How to Start a Coffee Shop

All of this hints at a strong aroma of success. If you are looking to have your own coffee shop, this guide has all that you need to start and run one.

Is now the time to start a coffee business?

With more than 70% of Americans being coffee drinkers, it's safe to say that coffee is America's most-loved drink. According to the National Coffee Association, the U.S. coffee industry had a total economic impact of $343.2 billion in 2022, a 52.4% increase from 2015.

The popularity of gourmet coffee and the growing urban coffee culture are two prime factors behind the U.S. coffee market's current $95 billion valuation. According to Statista, the U.S. coffee shop market hit $45.8 billion in 2022—a significant rebound from the early COVID-19 pandemic when the food and beverage industry took a severe hit.

What do all these trends and figures mean for you? Coffee consumption is at an all-time high and there's no better time than today to start your java journey. A coffee shop owner, you can expect to take in an annual income of $60,000–$160,000. With profit margins lingering between 10%–25%, your coffee venture has the potential to be highly profitable in the right circumstances.

How to open a coffee shop in 12 steps

Use the following steps to start a coffee shop business that serves a robust, refreshing brew alongside excellent customer service.

Step 1: Conduct market research

Before you can launch your own business, you should have a strong hold on what's working and what isn't, who the competition is, and whether there's actually a demand for a new coffee shop. There are a few ways to go about getting this information: 

• Gather customer demographics. Reach out to your local chamber of commerce or economic development office to determine consumer demographics. You can also look at census data. For instance, note down the genders, age groups, income and education levels, and marital statuses of your community. Areas with a larger female population, along with more disposable income and vibrant Gen Z or millennial communities, tend to indicate a strong demand for coffee shops.
• Understand customer needs and experience. Go beyond the basics to truly understand the coffee culture. Dig deeper into what customers seek from a coffee shop experience and brewing preferences. Gather data on metrics like the time of day people like to visit a coffee shop and how much they are willing to spend on their brew.
• Study the competition. The coffee market is competitive. To have a successful coffee shop, you need to know what other coffee shop owners are doing to stand out. This could involve visiting a lot of the local coffee shops, speaking to the coffee shop owners, studying their menu, and jotting down their pricing. 

Step 2: Choose a coffee shop concept and business model

Use the information and insights from your market research to decide on a coffee shop concept. Picking a niche can help you penetrate the saturated coffee shop market. You can consider one of the following models:

• Traditional coffee shop. This would be your traditional coffee shop with a sit-down service that offers a wide selection of coffees and other refreshments, alongside a few baked goods that pair well with coffee.
• Specialty coffee place. Their unique selling point could be using high-quality beans, different roasting techniques, or the latest brewing methods. Here, the baristas are skilled artisans who celebrate the art of coffee making. An espresso bar featuring unique bean and roast varietals, for instance, may be considered a specialty coffee place.
• Coffee kiosk. Usually, this is a no-frills, standalone spot within a public area that serves coffee. It's more of a grab-and-go model with limited or no seating.
• Drive-thru coffee. This concept focuses on convenience and serving popular favorites—fast.
• Hybrid cafe. In hybrid cafes, coffee shops are combined with other businesses, such as a bookstore, restaurant, co-working space, or even a bicycle shop.

A crucial step in protecting your business is forming a legal business entity, such as an LLC or C corp. Many small business owners prefer to register as a limited liability company as it's the simplest business structure to set up while offering management and tax flexibility as well as personal liability protection.

Step 3: Write a business plan 

Just like you can't make a good cup of coffee without quality coffee beans, you can't build a successful business without a coffee shop business plan. It provides structure, direction, and "flavor" to your coffee business. Your business plan should include the minutest details pertaining to your coffee shop.

A solid business plan that facilitates funding includes:

• An executive summary. A crisp and concise overview of your business, including its mission statement and goals.
• A company description. Talk about your coffee shop concept and the market gap it addresses. Also, mention the company's business structure, address, and legal name.
• An overview of management and ownership structure. Outline who owns the business and how it will be managed. Specify the duties and responsibilities of key leadership personnel and members.
• A summary of financial projections and startup costs. Give an overview of startup and ongoing operational costs and when you expect to break even. If you need external funding, highlight which funding sources you will approach and how.
• A marketing strategy. Describe how you will spread the word about your business. Don't forget to tap into both online and offline marketing tactics.
• Details about staffing requirements. How many hands on deck—baristas, servers, kitchen staff, coffee shop managers, etc.—will you need? Include each role's job description and associated costs.

