It seems a given that all businesses need at least some capital to startup, even coffee shops. But what if you do not have a startup capital? How to start a coffee shop with no money? Is it even possible to launch a coffee shop with no money in your pocket?
The answer is a rather surprising “yes”.
However, it is going to take a great deal of work to do it. Like restaurants, coffee shops are popular businesses with thousands being started every year around the world.
People drink coffee a lot.
Have a look at the map:
Globally more than 500 billion cups of coffee are consumed every year.
No doubts coffee shop is a great business idea. However, keep in mind that like restaurants, coffee shops are predominantly small businesses and they have a high failure rate.
Accordingly, starting up a new one is not without considerable risk. It is even harder if you want to start a coffee shop with no money.
The good news though is that it is still possible.
You can make it a success even with no money if you are willing to plan, work hard, and stick to it through thick and thin.
Below we tried to put together all the useful information you might need on your coffee shop journey.
Let’s dive straight in.
- Join Up with Another Business
- Find a Co-Founder with Money
- Go Online
- Small Business Funding
- Wait and Save
- How to Start a Coffee Shop with No Experience
- What You Need to Start a Coffee Shop?
- Average Café Turnover (Finance)
- How Much Do Coffee Shop Owners Make?
- Average Profit Margin for Coffee Shops
- Average Café Turnover (Workforce)
- How to Run a Successful Coffee Shop?
First and the foremost, you must have a solid plan. There is no substitute for planning. Coffee shop business might seem too simple, but you still need to have a plan.
More than that, in order to start your café (particularly without any money) you need to have a great plan.
Starting a Coffee Shop with no money requires detailed and actionable planning.
Without proper planning, your coffee shop is unlikely to start. Well, even if it manages to start, it will most likely fail and fail quickly, especially if you have no money for the startup costs.
Creating a detailed business plan is essential to the success of your cafe. While coffee shops can still fail even with the best of business plans, it’s virtually guaranteed to close quickly if you do not have one.
This is one of several mistakes that many coffee shop owners make in starting up their business. So make sure you create a detailed business plan that accounts for the financing required and estimates how much you will make over the next six months to a year.
What follows is a few ideas on how you can open your coffee shop with little to no money and shape your business plan around it.
One of the oldest and most proven ways to open any business with little to no money is the cooperative or “co-op” where you work with others who have the resources to help make your dream come true.
In a cooperative, you team up with those who have the finances to invest in your coffee shop and in return, they receive a percentage of the profit.
You can work out the financial arrangements with them while you do the real work of running the coffee shop.
A successful co-op usually requires a detailed business plan, a sharing of responsibilities, and a willingness to go the extra mile in making your coffee shop successful.
Join Up with Another Business
One big advantage that coffee shops have over many other food service businesses is that they can be set up in a small area. You do not need a large space for your customers or even much in the way of storage.
All you really need is your coffee makers, a place to serve them, and an area where your customers can sit down for a few minutes to enjoy their coffee.
Coffee Shops can successfully operate in small areas.
One inexpensive, if not free way to startup your coffee business is setting up your shop in another, successful business that already has a customer base and is looking to please them even more. By piggybacking on the success of another business, you can reach a new clientele that can enjoy a cup of coffee while getting what they need from the parent business, such as a florist, bookstore, the break rooms of companies, and so forth.
There are many businesses that set up an espresso or coffee bar or kiosk on their premises. You can take that a step further by offering your own brand of coffee and serving it to customers. However, you will need a willing partner who runs the larger business and you’ll need to get the financing (at least some) to pay for the materials you need.
Find a Co-Founder with Money
Not everything is money.
You may have valuable expertise/skills or something else that is in demand and worth more than or as much as money.
While you look for money to start a business, someone with the money in hand might actually be looking for the right person to partner with.
There are thousands of possible scenarios here. A person with money might have:
- Not enough time to start a business
- No relevant skills
- No experience
- Not enough courage
- Not enough motivation
These are only some of the scenarios when you perhaps could offer a solution. However, there are certainly much more of them out there.
If you manage to offer something compelling to the person with money (who actually is inclined to invest in a business) and clearly show him/her that your offer is real (with solid numbers and figures for instance) then you will have pretty high chances of securing the partnership.
Money, accurate plan and the right time are the three perfect pieces of the puzzle. When brought together they will allow you (together with your partner or partners) to start a business.
Channels to look for potential business partners:
- Online (Cofounderslab or other similar co-founder searching platforms, Reddit, LinkedIn etc.);
- Friends and family;
- Your own network;
- Your network’s network;
- Events (conferences, meetups, networking events, fairs);
- Everything else that comes to your mind.
Perhaps the most affordable type of coffee shop is one that exists on the Internet. For less than $100, you can set up a quality website and web-hosting plan and start selling coffee.
Yes, the barriers to going online are low. However, as it often happens to be the case low entry barriers cause fierce competition.
Nevertheless, it’s totally worth it in any case.
Going online offers considerable benefits that begin with building your brand and reputation about the coffee being served.
Plus, you can take advantage of free social media sites such as Facebook, Twitter, Instagram and Pinterest to spread the word about your coffee shop.
The product you serve can be roasted coffee beans from a local company that you make a commission from the sales so there is no upfront expense, or you can purchase and roast your own coffee beans and make more money, but that does take more expense and effort.
