Opening a Coffee Shop Business
This guide covers the steps required to actually form your coffee shop business as a legal entity, with all the permissions it needs to do business. The coffee entrepreneurs we interviewed while researching for this article all operate a variety of business models, from serving food, tea, and other beverages out of a traditional coffee house, to running a very low-budget cold-brew coffee business.
In this guide you'll learn how to start an LLC, how to get your location ready to open its doors, what are some expected start-up costs, how to get the right permits and licenses, when to hire employees, as well as other tips & strategies for a successful opening day.
Recommended: Read our full, in-depth How to Start a Coffee Shop Business guides, inspired by coffee professionals, they will help make your coffee dreams real, from sourcing beans to hiring baristas, choosing the best POS system, forming an actual company, and everything in between.
Form Your Coffee Business as an LLC
In this guide, you'll learn about opening your business in the following ways:
- Form your Coffee Business as an LLC
- Getting the Right Location
- Licensing and Permits
- Hiring and Training Employees
- Opening Day at Your Coffee Shop
As you work through this guide, this information should be added to your business plan to continue building the structure for getting your business started.
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One of the first, and easiest things you can do when starting your business is to form the actual entity. You have some choices when it comes to the type of business entity you form, like LLCs, C-Corporations, and S-Corporations.
In the coffee industry LLCs are common and are recommended by all of our experts based on the scale of most coffee businesses.
When you form as an LLC, you’ll be getting a straightforward business structure that will protect you and separate your personal and business assets through what’s called the corporate veil. In addition, LLCs have a limited amount of paperwork compared to other business types, and their pass-through taxation status makes it so you don’t get taxed twice on business revenue.
Forming an LLC can be done months before you start spending money on other things too, so you have it ready to go when you need it.
Setting up an LLC is easy, and can even be done online with the help of a professional service like Zenbusiness.
If you’d like to learn how to do this yourself and only pay your state’s registration fees, visit our free guide, How to Form an LLC guide.
For most states, forming an LLC follows these five steps:
- Name Your LLC
- Choose a Registered Agent
- File the Articles of Organization
- Create an Operating Agreement
- Get an EIN
STEP 1: Name Your LLC
By now, you should have an idea for what you’d like to name your business. However, you should keep in mind that every state has its own rules about what kinds of names are allowed for LLCs. In general, you will need to observe these guidelines:
- Your name must include the phrase "limited liability company," or one of its abbreviations (LLC or L.L.C.).
- Your name cannot include words that could confuse your LLC with a government agency (FBI, Treasury, State Department, etc.).
- Restricted words (e.g. Bank, Attorney, University) may require additional paperwork and a licensed individual, such as a doctor or lawyer, to be part of your LLC.
- The name must be available, in most states you can do a name search to find out if what you want is available.
To learn more about naming your business, read our How to Name a Business guide. After you get your business name, your next step is getting a unique logo. Get your logo using our Free Coffee Shop Logo Maker.
Learn How to File a DBA if you’d like to have an additional name you want to do business as that differs from your official business entity’s name.
Finally, check to see if your business name is available as a web domain and get that URL. Even if you don't plan to create a business website today, you may want to prevent others from acquiring it. You may also want to do the same with any social media accounts you plan to use.
STEP 2: Choose a Registered Agent
What is a Resident Agent? A registered agent is an individual or business entity responsible for receiving important tax forms, legal documents, notice of lawsuits, and official government correspondence on behalf of your business.
Most states require every LLC to nominate a registered agent, and your registered agent must be a resident of the state you're doing business in, or a corporation authorized to conduct business in that state, such as a registered agent service. You can also choose to elect an individual within the company, including yourself.
STEP 3: File the Articles of Organization
To officially create an LLC, you will need to file your formation document with the state. This can be done in a number of ways, but it depends on your state.
The most common name for this document is the Articles of Organization. In some states, this document is known as the Certificate of Formation or the Certificate of Organization.
To learn more, visit our Articles of Organization guide.
