What Types of Costs Can You Expect?
The costs typically fall into six categories:
The average brick-and-mortar coffee shop can cost between $25,000 and $300,000 to start. However, small coffee businesses like mobile coffee carts and espresso stands typically cost between $16,000 and $25,000 to start.
Business formation represents the first step in establishing your coffee shop. You should create a formal business structure for your cafe — and you can choose to form either a limited liability company (LLC) or a corporation. New business owners typically establish a formal business structure for a few reasons, such as personal asset protection, credibility with new customers, and the opportunity to build business credit.
Most coffee industry experts recommend establishing your business’ legal identity as an LLC rather than a corporation for its simple, but effective business structure and strong protection of personal assets. For a fast, cost-effective way to form your LLC, consider using ZenBusiness — its starter plans cost only $39 plus your state fee.
Location and Build-Out
Choosing a location for your coffee shop should be your next — and potentially your most expensive — step toward starting your new business. A coffee shop’s location influences the products it sells, its customer volume, and its monthly rental cost. For these reasons, pricing can vary dramatically based on where you plan to set up shop.
Your build-out is how you implement your business’ personality and branding within your space while creating the best layout for daily operations and your customers’ experience. Besides rent, the build-out represents the most costly aspect of developing your coffee shop location.
Costs associated with location and build-out include:
- Rent: This will vary based on your location, depending on your shop’s square footage as well as the popularity of the specific area and the city in which you plan to operate. As a best practice, your annual rent shouldn’t exceed 15 percent of your annual sales.
- Design and Layout: Creating a design and layout for your new space can cost anywhere from $6,000 to $10,000. However, this also includes installation of necessities like sinks and countertops.
- Signage: Essential for attracting customers to your business, outdoor signage typically costs around $1,000.
- Furniture: Tables and chairs (or stools) for indoor use usually cost about $1,000. The same goes for outdoor furniture, if applicable to your cafe.
- Other Items: A music system and a mop sink — including installation fees — both cost about $400. If you plan to install a dishwasher or sanitizer, you can expect to pay around $700.
Your coffee shop equipment and supply needs account for some of the biggest start-up costs for this type of business. Prices will vary based on quality, brand, and quantity so it’s important to know which equipment is worth the investment. Coffee shop equipment and supply costs typically include:
- Coffee: While coffee prices fluctuate and vary due to market changes and location, you can expect to pay around $7.50 per pound of roasted coffee. This will, of course, depend on where you buy your coffee. For your first month, plan to budget $1,000 for coffee.
- Milk: Milk costs about $3 a gallon so, to start, budget $45 to cover 15 gallons of nonfat and whole milk. For two cases of milk alternatives (almond and soy milk in this example), you should budget another $100.
- Water Filtration System: Filtered water is necessary for coffee brewing — specifically espresso preparation. Budget $650 to $800 for a system that will cover your cafe’s needs.
- Espresso Machine: Without question, an espresso machine is the heart and soul of a coffee shop — and its biggest equipment-related expense. Expect to pay between $10,000 and $20,000 for a high-quality, semi-automatic espresso machine.
- Drip Coffee Maker, Airpots and Filters: Budget $1,500 for a full drip coffee setup, including a quality drip coffee maker, at least two airpots, and filters.
- Refrigerators: Many coffee shops have two — one under the counter or somewhere baristas can easily access it during order preparation and one behind the scenes for additional storage. For slower cafes, you may need only one. Budget $1,000 to $2,000 for refrigeration, depending on how much space you think you’ll need.
- Espresso Grinders: You’ll need at least two grinders — one for regular espresso and one for decaf. Plan to budget between $1,400 and $3,200 to cover the cost of both, depending on the brand of grinder you select.
- Drip Coffee Grinder: You’ll need an additional grinder for your cafe’s drip coffee, the bags of coffee you sell to customers, and any other coffee you don’t use for espresso drinks. While prices vary by brand, you should budget $1,000 for a good grinder.
- Serving Items: This includes items like disposable cups, lids, and drink sleeves, which cost about 33 cents per beverage. You also should budget about $400 to purchase a set of ceramic cups, saucers, spoons, and mugs.
- Sugar Packets: For packets of specialty sugar like Sugar In The Raw® and Splenda® as well as generic white sugar, you can expect to spend around $75.
- Flavored Syrups: The variety of flavored syrups and drink enhancements you choose to sell will depend on your customers’ preferences as well as what pairs well with your coffee. In general, syrups cost about $4.50 each for 25.4 ounces.
- Pastries: This will vary greatly by the type of pastry, the size of your order, and your location. For this example, let’s say you pay $20 for a dozen pastries. You’ll want at least two dozen pastries a day, so you should budget $1,240 per month.
- Additional Espresso Equipment: To make espresso drinks, you’ll also need a tamper, pitchers, a knock box, and scales. This additional equipment should cost around $200.
- Pitcher Rinser: This is an optional purchase, but can prove extremely helpful during peak rush times. Budget $320 for a standard pitcher rinser.
- Point-of-Sale (POS) System: The total cost of your POS system will vary based on the provider and equipment you choose. Many of these systems use tablets. If you already have a compatible tablet, you can take a few hundred dollars off your cost. For a complete system, budget $600 to $800.
