HELP! I'm Starting a Coffee Shop Business

Let's get straight to the point.

Owning a coffee business is an aspiration for many, being your own boss and making your own decisions - fantastic! It's a business though and it's all about making money - the bills still need to be paid! Along your journey to opening a coffee business you'll need to make 1000's of decisions before you open the door. After you open you'll need to make 1000's more. I've helped many people start coffee businesses over the past 10 years and there's lots to talk about, this page doesn't cover everything - nowhere near - but I hope it either gives you new things to think about or some reassurance that you're heading in the right direction. Andy Hall, St Martin's Coffee Roasters

Please email andy@stmartinscoffee.co.uk if you'd like further information on a personal one on one 'How to start a coffee shop' course

Choosing the PLACE for your Coffee Shop

LOCATION – yep we know it’s obvious but it's really important. Having passing trade is a huge advantage and vital for your business, you still need attract them in though the door! Your business plan should guide you to a suitable location or at least provide you with the key characteristics the location should offer. Getting a great location is a challenge for an independent. Here’s some LOCATION tips:

Are there other like-minded independents located in the area?
Corner premises have fantastic visual presence and should be highly prized. They can make fantastic hospitality spaces and customers love windows to people watch!
Looking at units that have previously been hospitality spaces can be wise, they’ll probably have many infrastructure elements that can be reused saving time and cash in addition to possessing the correct classification of use (i.e A3).
Outdoor seating space is a wonderful thing and will have a massive impact when the sun shines. Having this possibility is an huge commercial advantage.
Stand outside any potential sites at different times of the day and different days, count how many people are walking past, create assumptions of who the passing trade is and how this could work for your business.
Don't be put off if the site was previously occupied by a failed business in the industry. This doesn't necessarily translate to a problem with the site and with some digging it may be easy to discover why the previous occupants had to close. Be nosy, ask neighbouring businesses and community Facebook groups - you'll soon develop a picture of why it failed.
You WILL have to compromise, unless you are extremely lucky. Finding the perfect site is a rarity, provided the compromises don't impact on the key elements of your business plan too heavily - you'll need to take a balanced view.
RED FLAGS. You need to understand when your 'gut feel' just isn't comfortable. When there's a red flag (e.g the rent is huge, footfall is low, the site is dilapidated, not enough covers, too many covers) don't be afraid to walk away.
Be prepared when you do find a great site. Have your funds in place or proof of funds, your business plan ready, your property solicitor on standby, all the elements that will demonstrate to the landlord that you are professional, organised and someone they'd love to rent space to.

COMPETITION – Do not fear competition! In the coffee industry there will always be new shops and potential threats to your slice of the market. If you find a location with no competition – congratulations! Just be sure there’s a customer base you can attract to your shop. This is a competitive market which makes it all the more important to be as prepared as possible in terms of your business plan and it’s execution. It's so important to develop and nurture the identity of your business, what does make you different, what are you better at than anyone else?

RENT & RATES – After staff, this is the biggest cost for a coffee shop business. It’s always difficult to calculate what should be affordable for your business. I've seen lots of new businesses sign leases that are far too expensive which reduces the chance of profitability. Here’s some tips:

Always instruct a specialist legal professional to advise you on leases.
Try to negotiate a rent free period initially, particularly if the duration of the rent free period can more than match the time the refitting of the space will take. Argue you’ll be adding value to the landlords property, particularly if there is a lot of work required – it’s a buyers market in most parts of the country.
The advertised rent is what the Landlord wants - not what they'll actually get. You may be wise to propose a 'stepped' rent that increases upwards over the duration of the lease term i.e year 1 at £20,000 p.a, year 2 at £25,000, year 3 at £30,000 and so on. Obviously you'll want to keep the costs of rent lower as the business starts and then pay more as your business develops and matures.
Check everything works in the unit before you sign on the dotted line. Ensure things are fixed before you sign.
Signing a lease above a 5 year duration is rare these days. 3-5 year duration's are much more common.
Negotiate break clauses that enable you to break the lease and walk away if the need arises.
If you don't ask, you don't get and ALWAYS seek professional legal advice.