Recommended: ZenBusiness ($0 + State Fees) will file your Articles of Organization for you, act as your registered agent free for the first year, and even help you obtain your EIN.
STEP 4: Create an Operating Agreement
What is an operating agreement? An operating agreement is a legal document outlining the ownership and operating procedures of an LLC.
Although most states do not officially require you to have an Operating Agreement in order to form an LLC, it's still a good idea to have one.
If it’s your first time drafting an operating agreement, you may want to contact an attorney to make sure you’re doing it right.
Recommended: Check out our Free Operating Agreement Template tool in the TRUiC Business Center, and get access to other great legal document templates, discounts, and more.
STEP 5: Get an EIN
What is an EIN? The Employer Identification Number (EIN), Federal Employer Identification Number (FEIN), or Federal Tax Identification Number (FTIN), is a nine-digit number issued by the Internal Revenue System (IRS). This number is used to identify a business entity and keep track of a business’s tax reporting. It is essentially a social security number (SSN) for the company.
Why do I need an EIN? An Employer ID number is required for the following:
- To open a business bank account for the company
- For Federal and State tax purposes
- To hire employees for the company
The Importance of an EIN for a Coffee Business
An EIN is important for all businesses, and without an EIN for your coffee business it really can’t do much, for example:
- Bigger vendors will not supply to you
- You can’t hire employees
- You won’t be able to open a bank account or credit card
- You can’t apply for a food license without one
- And so much more
So, be sure to get an EIN — they’re free. And if you don’t want to handle it yourself, a professional service like ZenBusiness can do it for you for an additional fee while forming your LLC too.
Setting up Finances
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your LLC is sued. In business law, this is referred to as piercing your corporate veil.
Finally, get a good accountant and bookkeeper near you, or use an online service. An accountant can help you keep track of your finances, help you file taxes, and even help out with payroll.
Get Business Insurance
Business insurance helps you manage risks and focus on growing your LLC. The most common types of business insurance are:
- General Liability Insurance: A broad insurance policy that protects your business from lawsuits. Most small businesses get general liability insurance.
- Professional Liability Insurance: A business insurance for professional service providers (consultants, accountants, etc.) that covers against claims of malpractice and other business errors.
- Workers' Compensation Insurance: A type of insurance that provides coverage for employees’ job-related illnesses, injuries, or deaths. In Michigan, businesses with one or more employees, including LLC members and corporate officers, are required by law to have workers compensation insurance. Get a free quote with ADP.
Getting the Right Location for Your Coffee Business
While there are many things to consider while finding a finding the right location to open your coffee business, there are a few that stick out first.
The major marketing-oriented location factors are visibility, parking or public transit, and high traffic.
Visibility for cafes means street-level visibility, where people can see you inside through windows while walking by on the street. If you don’t put yourself in a location like this, you may likely be halving the number of people coming into your shop, according to our Coffee Expert Jess Harmon.
Parking or public transit is important too for a pretty simple reason — people will need to be able to visit your location in order to do business in your shop.
Finally, you’ll want to be located in an area that already has high-traffic, with other high volume businesses around, such as restaurants, hair salons, and others.
A location like this will likely cost more. However, this is something you should really consider investing in because it will pay off in the long run.
Recommended: After you find the right location, make sure you Design the Perfect Floor Plan for Your Cafe too, which will effect your renovation costs, discussed later.
Budget and Making the Right Investment
With all of these location considerations in mind, you have to also factor in your budget with any other financing you’re looking to secure before you can decide whether you’re going to buy or rent.
If you don’t have the finances to buy a building and do things like fix a roof leak or other expensive repairs, it’s better to have a lease with a landlord who’s required to fix these kinds of issues for you without it cutting into your bottom line.
Make Sure You Have the Right Landlord
When you’re looking for a landlord to lease from, you really have to be prepared to be with them for a long time, at a minimum 5 years. Some landlords are really eager to have you and will bend over backwards, while others may be quite difficult.
