The coffee shop business really appeals to first-time entrepreneurs. Margins are high, the cost of entry is moderate, and owning a successful cafe can be a very rewarding lifestyle. As a result, you’ll find hundreds of books and blogs about starting coffee shops, which give great advice on writing a business plan, finding the perfect location, working out a budget, and managing staff.
If you’ve done your research, then hopefully you already know the footfall in your location and the kinds of customers in the area. You know exactly how much capital you need to keep the business running for at least a year, and how to get access to that money. You’ve written a rock-solid business plan, but you also know that everything will cost at least 50% more than you anticipate. You know how to find a great team, and how to motivate them. Not to mention, you know how to make amazing coffee. What could go wrong?
Sadly, even with the most careful planning, there are common mistakes that both new and experienced cafe owners often fall into. Here are five of the most important things to watch out for when you’re setting up a coffee shop.
Follow the Money
Most specialty cafe owners get into the business because they are fanatical about coffee. What could be better than spending your working day chasing the elusive ‘God Shot’, that perfect cup of coffee? When you manage to create an exquisite brew that recalls the heavy jasmine scent of the coffee flower, or the sticky-sweet flesh of its fruit, and then get to share it with someone who appreciates it — it’s an extraordinary feeling.
Unfortunately, though, it can be very difficult for a cafe to make much money. With each customer spending as little as 30 Riyal, turning a coffee shop into a profitable business can be very challenging.
As unromantic as it sounds, making money is the most important goal of any business. If there’s no money, then there’s no business. It’s easy to forget this when you’re caught up in the excitement of a new coffee trend, or when you get to taste the first brew of that 92-point anaerobic Gesha. If you want to keep enjoying and serving these wonderful coffees for years to come, then make sure that you have the business fundamentals under control.
A business plan is not just a tool for getting a loan but should be the template for how your business will make money. Keep the business model simple enough that you can follow it in the day-to-day running of the cafe, and keep it up to date as the needs of your business change.
The most important costs to track in a cafe business are the variable costs: labor, and the cost of goods sold. These two are business critical because the amount you spend depends on how much you sell, while your costs for rent or utilities, for example, are largely fixed.
Too many businesses come up with a complicated formula to calculate the theoretical cost of espresso down to a single coffee bean, but don’t accurately measure the amount they spend in real life. Find a way to accurately measure the amount you actually spend on wages and ingredients, and make sure you are hitting your targets — every week. If you can do that from day one, then you’re well on your way to developing a profitable business.
Stay True to your Mission
The most successful businesses have a clear idea of what they set out to do, and coffee shops are no exception. Writing a mission statement can feel like a cheesy corporate exercise, but it’s an important step in establishing what kind of business you want to create, and all other business decisions should follow those goals.
A successful coffee shop doesn’t only sell coffee and food: customers might come for the ambiance, the baristas’ expertise, or the gossip; because they want to be part of something achingly hip and new, or because they want something familiar and comforting. Decide what kind of space you want to create, and what kind of customers you want to attract — and let your menu reflect that. If you’re looking for more help writing your menu, then look out for our next blog post, on how to design the perfect menu for your cafe.
Once you’ve established your niche, stay focused on what those customers need. You can’t offer something to everybody, so listen to your customers but don’t be overly afraid of negative feedback when it comes — and never lose sight of why you started the business in the first place.
Build your Brand
‘If you build it, they will come’ only works in the movies. Great coffee and great vibes are just not enough to get customers in the door by themselves. You need your customers to find your shop, and — even more importantly — to remember your name when they’re talking to their friends.
This means that you need to try and build a recognizable brand, long before you open the doors to the cafe. Even the smallest coffee shop needs to develop a marketing strategy that keeps the brand uppermost in people’s minds, whether that’s by posting quirky stories on Instagram, sponsoring coffee competitions, or hosting events for your local community.
The quality of your brand may even be more important than the quality of your coffee: Research for the Specialty Coffee Association showed that brand recognition is what determined how much people enjoyed a coffee and how much of it they consumed — no matter what the actual quality of that coffee was.
Manage the Business, not the Cafe
Perhaps the most common mistake for new cafe owners is to let the day-to-day running of the business completely rely on their own labor. If you’re the only one that knows how to close the shop, then you can never take a day off, and you certainly can’t afford to get sick.
Your aim from day one should be for the business to run itself. This means setting up foolproof systems for everything — from cleaning checklists to cashing up procedures. It also means training your staff to take on those responsibilities, and empowering them to solve problems as they arise.
If you get this right, then you’ll find that your staff quickly become much better at running the cafe, looking after customers, or making coffee than you are. That’s exactly as it should be: after all, they are the ones taking care of your cafe every day. Your most important job is to make it as easy as possible for them to do that and to make sure they want to keep on doing it.
Equip Yourself for Success
Getting the right equipment can make or break a coffee business. What espresso machine you have on your bar says a lot to your customers about how serious you are about coffee. Top-tier equipment also goes a long way to attracting talented baristas to work in your cafe. On the other hand, a sub-par machine puts a limit on how good the coffee can be, and might struggle to keep up as the cafe gets busier. Buying the wrong machine now, and upgrading further down the line, is considerably more expensive than taking the time to choose the right machine in the first place.
Whatever equipment you choose needs to meet your goals as a business. If you’re looking for advice on this, check out our list here of the five best espresso machines for different kinds of cafes.
Going for second-hand equipment can reduce the up-front cost, but unless you know every detail of the machine’s service history, and are comfortable replacing parts yourself, it can end up costing you more in the long run. Losing a single day’s trading to a faulty machine can be catastrophic to a new business, so you need to be sure that you can rely on your gear.
The right equipment doesn’t begin and end with the espresso machine, however. The grinder has at least as much effect on the flavor of the coffee, and the speed of your workflow, as the machine does — so make sure to include a good grinder in your budget. The right water treatment solution is essential to protect your investment and get the most out of your coffee. Accessories like automated tampers and pitcher rinsers can radically speed up your workflow, paying for themselves many times over. In a future blog post, we’ll give you a checklist of everything you need to open a coffee shop, to make it as easy as possible to find the right equipment for you.
The first year is the most challenging time for any business. Avoiding these five common mistakes when you’re opening a new coffee shop will make your business much more likely to succeed. By knowing some of the potential problems that lie ahead of you, you’re a step closer to building the successful cafe you always dreamed of.
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