Coffee Shop Startup Costs
You’re sitting on a coffee shop idea that'll bring an exciting new option to your city and simultaneously give you the business you've been dreaming of. Whether you’ve already secured funding or you're just trying to figure out what it will take to get started, an accurate estimate of startup costs is necessary to reasonably predict financial performance in the first few quarters—for any business.
Of course every business and each industry will have different cost requirements, but these steps can help you start the process of crunching the numbers for a coffee shop.
Running your own software company is going to have different startup requirements than opening a coffee shop, for example. There are six primary cost categories for new companies:
- Cost of sales
- Professional fees
- Technology costs
- Administrative costs
- Sales and marketing costs
- Wages and benefits
Give thought to how these costs categories will be weighted across your coffee shop business. The coffee shop would presumably want to allocate more money to having several shifts of engaged employees, rather than investing in the latest, greatest technology, which means wages will carry a higher cost for your coffee shop.
Look at industry leaders to help predict your own coffee shop startup costs. If you’re opening a boutique coffee shop, scan the financial statement of a similar company that's publicly traded, such as Caribou Coffee. Obviously your revenue numbers will look a little different, but break down how much a coffee chain spends on cost of sales and administrative expenses as a percentage of revenue. Keep in mind that large companies and chains will be more efficient since they have greater buying power and economies of scale than a start-up, but you can still use these percentages as goals to shoot for.
Trade associations are an invaluable source of information for both new and established companies. Chances are whatever niche your coffee shop is in–from organic beans supplied by remote villages in Africa to partnering with local independent bookstores for partnering on opening new locations—there is already an entrepreneur support group out there with industry information, statistics and maybe even a magazine you can subscribe to, as well as several different entrepreneur forums where you can share ideas online. Also, don’t be afraid to seek out other entrepreneurs who have set up shop with successful coffee shops either locally, or in surrounding areas and talk to them about their experience with coffee shop startup costs, especially unexpected costs.
Business success stories like Google, McDonald’s or The Body Shop were not overnight sensations. When calculating start-up costs for your coffee shop, keep in mind that you will likely need a few months of funding to cover expenses before you even open for business. And once you do begin operating, it likely will take a significant amount of time until the business is self-sustaining. When approaching banks and other lenders for money, try to include a substantial cushion for beginning operations to ensure you’ll have enough money to set up an office, take orders, hire employees if necessary, and cover other related costs. Be reasonable with your revenue assumptions in the early stages and be conservative with cost projections. It’s also possible to structure a small-business loan to defer payments during the initial operating period.
One-Time vs. Recurring Costs
Distinguish between which costs you’ll have to account for year-after-year, such as salaries and rent, and which upfront costs will be one-time charges, such as furniture. This should allow you to establish a budget for after the startup period. Look for opportunities to delay non-vital expenses such as store decorations until after you’ve begun getting some business.
According to the list of the Top 10 Small Business Tax Deductions, “you can deduct up to $5,000 in startup and $5,000 in organizational costs for the first year of business. These deductions apply to expenses paid or incurred after Oct. 22, 2004. The rules differ for expenses before that date or if your costs exceed $50,000.
Expenses that are not deducted can be amortized over a 180-month period, which begins when you open your business. You can write off or amortize market research, advertising, employee training, business-related travel, legal advising and other costs.” Of course as the tax implications get more complicated, you may have to bring in a tax professional, which could eat into some of those savings.