It’s thought that 50% of the US population drink some form of coffee, be it espresso, latte, cappuccino or the myriad of iced coffees that have flooded the market.
That makes for quite a big potential audience if you’re considering opening your own coffee shop.
There’s just one thing to tackle first; like any new venture of this kind, you’ll need to spend some time creating a business plan.
Thankfully, that doesn’t mean sitting down and writing page after page of ludicrously detailed plans, calculations and lofty forecasts to which you’ll never refer again. Business plans are supposed to be working documents that provide both you and anyone else who’s involved in the venture with tangible value every single day.
6 Elements of a Successful Coffee Shop Business Plan
There are thousands of business plan templates and guides on the internet for coffee shops. Indeed, you’ve probably grabbed a fair few of them already.
However, we’ve seen enough to make our eyes water. Many of them will suggest creating the War and Peace-like documents we warned against earlier. But you really don’t need to.
The best coffee shop business plans feature the following sections:
- Executive summary
- Ownership structure
- Marketing plan
- Your products and services
That’s it. Remember - business plans are intended to be living, breathing documents, therefore you only need to start with what you need to get up and running.
Whether your business plan is simply a vehicle by which to get yourself going and motivated, or something you need to attract funding, let’s get into what those sections above mean.
1. Executive summary
This is the basic outline of what will follow in your business plan. For that reason, you need to write it last.
The executive summary is important, because it might be the only section some funders read. It should tell them everything they need to know as quickly as possible, including the mission behind your coffee shop, who you are, who you’ll be working with and how you’ll operate financially.
Be optimistic, realistic and don’t waffle (this advice applies to the entire business plan).
2. Ownership structure
Is it just yourself undertaking this venture? Or are you opening a coffee shop with someone else?
Use this section to detail the ownership structure and what everyone’s roles and responsibilities are. Detail the share structure and who has ultimate say with decisions.
If you’re in need of additional help in the form of finance or director-level support, make it clear in this section exactly who you need to attract and what’s in it for them.
3. Marketing plan
There’s no need to go into minute detail in this section - it’s purely intended to outline the role you see marketing playing in your coffee shop’s success.
Start by outlining your ideal customer persona, and the channels through which you’ll target them. Remember to also include an assessment of your competitors’ marketing efforts and how you intend to play in the same playground as them.
An estimation of the budget required to get your new coffee shop noticed and attract passing trade is important for this section, too.
4. Your products and services
You’re going to sell coffee, right? Well, true, but you’ll need to get a little more inventive about that for your business plan.
The trick here it to productise your coffee shop operation. What can people expect beyond the coffee they order? Is there a specific experience you’re aiming for, or a specific market you want to target?
For instance, if you want to tap into the remote working crowd, how will your product benefit them? Free re-fills? Unlimited WiFi? Meeting space?
You may even be introducing new, exciting drinks and food that the area hasn’t experienced yet, and if that’s the case, your business plan needs to reveal how big an impact this could have on the local economy and your ability to grow the business.
No one wants to read pages and pages detailing how you’ll run every single corner of the coffee shop operation, but you do need to provide a high-level overview of how each shift will fit together and operate smoothly.
This means identifying all roles and responsibilities, how you’ll manage orders and the physical layout of the coffee shop itself. Oh, and if you’ll be offering takeout and/or delivery (which is likely, these days), make sure that’s given plenty of airtime in this section of your business plan, too.
It’s also important to make note of the tedious stuff, such as utilities, recycling and maintenance schedules. Just don’t go into too much detail.
This is arguably the section in which you’ll spend the most time while putting together your coffee shop business plan.
Whether you’re trying to attract investors, banks or simply sussing out how you’ll spend your own funds, the finance section will wrap the all-important numbers around your plans.
It should include:
- where the initial startup capital is coming from (or where you need it to come from);
- starting inventory;
- any build-out or renovations required;
- the cost of any necessary licences;
- realistic profit margin goals (and how you intend to meet them);
- marketing costs;
- estimated costs for rent, ingredients and staffing; and
- three to five years of projected revenue and profit figures.
When working out the above budgets and figures, think about the following three cost factors:
- Location: Real-estate costs such as rent and taxes.
- Concept: Furniture and fixings, build-outs, renovations and permits.
- Menu: The equipment needed, installation and employees required.
This is a section of your coffee shop business plan that’ll need the most updating going forward, so don’t forget to keep a close eye on it as the business grows.
Important calculations: fixed costs, gross margin and break even
Now we know the sections required for your business plan, we’re going to take a look at some of the most important calculations you’ll need to make as a new owner in this sector.
Working out your break even point is key to learning how to run a successful coffee shop business, and it’s something you really need to undertake at the start of your business planning.
When you’re running at break even, the profit from the coffee shop will be zero. The term ‘break even analysis’ simply refers to the amount of revenue you need to make in order to cover the costs of operating the coffee shop.
The break even formula is: Break even revenue = fixed costs / gross margin %
To use that formula, you’ll need to know your gross margin percentage and your fixed costs.
If you sell a coffee for $2.75 and the variable costs of what goes into it stands at $1, then you work out the gross margin as follows:
Gross margin = £2.75 (sale price) - £1 (cost) = $1.75
To work out the percentage of the above, you simply do the following:
Gross margin percentage - $1 (gross margin) / £2.75 (selling price) = 36%
So, every time you sell a coffee, 36% of the price is gross profit for the business. It might sound like too simple a calculation for a business plan, but knowing your break even point will actually give you some solid numbers to work towards for the rest of your finance section.
The advice above should give you what you need to begin the process of mapping out your coffee shop’s business plan. Just remember to spend plenty of time on this vital element of building your business.
Equally, don’t get too bogged down in the details. A lot of that will come out in the conversations your business plan sparks; you simply need top-level overviews, honest appraisals and a clear demonstration that you’ve done your homework.
If it ever feels like hard work, just remember that once it’s done and you’ve got the funding you need, the exciting work can start!