Tip: You have to be willing to walk away from a bad lease if the deal is extremely unfavorable to you.
Lock in Your Location
Now that you’ve found the ideal location, and an awesome landlord to help you take care of the place while you build your business, what should the deal look like?
Of course, the details will change from place to place. However, you’re going to want to sign a lease for at least five years. This may sound like a long time, but as our expert Jess said, she’s seen situations where people get kicked out of their building after getting it renovated, being left with almost nothing.
A five-year lease better guarantees you that space for enough time to get your business started and moving, and to deepen the relationship you have with your landlord.
Tip: Find a landlord who’s willing to start renting you the building the day you actually open to customers, instead of signing the lease when you are renovating the building.
This could be the difference of 3-4 months rent and will save you thousands of dollars.
Finally, before you lock this deal down, make sure your financing is committed. The last thing you want is to sign this lease and then lose the money you need to pay for it.
To start the process of renovating your space, you should talk to about 3-4 contractors if possible, show them your plans, visit the space with them, and have each of them write up a well-estimated, signed bid.
Once you have these bids, your first instinct will probably be to go with the cheapest one, this is something you should resist. You’ll want to take the contractor with the best reputation to get the work done on the price they quoted you. A cheap bid can mean unexpected costs down the line from poor workmanship or poor planning.
Additional Costs to Expect While Renovating
In addition to the cost of renovation, you’ll likely see costs involved in utility connections and getting things in the building up to code.
Utility connections will involve city-level connection fees to get the space connected to water and electricity. As part of this, you will also want to know what your space is currently rated to handle for each. Will it meet your needs for water and electricity usage? If not, what can be done to upgrade the space and how much will this cost?
Getting up to code can take a lot of your time and money too. For example, if your space needs floor drains, and does not have currently have them, the floor will need to be chopped up to install them. With this and any other number of things that need to be brought up to code, which will require skilled labor and tradespeople to complete, you will end up with a long list of contacts by the end of this process.
Licensing and Permits
To operate your coffee business, you must comply with all the necessary federal, state, and local government regulations. For example, cafes likely need health permits, building permits, signage permits, etc.
The licenses and permits needed to operate your business will vary depending on federal, state, and local requirements.
Food safety and food code is a very important topic for any coffee business, one that many new coffee business owners overlook. This is because it’s not the most glamorous side of running a coffee business.
Jess Harmon, Coffee Expert, had a lot to say about the food code for coffee shops, including:
Get the process of applying for a food license started sooner rather than later. This will help you in the long-run, as the red tape can sometimes take an unbearable amount of time. This is especially true if it’s one of the last things you’re waiting on to open your business, as it’s completely out of your control.
She also cautions new business owners not to make the mistake of seeing the health department as their enemy, instead of as a support system. You should be leaning into them for advice, rather than just doing something that they then have to come check out. This could get you shut down for a couple of days while they figure out if they like what you did or not.
Obtaining the Right Licensing and Permits for Your Coffee Business
The details of business licenses and permits vary from state to state. Make sure you read any requirements you find carefully and don't be surprised if there are short classes required as well.
Timelines will vary depending on your location, so you will need to be patient as they’re being processed. You will also likely have to submit plans to your local ordinance, and go through a separate food safety certification, ServSafe.
Fees for business licenses and permits will vary depending on what sort of license you are seeking to obtain.
Find out how to obtain the necessary state and local business licenses and permits for your LLC using the resources below, or have a professional service do it for you:
- Federal: Use the U.S. Small Business Administration (SBA) guide.
- State: Check our Business License Search guide for links to the appropriate State License Search.
- Local: Contact your local county clerk and ask about local business licenses and permits.
Recommended: If you are a first-time entrepreneur, consider having a professional service research your business’ licensing requirements. Our friends at Startup Savant have reviewed and ranked the top five license research services.
Hiring and Training Employees
Hiring and training the right employees is one of the most important and beneficial things you’ll do while building your business.