Step 4: Find the perfect location

Your coffee shop location can decide whether you thrive or barely survive. But the location also has to match the concept and ambiance you envision for your business. As you scout a commercial space, check the following factors:

• Is there enough space to fit everything you need? Say you plan to offer hot food items. Is there enough space for a kitchen?
• How accessible and visible is the location? Is it on the main road or off the beaten path?
• Is there regular foot traffic?
• Is there sufficient parking?
• Is it accessible to your target demographic?
• How much competition is nearby?
• What is the rent? What's the average utilities expense in the area?
• How much renovation or updating does the location require?
• What are the area's zoning regulations?

Once you've found a place that ticks all the boxes, it’s good practice to get legal help to review the lease agreement. 

Step 5: Obtain the necessary permits and licenses

Securing the right coffee shop licenses and permits may not be the most exciting detail to work on, but having them ensures your business is operating legally and lawfully. Some licenses and permits you may for the coffee business are:

• A general business license
• A retail food service license
• A sales tax license
• A food handler's permit
• A live entertainment license if you plan to host a singer or guitarist for an event or two
• A liquor license, if the coffee shop doubles as a wine or beer bar later in the day

State and local authorities control these licenses and permits, and it can be confusing to figure out where to go for each license or permit. LegalZoom's license lookup service takes this task off your shoulders. Answer a few simple questions about your cafe, and we'll get back with a comprehensive list of required licenses, plus resources for procuring them.

Step 6: Create your menu

The star ingredient of your menu is obviously the coffee, but think about what delicious treats will complement it. Your coffee shop menu should seamlessly blend with your brand's identity and what your customers want. After all, it's about making you and your customers happy.

For example, a drive-thru menu should offer classic coffee beverages alongside easy-to-grab snacks pairings that prioritize convenience. A gourmet coffee place's menu can be more focused on highlighting the coffee sources and brewing methods than featuring lots of flavor combinations.

Our top advice would be to try not to cram too many offerings just because other coffee shops are doing so. Too much choice and a repetitive menu can also deter customers. A small, thoughtful menu with a distinct personality tops a crammed one, any day.

And, while you are creating your menu, pay attention to its design. Ensure the menu is easy-to-read, organized, and approachable. For instance, novice coffee drinkers may find excessive coffee lingo jarring and overwhelming. Likewise, grouping the menu into categories like "Espresso drinks" or "Desserts" can help customers find exactly what they’re looking for. 

Step 7: Design your cafe

Your coffee shop layout should be designed to be efficient and safe while enhancing staff and customer experience. Depending on your concept, there are a lot of areas that need detailed attention.

• Exterior space. Your cafe's exterior creates the first impression on customers. Before designing it, find out about local restrictions and required permissions.
• Front area. In a sit-down cafe, this is where customers spend most of their time. Design this space based on how you want your customers to feel. Airy, vibrant spaces are more welcoming to conversations and catchups. The furniture style, color, and arrangement should be in harmony with the lighting and sound.
• Back-end kitchen area. Efficiency is the key to designing this space, which constitutes your kitchen area, prep station, point of sale (POS), and coffee equipment. Account for how many employees you expect back here and how the work order will flow.

There is a wide variety of free and low-cost software—like Floorplanner, Planner5D, and SmartDraw—that can help you design and visualize every nook and corner of the cafe.

Step 8: Purchase the necessary equipment and supplies

Your coffee shop will require a variety of equipment and supplies, from coffee machines, roasters, and ice machines to water filtration systems, refrigerators, and storage containers. You'll also need coffee cups, sleeves, utensils, and essential safety equipment.

The most cost-effective way to get equipment is to take over an existing business—along with its inventory. If that’s not an option and budget is an issue, you can explore purchasing new or second-hand equipment, or even renting it. While high-quality equipment usually comes at a higher price point, the investment pays off because you can expect less maintenance and higher quality drinks. 

When selecting equipment, factor in quality, space, ease of use, and maintenance demands. For instance, you may not have room for your favorite coffee roaster, whereas a stylish vintage espresso machine might become a design centerpiece on your counter.

Step 9: Get a POS system

A point-of-sale system is an excellent way to manage your coffee shop sales and operations. These systems often integrate sales, inventory, payments, and budgets while elevating customer service.