So much more to think about...but i've run out of space. The other key decision include a. How many covers do I need/want, b. Shop Layout, c. The look & feel of the space, d. Music, e. Heating, f. Ventilation, g.fire & security, h. furniture choices, i. cleaning, j. health & safety, k. food safety, l. toilets, m. accessibility, n. legislation....

PRODUCTS
What to Sell?

PRODUCTS – Quality is everything! The growth in successful independent coffee businesses has largely been down to the quality and sheer effort applied to the food and drink they serve. Of course this has to be done with friendly, timely service in fabulous, creatively constructed spaces. You'll know if your business plan is comprehensive enough if you already have the answers to the pointers below. Here’s our Product tips:

1. Food, you must give this maximum effort. It is vital to develop a savoury and sweet food offer that gets customers lips smacking, posting on Instagram and coming back for more.

2. You can’t survive on just coffee sales alone, regardless of how amazing it is.

3. Provide a well considered range of 'ready-to-drink' chilled products. Remember to provide for kids, options without bubbles and seek out interesting new brands.

4. Your food menu needs to be created with your customer base in mind, do people want to ‘grab n go’ or something else.

5. Provide for all. Provide plenty of vegetarian, vegan and gluten free options.

6. You must plan for a GROSS MARGIN of 75% minimum. If a menu item is too costly to price at this margin then drop it and move on.

7. When you find good suppliers, look after them and they will support you no matter what! Establishing a positive relationship with suppliers really helps the whole business to grow.

8. Yes, the coffee needs to be excellent, prepared with skill and care.

PROMOTING your Coffee Shop

PROMOTION – So how do you begin to attract customers. When you're opening a new site you can start to build a buzz and start to win potential customers. Here’s our tips:
1. Have a marketing plan for your launch and after you're open. It doesn't need to be a lengthy or complex just a list of actions that support the intent of attracting customers when you open.
2. Start your business social media activity early and start telling the story.
3. Tell people what's coming on the windows of your site. Don't give too much away!
4. Invite local bloggers and influencers to your launch events, engage early with them.
5. Know your story, if a reporter was to ask you...”what’s your business about..” make sure you are able to tell them all about the business, what has driven you and what you want to achieve.
6. Ensure the front of your building looks stunning.
7. Instagram. Learn how businesses use it if your not an expert. Look at what similar business do. Give people reasons to take photos in your store and share.
8. Leave some money in your budget for promoting your business. Very cheaply, for example. you could buy 200 pairs of sunglasses with your brand on the arms to give away (if it's summer) and ask people to post their pics and tag you. People love a free stuff, particularly quirky things.
9. You, the owner. Promote yourself, chatting to customers, introducing yourself, being polite, the perfect friendly host. Most of all start to build relationships with your customers and they'll turn into regulars and tell their friends.

PROCESS
How the business works

PROCESS – There are so many fantastic reasons why you should design and write down all the important actions for your business to function well. I know this sounds like a chore but I can assure you it's entirely necessary. The business will need to function without you, so establishing processes is the best way of ensuring your team does all the jobs when you aren't there. Some things are legally required so you have no choice, but here's a few pointers of the processes I'd suggest you create before you open.

1. Heath & Safety documents, with risk assessments etc. You need to have this covered.

2. Food Safety documents and procedures. Absolutely essential.

3. Store opening process and checklist.

4. Store closing process and checklist.

5. End of day cashing up process and reconciliation.

6. Banking and security risks.

7. Customer service processes, what is your service style(s). Is it table service or order at the till? How customer orders are communicated from the point of sale.

