Starting a café business can be an exciting and rewarding endeavor, but like any other business, it takes a lot of hard work, dedication, and planning. It’s important to consider the legal, financial, and operational aspects of your business before leaping. These are the topics that restaurant owners never considered taking responsibility for understanding and believe cooking is the only source of skill to have as a restaurant owner. How wrong they are!
If establishing a business were simple, everyone would be doing it, but the statistics for success rates are not excellent. 80% of all new firms fail on average within the first two years of operation. More particular, this failure rate rises to 95% in the restaurant industry.
In this article, you will get to learn how to properly manage a café’s legal & financial requirements, understand how to set up a business plan, and establish a brand, and online presence. With the right preparation and guidance provided, you can make your cafe business dreams a reality.
Note that I will use Starbucks and other café business brands since they are so well-establish and easily relatable.
Understanding the legal and financial requirements
Yes, understanding the finances of a business can be boring. This is the main reason why many small businesses lose money because they do not properly account for their income statements. Starting a business is tough enough, managing personal finance can be a lot tougher.
The first thing you will need to consider when starting a café business is the legal and financial requirements you will need to meet. You will need to understand all of your financial and legal obligations as a business owner, getting all the required licenses to operate a business as well as the responsibilities that come with being in charge of someone else’s livelihood.
Before determining your start-up capital, you’ll also need to consider taxes. You will also need to consider rental costs, utilities and equipment costs, maintenance and repair expenses, food costs, labor costs, and more. For example, your food costs will vary depending on the ingredients you use and whether you prepare your dishes or purchase ready-made ingredients. A good rule of thumb is to budget at least 30%-40% of the gross revenue of your cafe on food costs.
Finding the right location
Finding the perfect location is probably the most important step in starting a café business. You’ll need to factor in the location’s traffic flow, parking options, space, pricing, and other factors to make sure your cafe space is set up for success. Your cafe’s location will also determine what kind of customers you can serve.
You can concentrate on catering to a more affluent customer if you’re in an urban area or choose to market to a more diverse clientele in a less populous area. You should also consider how far your café is from other establishments and how your consumers can get there. Consider the following elements when deciding where to find a good location for your café:
Understanding your competition is the only way to win the café business that you are building for yourself. What makes your business stands out from the rest? Since the café business is dominated by many large corporations such as Starbucks, Coffeebean, or McCafé, the wise choice is to avoid placing your business near any of these big firms or come up with a better-tasting cup of coffee.
Do a deep dive market research of your competition, if there are other cafés within a 10-minute drive, then your location might be a poor choice. If there is little competition within your area, you might be able to compete with other cafés in the area. So pick your battles properly and measure your odds.
What types of customers do you think will frequent your café? Is there a demographic you can target with your menu and promotions? Anyone can sell coffee but what makes YOUR COFFEE stand out(or in this case, your café?)?
Starbucks put a lot of effort to make sure its drinks are well-made and showcased to younger audiences. From the ice blending station to their espresso machine, to their topping station. Each step of the way is meant for their buyer to have the enjoyment of looking at their drinks being prepared. Off it goes on Instagram!
Now look at those street coffee shops, although they don’t have any big branding, why do they still sell well? The answer is the street coffee shop is smart at picking the exact location that targets a certain demographic, which is busy working adults. Unlike young audiences, working adults would like a quick caffeine in their system, so what better way than a quick 1-minute mix? Milk, coffee power, water, and mix it all up!
Break them all up, what age are you targeting? What do they do? How should I sell to them? Should I find a better location?
Is there public transportation nearby? Does the area have an adequate number of parking spaces?
Cafes are a great one-stop point after a long ride, waiting for someone, or taking a break after a long day of work. That’s why making your cafe accessible via any transportation is an important consideration. Although it can be expensive, it’s something to consider since no one is going to a cafe in the middle of nowhere!
Other business owners
Does the area have other local business owners that cater to the same demographic you plan to serve?
