If you have questions and would like to learn about the experience we had opening many coffee shops with Reverie, email us. We’d love to offer help if we can. Good luck with planning!