Consider the following details as you compare systems:

• Ease-of-use. You don't want baristas and staff spending more time figuring out the system than using it. Read reviews and get feedback from other coffee shop owners about their experience.
• Features. Many POS systems have integrated payment, employee scheduling, and inventory management features—but your cafe might not need all the bells and whistles.
• Hardware integrations. Many modern POS systems include touchscreen monitors, credit card machines, and receipt printers. This hardware will also take up space, so consider how it will fit into your shop functionally and aesthetically.
• Pricing. Don't just look at the initial price tag. While deciding what fits your budget, consider both upfront and ongoing costs, such as fees, subscriptions, and equipment rentals.
• Cloud capabilities. With a cloud system, you get data backed in real-time and can check on important financial reports from pretty much anywhere. This useful feature is part of many modern POS systems, sometimes as a standard offering and sometimes for an additional fee.

Step 10: Hire and train your staff

Running a coffee shop solo can be a lot, especially if you envision a cozy, sit-down business offering hot food and baked goods. A little team makes it easier—most coffee shops tend to require at least a barista, a manager, a cook/baker, and a server. Experienced staff may ask for a higher salary, but their expertise and knowledge could be exactly what attracts customers to your place. 

A well-trained staff can elevate the customer experience. Invest in training that allows your staff to feel confident and supported. For training support, check out the programs from the Specialty Coffee Association (SCA) or Bellissimo Coffee Advisors.

Note that you will need an EIN number before you can officially make hires. LegalZoom can help you get one from the IRS. 

Step 11: Market your business

There are a lot of ways to get in touch with customers. Conventional methods, like flyers, direct mail campaigns, or dropping free coffee off at local businesses, are all great ways to spread the word.

However, your marketing strategy should also depend on your target demographic. If the older crowd is your primary customer base, focus on creating a warm, comfortable vibe that can accommodate small groups for casual conversation. You may also want to offer senior discounts during certain hours to encourage them to stop by regularly.

Strategies to attract the 20–40 age group could look a little different:

• Creating an app that allows them to order coffee on the go
• Offering free WiFi
• Highlighting your frozen and cold-brew options
• Rolling out niche or seasonal flavors such as pumpkin, strawberry, or pistachio lattes
• Building an online presence via Google or Trip Advisor
• Launching a social media page

Step 12: Launch and manage your coffee shop

After months of planning, it's time to put it all into action. Hosting a soft opening is the perfect way to let everyone know your coffee shop is open for business. You can also use this day to work out any operational kinks.

These few tips can ensure a smooth launch:

• Set a date in advance
• Curate a guest list
• Set a budget for the launch party
• Highlight certain drinks and food items
• Offer special discounts or giveaways to those who attend

A few more housekeeping items can make managing your coffee business more smooth and secure. For instance, forming a legal business entity is a very wise move for cafe owners to protect themselves from liabilities.

How much does it cost to open a coffee shop?

Opening a coffee shop can cost you anywhere between $80,000 to $300,000. This is a pretty big range, but a lot depends on your coffee shop concept and whether you are combining different offerings (like books) alongside your cup of coffee. For instance, it's cheaper to start a coffee kiosk than a sit-down cafe.

Location, leasing, and utilities

These expenses are highly dependent on location. A lease for a shop in a prime area will command a higher rent than a place that's on a side street. Commercial retail leases start at $35.12/per sq ft. in a major city like Atlanta, GA, but can be the same in a high-cost small city like San Jose, CA, where a commercial space lease typically starts at $36.51/per sq ft. You can find lower lease rates in a suburban area or college town.

Commercial leases are quite different from residential leases. You may be able to negotiate a lower rent if you take on some maintenance expenses, as done in a gross modified lease. The expertise of a real estate agent or real estate attorney can help you secure a good deal. 

Utility rates are again tied to your location. For example, the electricity rate for a commercial space in New York State is 18.07 cents/kWh (35% higher than the national average) primarily because it's a dense and hard to maintain area. 

Renovations and decor

Creating the perfect cozy vibe or an attractive outdoor hangout place may require some renovation and interior work. According to Building Journal, the national average renovation cost of a 500 sq ft restaurant or cafe is $160 per sq ft. But this number may jump up significantly if your new coffee shop requires a major overhaul with structural changes.

Design intricacies, custom features, and opting to work with a professional interior designer or architect can again hike this figure. It's best to clearly define the scope of work and get bids from multiple contractors. 