If you have a great network of other business owners, you could come up with ideas to help one another. For example, you could be helping your business partner showcase their product near the windows of your cafe or have posters of their products as advertising. Make the business around you successful because them bringing in traffic will indirectly support your business as well.
Is the area big enough to support your cafe’s operations? Is the cafe’s location suitable for your vision and business model?
If you picked a busy street in New York City, you should expect to have many seats and tables in your cafe to accommodate the number of inflows. Having a good sense of how to use the space in your stall is extremely important. Consider thinking about whether your stall should have a larger cashiering register and so forth.
ROI(return on investment) is an important consideration for cafe owners. Think about whether is that extra table and chair more profitable than having a shelf of souvenir goods to sell. If yes? Then the answer to how to optimize the space becomes easy.
Developing a business plan
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Creating a complete business plan is essential for every entrepreneur. It will help you visualize your business and outline its goals and objectives. It will also help you identify any issues or concerns that you may need to address as a business owner, as well as any challenges you may face along the way.
If you love making crazy plans for the future, writing these plans might excite you(I did). Take your time to plan for what are the following steps for months, and years and what you expect the business may become. Most importantly, as you dream of the far future, start thinking deeply about how to confront the issue at hand and aim to make life easier for your business.
You can choose to create your business plan in any format you prefer, but we recommend that you use a popular business planning software, such as Microsoft Word. This will make it easier for you to keep track of the various components of your business plan and will also allow you to collaborate with other members of your team easily. Your business plan will contain the following sections:
This section will analyze your target market and help you determine the best product or service to target that market. Answer all these market analyses carefully above, and think hard about what are some problems you are facing or may face in the future. Also, try to come up with a solution that will help to better understand the market analysis to tackle them.
In this section, you’ll detail your product/service analysis and explain how it will benefit your customers. You can also identify the potential problems your product/ service could cause. The are a lot of ways you can think about to improve your product or ways to serve your customer.
For example, to push the idea of no straws for all fast-food chains. Mcdonald had to come up with a bottle lid for their drinks so that customers can enjoy drinking their drinks without having the ice in it bother them. Thinking about how to better protect the environment and serve the customers better, was one the biggest win for Mcdonald’s at that time.
Business model & Financial analysis
This section will break down your finances and analyze your cash flow. You can use this information to determine how much you will need to start up your cafe. You can also use this data to gauge your growth potential.
A simple way to do it is by creating a profit and loss chart. Anything that uses money is a loss and anything that provide money for the business is a profit. In the beginning, you would realize that businesses have to spend a lot of their money to start the business, all these are considered net losses. It hurt to be burying money that’s why you would need to do a proper model analysis to see how much profit you need to be making.
Here’s a breakdown of how to calculate gross profit. If a coffee cost $5 and the total cost of making the coffee cost $3. Your gross profit from each coffee cup is $2. With these numbers at hand, you will next need to look at the breakeven point, the amount of coffee needed to be sold to break even from net loss.
After all net losses are cleared, the next and most exciting moment is free cash flow. This is the final part where any amount of money made selling coffee is more money in the pocket. If per month the cafe business sells 2,000 coffee a month, that means the business owner will be making $4,000 per month in free cash flow. To reach this stage, however, you would need to make sure to properly measure the steps needed to get here.
If you would like to grow even further, you would have to consider ways to increase annual sales. To have a higher profit margin in any business, you will need to be able to price your food and drinks at a higher price. To do that, you have to weigh the pro and cons of price increases. Such as whether loyal customers would remain even after price changes or will they not come back because of better alternatives. To keep your loyal customer, you may also want to look into starting a loyalty program to incentives more customers to turn into loyal customers to get better discounts!
Establishing your café brand
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The next important step in starting a cafe business is establishing your brand. The most important thing you can do to establish your brand is to be consistent with your brand image. It’s important to be consistent with your brand image, as well as your message so that your customers feel like they are getting the same thing every time they visit your cafe. To establish your brand, you will want to consider the following:
Messaging plays a vital role in how the brand is recognized. Messaging should be short, simple, and easy to understand.