- Espresso Machine Cleaner and Tools: Your machine will only produce the best espresso if you clean it properly. For espresso machine cleaner and tools, expect to pay around $55.
Hiring for your coffee shop requires you to source a team of customer service-oriented, food service professionals who love coffee. Beyond your operational staff, you also may need to hire contractors and professionals from other fields to provide expert services like equipment installation and legal counsel.
- Operational Staff: You’ll need to hire managers and baristas, and the number of each will depend on your coffee shop’s expected customer volume. Baristas usually earn minimum wage — excluding tips — and this rate varies by location. General managers of coffee shops typically earn an annual salary of around $35,000.
- Contractors: Depending on your skill level, you may hire contractors to help complete your build-out, set up your equipment, or install and maintain the utilities at your coffee shop.
- Professionals: Lawyers can answer questions you might have while forming your business as well as provide legal help once you establish your coffee shop. Consulting an attorney during this process is highly recommended to ensure you don’t miss anything. While the cost to consult a lawyer frequently changes, depending on the firm, you can expect to spend at least $500 initially.
- Accountants serve as financial experts, helping you wade through the tricky waters of business ownership. For a skilled accountant to take on the bulk of your financial tasks, you can expect to pay between $150 and $400 an hour. Accountants solely in charge of business bookkeeping will typically charge $30 to $40 an hour.
Licensing, Permits, and Insurance
Starting any business requires you to obtain all applicable licenses and permits. For a coffee shop, you’ll need several different types — as well as business insurance. While the costs vary by location and business size, the required licenses, permits, and insurance policies usually include:
- Business License: It costs $50 to register a business plus between $25 and $7,000 for a business license, not including annual renewal fees. The amount you’ll pay for a business license depends on the type of business. You can obtain a business license from your local government.
- Food Service License: Issued by your local health department or city, these licenses typically cost between $100 and $1,000. The exact amount depends on the type of food service business as well as your location and total number of employees.
- Music License: If you plan to play music in your cafe, you’ll also need a music license to avoid copyright infringement. These licenses typically cost between $250 and $500 annually.
- Sign Permit: You’ll need a permit before you can post any signage outside of your coffee shop to attract customers. Sign permits cost $20 to $50 annually. You’ll need to file an application with your local government to obtain this permit, which often starts with a quick online search. For example, you can find sign permit information for the city of Ann Arbor, Mich., here.
- Certificate of Occupancy (Building Permit): Before you sign a lease and begin the process of building out your new space, you’ll need to obtain a building permit from your city or county building department. This permit confirms your space not only is appropriate for a food service establishment, but also resides in a firesafe building. You can expect to pay about $100 for this permit.
- Building Health Permit: While similar to a building permit, this permit focuses solely on sanitation for food service purposes and requires routine inspections from the local health department. This type of permit isn’t required in all areas so check with your city or county to ensure it applies to your business. If yes, these annual permits usually cost between $50 and $1,000.
- General Liability Insurance and Other Key Policies: This is an important and necessary investment for your business. For $1 million in general liability coverage, coffee shops pay an average of $500 to $1,200 per year. Prices will vary by location for other essential business insurance policies, such as workers’ compensation insurance and commercial property insurance.
Understanding which federal and state taxes apply to your coffee shop business will not only make it easier for you to work with a tax professional, but also reduce your risk of missing anything important. Specifically, this information will help you protect your personal assets and simplify annual tax filing. A few taxes that may apply to your business include:
- Sales and Use Tax: Many cities require this for the taxation of wholesale pastries and food. If this tax applies to your business, customers will pay this tax to you when they purchase an item and you will then pay this tax to your state or local government.
- Gross Sales Tax: While similar to sales and use tax, your business will pay this type of tax rather than your customers.
- Withholding Tax: This is the amount withheld from your employees’ paychecks that your business then pays to the federal government.
- Unemployment Insurance Tax: Depending on the state in which your business operates, you may need to pay this tax to cover unemployment benefits. The cost to you will depend on your location as well as the size of your business.
Frequently Asked Questions
As you consider starting your own coffee shop, here are answers to five common questions about this type of business.
Is a Coffee Shop Profitable?
Yes, coffee shops can be a profitable business venture. The average profit for a small coffee shop typically ranges from 10 percent to 18 percent of its gross revenue. You can increase your profits by expanding your shop into a full-service restaurant, roasting your own coffee, or opening multiple locations.
How Do I Open My Own Coffee Shop?
Business planning is essential to any entrepreneurial venture. Ideally, your business plan will map out the financial trajectory of your coffee shop and expose any hidden costs that may arise during this process.
Recommended: To learn more, check out our comprehensive guide to starting a coffee shop.
How Much Does It Cost to Start an Espresso Stand?
An espresso stand or mobile coffee cart will require around $16,000 to $25,000 in start-up costs.
How Can I Open a Cafe With No Money?
Technically, you can’t start a coffee shop with no money. However, you can open a cafe with a loan you pay back once your business starts growing and earning higher profits.
What Makes a Coffee Shop Successful?
Two things — great service and a quality product — are essential to the success of any coffee shop. Create a positive work environment to encourage your employees to provide the best possible customer service. Train your employees well and they’ll also produce high-quality coffee drinks that will satisfy your customer base.