And, just as important as it is to hire the right people, it can be a huge financial disaster to hire the wrong people. One of our experts said he calculated the cost to be about a $10,000 loss when hiring a bad manager, and a $2,000 loss for a bad barista.
However, when you find the right person, the training will be easier, and they’re likely to flourish at your company.
Recommended: Read about the Best Coffee Education and Certification Programs for your staff and yourself.
You Can Teach the Tasks, but You Can't Train Personality
All of the tasks and responsibilities in your business can and should be trained. One of our experts expressed regret in not training any of his staff in the beginning of his business, which would have saved a lot of headaches.
What you can’t train is someone’s personality; you’re hiring for that personality. For example, when you’re hiring a barista, you should look for someone who is friendly, engaged, and outgoing.
You can’t turn a shy, introverted person into someone who excitedly talks about your coffee and tea, and is outwardly passionate about your products.
The Multiple Benefits of a Good Hire and Culture
If you’ve set up a culture that’s friendly, fun, honest, trustworthy, and you treat your staff well, people are going to want to work with you. You really should become the place that people want to come and work at.
If the people you hire are happy and want to work with you, your costs will go down, sales will go up, and your customers will be happier with your business.
Recommended: Read our hiring guide for in-depth information on things like sample job descriptions, payroll software reviews, hiring compliance, and more.
Opening Day at Your Coffee Shop
This is the big day, everything you’ve been gearing up for. Are you prepared?
One of our experts told us about the wakeup call they had when they opened the doors to their cafe, expecting a crowd of people to come in. Noone did, except for the guys that owned the building they were renting from.
So, what can you do to get prepared for your shop’s opening day, in terms of promoting your business and taking care of your initial customers?
What You Should Have Prepared
While there are likely a million little details for you to still take care of after opening your doors, you’ll need to at least take care of the following:
- Your whole personnel package — make sure everyone you’ve hired is as trained up as they can be.
- Your product procedures — make sure everyone knows how to handle and use your products
- Be in touch with your vendors to make sure you don’t run out of product
- Test your recipes to make sure they’re fully dialed in
- Make sure you have the right equipment in place, including:
- And any other necessary things you can think of before you’re working with the general public
You don’t want to idle away that precious time, or you may find yourself two weeks from opening day without enough time to get the important stuff done. There’s always work to be done and details to be taken care of.
Talk About the Opening
There are a number of ways you can talk with people about your business, from inviting them in during construction to doing posts on social media, and even just engaging with people in your community face-to-face.
You can show people the building process, share your brand, and build a community of newly loyal customers by letting and helping them get involved in what you’re creating.
Do a Soft Launch, Pre-Opening
There are many ways to test a business before your big grand opening. The two we’ll talk about are doing a soft launch and a friends and family event.
A great example of a soft launch comes from Maliesha Pullano of Mamaleelu Cold Brew who took her cart to a local art event the day before her big, official launch, and sold $100, or ten bottles worth of her cold brew while also giving out a bunch of samples. She thought to herself “There might be something to this.”
The next day, she pulled up to the official launch event. When she opened her car to get the bottles out, a box fell to the ground, breaking a few of the bottles! She turned it around though, and ended up making a couple of hundred dollars that day — it blew her mind.
Another way to do a soft launch and community-oriented event is to have a night or two just for friends and family. This serves as a test of your facility and staff, as well as a thank you to all the people who supported you along the way. Your guests can even help out by posting to their social media.
Recommended: Looking for more event ideas? Check out the following 7 Event Ideas for Your Coffee Shop.
Do Something Special for Your First Customers
One of our experts recounted how the typical way opening day goes for the cafes he’s opened: He gets in early, bakes, and warms up the espresso machine. About 20 minutes after unlocking the door, someone comes in to order a drink, and he puts their dollar on the wall. This is a special moment for that person and the cafe owner.
In addition to this, make sure you have some nice giveaways for people like your roasted coffee, merchandise giveaways, memberships to a mug club, or anything you can think of, and a good hashtag for the event, and make sure to have a lot of fun!