For example, Starbucks’ identity is “To inspire and nurture the human spirit – one person, one cup, and one neighborhood at a time.” Starbucks focuses on creating that personal connection between its customers, baristas, and organization. Identity doesn’t have to serve the customer, it can also be to the employee in the cafe. Although identity isn’t something important as compared to financial and business management. It’s an important thing to remember for everyone working so that the business has a direction it needs to follow.
Logo and its tone
Color plays an important brand imaging when it comes to how should people respond to the energy of the business. Take your time to pick 3 different colors for your brand logo. Next, try out different levels of color tones to match your brand’s energy. This step is pretty straightforward and doesn’t require much effort to look into.
When considering the branding element of your business, you would want to think of this “what do people think about my cafe?” The branding element is an important marketing consideration because it gives off a certain vibe to the business which most founders typically overlook. So, get to know how your brand is felt by others, and make adjustments based on their opinion to suit more people.
Establishing your cafe’s online presence
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These days, we don’t find a good place to eat based on a friend’s recommendation only. We also follow social media and some Google reviews recommendations to bring us around. An online presence will help you to attract potential customers and serve as a way to promote your brand.
The most important thing you can do to establish your cafe’s online presence is to create a website that is user-friendly and easy to navigate. You will also want to consider including the following elements on your website:
Your cafe’s web address should be easy to remember and should be short and sweet. You will also want to consider including your cafe’s web address as part of your web address.
Content is a great way to understand the cafe business that you are running better. If you are running a gaming cafe, illustrating a fun, cozy, and playful environment is crucial to bringing in the right client(again, make sure to target the demographic you are planning to secure). Here’s what you need for a cafe website.
- A Landing Page with an interesting storyboard
- About Us Page
- Address and how to navigate
- Have a lot of interesting food pictures
- Food reviews(optional)
Planning website content can be tough, I highly recommend you to use WordPress since it has all the building tools already in place to help make you the perfect website. All you need is to add the pictures and content to fit into it.
social media presence
To get the most amount of traffic to your content, you may want to look into showcasing your work on social media. Apps like Instagram, Facebook, and Pinterest are apps that work well for cafe businesses. To get the most amount of traffic and eyeball in your business. You can share pictures of your food and ask people to tag it(they would often be delighted to do it!).
Executive summary when Starting a Café
Unlike other business opportunities, a cafe business is somewhat different from the rest. Here are some key takeaways one MUST UNDERSTAND before starting it.
Time is of the essence
Unlike an online business where you can take the time to build it up from scratch. A cafe business, however, is always burning cash. Every day that the stall is open is considered a loss unless there are customers to recoup a day’s PnL. Therefore, ensuring a high traffic flow for the business is crucial for its survival of the business.
Less about making, and more about marketing
No one is going to find out your best food unless you can find some way for them to try it. These days, businesses need to learn how to market their product and services. A great example is that a coffee business would put its signature coffee or promotion at the entrance of the stall to help customers make the decisions for their choice.
Apart from that, shoutouts and branding have played a huge part in the success of marketing a business. Spend a lot of time finding out how to market your product(make sure the product is worth it also) to meet customer expectations.
Long Hours and A lot of Hardship
If you are starting a cafe business, chances are you would have to work more than the usual 9 to 5. As a business owner, your job is not only to make good food and drinks. You will have to learn customer service, marketing, accounting, and other small stuff for the business. There will be a lot to learn so dealing with hardship is probably going to be your worst enemy.
Build a Brand, then a follower, then a community!
This will take time, a long time.
Building a brand takes quite a while for it to build traction. No one is going to know your brand until you have done enough marketing or outreach to the community. There will be a lot of times when you will be required to participate in many events to get your business name out. Build your first customer base and slowly let your local community hop in on the new cafe.
You can do that by selling a product with your brand on it! Here’s how you can learn to sell products online or sell them through physical stalls.