Equipment and inventory

Equipment and inventory make up a big chuck of business expenses. Here's what you can expect to pay:

• Commercial espresso machine: $2,000–$15,000
• Commercial coffee grinder: $850–$7,000
• Commercial brewers: $450–$4,500

The cafe should be well-stocked with coffee beans, cups, cup sleeves, silverware, to-go cups, and lids. These inventory item costs are tied to cafe size, concept, and demand. Budget these costs to run between $1,000–$5,000.  

POS software and hardware will add more expense. For instance, Wix’s web-integrated POS system adds another $1,295 to your equipment expenses. 

Licensing, permits, and insurance

The cost of licenses, permits, and insurance varies significantly. Factors such as business structure, location, kind and number of licenses and permits requirement, coffee shop size, services provided, and number of employees all influence this cost. A general business or food service license can cost anywhere from $15–$500.

For instance, if your business plan calls for hosting live music events at your coffee shop, you may need to purchase a live entertainment license. In the city of Boston, the live entertainment license fees range between $25–$200.

Staffing

According to Salary.com, baristas in the U.S. earn an average of $21,000–$31,000/per year, while coffee shop managers make between $60,000–$110,000/per year. If you hire wait staff at tip rates, you can expect to pay another $22,000-$24,000/per year per staff member.

Remember these figures are just base salaries and you should budget for other expenses like payroll taxes and insurance. 

Marketing

Marketing strategies can cost between $300–$5,000 and can play a big role in helping your local business stand apart from other coffee shops. Here's what to expect:

• Website and domain names costs. A professional website designer can be expensive, most charge between $20–$100 per hour. Using a DIY website builder like Wix is a more budget-friendly option. A domain name from a site like GoDaddy can cost anywhere from $2–$20. 
• Social media marketing. It's free to set up a social media account, but building a reach and followers may require you to spend on ads and hire a social media manager. You can start with a daily ad budget of $10–$20 on a platform like Instagram. A social media manager can run you $500–$5000 per month.
• Print materials like flyers and posters. You may decide putting flyers is the best way to advertise your independent coffee shop. The printing cost for 25 A4-sized flyers at Staples is $19.99. 

How to decide which business structure is right for you

As a small business owner, your first big decision is which business model to adopt. A sole proprietorship, an LLC, a C corp, or an S corp? This choice plays a role in your tax burden, compliance requirements, and personal liability.

• Sole proprietorship. This is not a legal business entity—you become a sole proprietor the day you start doing business, but your personal assets, like a house or car, are at risk if your business faces debts or legal actions.
• Limited liability company. This is the most basic legal business entity that offers liability protection. You can form an LLC by registering your business with the state and paying the necessary filing fees. You also have the flexibility to decide on your tax status, management structure, and financial arrangements.
• Corporation. This structure also provides liability protection. Corporations take longer to form and have more stringent tax and compliance obligations. The management structure can also be a bit more complicated, but corporations can provide benefits for attracting investors, and establishing a more stable and structured management model.

A small business attorney can explain the pros and cons of each business structure. Furthermore, they can recommend a structure after analyzing your risk appetite and understanding your personal and professional goals.

FAQs

What are the risks of starting a coffee shop?

The food and beverage industry famously faces high attrition. Coffee shops in particular are complicated by the increasing cost of coffee beans and competition from major corporations. However, these risks can be minimized by developing a thoughtful coffee shop business plan, keeping startup and overhead costs low, and paying attention to the needs of your target market.

How long does it take to open an independent coffee shop?

It can take anywhere from four to 14 months to officially open doors to your coffee shop. If you are taking over an existing business, it will be easier for you to get up and running. On the other hand, if you are starting from scratch and have to do everything from writing a business and designing a coffee shop layout to finding suppliers and a commercial lease, you can expect the process to be longer.

What should I include on my coffee shop menu?

Your coffee shop's main offering is coffee, and ideally, you should craft a menu that highlights and complements the coffee served. Start with the basics—lattes, espresso, americanos, drip coffee, cappuccinos—and go from there.

Adjust your menu around your customers’ needs. If your shop is more of a grab-and-go place next to a public transit stop, a simplified menu with regular or decaf coffee and portable breakfast pastries will be perfect.

How do I raise funds to start a coffee shop?

There are multiple ways to fund a coffee shop. Many small business owners try small business loans from the Small Business Administration (SBA) or a bank. Others gravitate towards business credit cards, crowdfunding, peer-to-peer lending, grants, or angel investors.