8. Staff shift planning. How is this done and how is it communicated.

9. Staff working time logging and payroll.

10. Planned ordering of stock.

11. Unplanned purchases.

12. How we handle praise!

13. How we handle criticism and dissatisfied customers.

14. Toilet checks.

15. Cleaning & housekeeping.

PEOPLE and your Coffee Shop

Recruiting – At some point you will need to hire staff. The single biggest factor to growing your business will be the people you choose to join your team. Here’s our tips:
1. Do your preparation. Before you start a recruitment campaign, get yourself organised by understanding and writing down:
- What roles you need in the business, a description of the tasks and what is involved (i.e cleaning toilets - be open with the dirty work too).
- A person description. What type of person would you like to hire?
- Be clear what hours you need people to work. Draft a rota to develop a firm picture of the week. Candidates will have other commitments and so it's important to be crystal clear about hours of work.
- What is the pay?
- Don't be to hung-up about wanting people with specific experience. If people do have previous coffee, kitchen or food safety experience, it's a bonus. An individuals attitude to work is far more important than previous experience.
- Create a questionnaire for your interviews. When I interview I want to gain a sense of the person and particularly if they are eager to learn, turn up on time, capacity to be professional and build positive, respectful relationships with people. Most other things can be taught.
- Your questionnaire should also include the important questions like, do you have the right to work in the UK, are you willing to clean the loos, can you commit to working for at least a 12 month period?
- Once you have decided which people to hire, don't delay, make them the offer of employment being clear about the terms of the offer (pay, hours, responsibilities and start date).
Training - introducing a new person into the business is an opportunity for you to improve your business. If a new starter turns up to their first shift and is thrown in the deep end as a regular member of that shift pattern, it can spell disaster and put pressure on the team. New starters should be an 'extra' on shifts and assigned to work closely with a colleague who has the responsibility and skill to train up new people.
- Investing in new starters when they begin will help them get upto speed quicker with quality.
- Investing in new starters help them to do a great job and they'll stay with you far longer.
- Staff turnover is a cost that is huge for any business.
- Have your business processes written down so that staff can understand what to do.

PROFIT
Control the In's and Out's

Gross Profit Margin. In order to make your business profitable you MUST design how the business will achieve profitability. Don't leave this to chance and don't ignore numbers in favour of more interesting things. Here's some tips:
- Gross Margin. Understand how this is calculated and don't confuse it with 'Mark-up'. Use a Gross Margin calculator to ensure you get this right. You should aim for a Gross Margin of 75%. That is the cost of the materials and ingredients that go into making that product.
- You must work out the Gross Margin for every product you sell, be thorough and realistic. This exercise will help you to price your products correctly.
- Don't forget to add sales tax to your selling price. If a sandwich costs you £1 to make (bread & filling) a margin of 75% will give you a number of £4. Then add your sales tax of 20% (or what ever it is for your region). Therefore your minimum selling price is £4.80 to achieve a 75% gross margin on an item with a cost of £1.
Staff Costs. Staff costs are an Overhead of the business. It's likely they'll be the largest overhead number and so it's vital that you understand how much staff will cost in any given day, week or month and how this compares to your turnover. For a business that makes it's own food to order and delivers the plates to the table, the business will need to target staff costs to be a maximum of 30% of sales. The costs of staff needs to include the employers tax contributions and pension (if applicable) so if the staff member has an hourly rate of £10 the actual cost could around £11 - 12 per hour. Your sales number in this calculation needs to be the net sales figure, your sales total less the sales tax. So if your gross sales in a day were £1000 and your gross staff costs for the day were £300. You'd need to minus the VAT at 20% off your sales leaving £833.33 of net sales. The calculation would be £300/£833.33 = 36%. Your staff costs are 36% of sales and you'd be wise to reduce staff costs and/or increase sales.
Create a weekly Profit and Loss statement. This shouldn't be as difficult as it sounds. You will need to do a weekly stock take to value how much £ value of food and drinks you have. You'll be able to understand how the business has performed. It's always better to know where you are at any given time rather than waiting for your accountant to tell you. The buck stops with you.
Know your break even. It's very important to calculate your break even number. Start by calculating the daily cost of you overhead - everything, rent, heat, light, power, staff, rates, general expenses etc. Say for example this £400, your sales (gross) would need to be £640 (with a 75% gross margin). Therefore your break even figure is £640.
What can you do to influence your Profitability? Here's a few ideas:
- Staff costs. Have a clock in/out solution. Make sure staff clock in when they are about to start shift, not when they arrive on site. Make sure staff clock off when they finish shift, not when they leave the building.
- Monetise your staff rota. There are some fantastic staff scheduling apps around, they really help you to understand how much a rota will cost the business as well as helping you to communicate when people are required to work.
- Get an EPOS system. It assists you to manage the business in all sorts of ways, in this context it will help you understand when busy times occur and equally when quiet times are. These graphs will help you shape your staff rotas.
- Have a waste book/log. Make it a business rule to record any wastage here.
- Count your stock weekly to understand what you started with and what is carried forward to the next week.
- Don't over purchase stock. Operate on a just in time basis.