Pro Tip: As we mentioned above, with almost no entry barriers and affordable options, the Internet has become a very competitive place to market lately.
Accordingly, you may find yourself spending more time and energy compared to what you initially expected trying to get traction for your online coffee shop.
Pro Tip 2: Once “free” social media platforms including Facebook, Instagram and Twitter are all now predominantly “pay-to-play” fields. Unless you have something amazing that instantly goes viral, you are unlikely to get a decent organic reach without sponsoring your content.
So, be ready to face it at some point. Do not blindly rely on social media marketing alone.
You’ll need to do your research and find a niche that is not being addressed, so your online coffee shop can succeed on social platforms.
Once your online café starts earning money you can expand your business and open a retail coffee shop too.
This is a relatively new way of raising funds, but it offers considerable advantages over the traditional business loan.
First, you do not need good credit to receive money from a crowdfunding effort. Plus, you will build up a potential customer base from those who invest in your business.
If you plan your crowdfunding effort correctly, all you’ll need to pay in return is the taxes from the money that was received and owe your backers nothing else apart from what you promised.
However, raising money through crowdfunding can be difficult, especially if you are trying to start up a local coffeehouse. Keep this in mind.
Check Small Business Funding Options (Loans, Grants, Peer-to-Peer Lending etc.)
Depending on your location, you may have business funding options available. You can check this with the relevant local or even not-so-local organizations (small business administration, NGOs, banks, online platforms etc.) and explore your funding options.
Sometimes you can come up with fairly good opportunities with this kind of research, but again – it heavily depends on individual circumstances (your location, position, background etc.).
In any case, it is highly important to approach this sort of mechanisms with due prudence. Always check in full the applicable terms and conditions when receiving any sort of funding. Make sure you know what exactly you are accepting and what will be your rights and obligations.
Wait and Save
If none of the options listed above work for you but you still want to start your own coffee shop – start saving money and building up your own capital!
There are two important components of this process:
- Try to maximize your earnings as much as possible. Leverage all available income sources – wage, passive income (if any), freelance, cashbacks, and everything else;
- Start building the parts of your future business that require no to a very small amount of money that you can comfortably afford. Make sure you get as many things ready as possible when you finally have the money to kick off your coffee shop adventure. For instance, while you wait for your capital to accumulate, you can work on your future coffee shop’s website. Building a quality website is a highly time-consuming process, so whatever you manage to do at this stage will save you tons of hours during the super hectic business operation phase.
Basically, the less capital you have in starting up your coffee shop, the more you will have to plan and prepare.
However, even with the perfect plan and hard work, it probably will not be easy and there is no guarantee that your coffee shop will make it.
Still, to give it the best chance you need to plan thoroughly, work hard, and prepare for the unexpected.
The good news is if you eventually manage to make it, you will find yourself much stronger and you will be terribly hard to beat for your competition.
But… what if in addition to “no money”, you also have no experience? What would you do?
No worries! We’ve got you covered. Read on.
How to Start a Coffee Shop with No Experience?
Starting and running a coffee shop for the first time means having to learn a lot on the job. However, as almost everything else it can be done if you have the drive, determination, and willingness to learn.
Learning from the experience of others can help you avoid potential mistakes on your own path. As you know the experience is gained through trial and error.
And trial and error mean spending cash, energy and time as a side effect.
We all know it.
So, the smart thing to do here would be to use the shorter way to the experience you need – learning from the experience of others.
Start by talking to local coffee shop owners who have been in business for several years. You do not need to interrogate them about every nuance in running their business, but you should ask them if they start over again what they would do differently.
Such conversations will help you focus your efforts on more successful approaches or at least warn you about potential dangers that you otherwise may face.
Talking to Coffee Shop owners will help you better understand Coffee Shop Business.
The more you can find out about running a coffee shop, the better prepared you will be when it gets started.
Stay organized & put in work your knowledge
Once you have gathered all the information you can – apply it.
This means organizing your finances, getting the funds needed to get started, and estimating your income projections over the next month, three months, six months, and beyond so you can stay in business.
You may find that your profits will not grow enough to offset your expenses, so you will need to either find ways to make more money or significantly reduce your expenses. This may mean running the coffee shop shorthanded for a while or putting off expansions or improvements until the money is available.
In any event, proper planning will allow you to see potential issues well in advance and make the proper adjustments even if you lack the necessary experience.
While there is not a single, dominant reason why coffee shops go out of business, one of the biggest is not watching expenses. Letting your expenses get out of control means that you cannot make enough in income to pay your bills. While controlling your expenses does not guarantee that you’ll stay in business, at least it reduces one of the threats.
Every expense should be looked at in terms of its importance and how it affects your ability to create profits.
For example, getting new tables may spruce up the shop, but how much in terms of bringing in new customers will it really add?
You may be far better off simply cleaning and refinishing the old tables which cost a fraction compared to buying new ones for the same result.
This is the mistake that too many new/inexperienced café owners make.
Focus on what is necessary to get the profit, and do not procrastinate doing things that are not material to the essence of your business.
When you just started this usually, is not something you can easily afford. If you happened to find yourself spending too much time on irrelevant stuff change your focus immediately.
You should also consider putting back cash reserves for unexpected expenses. Many small businesses (including coffee shops) close because they get hit with something out of the blue. Unexpected expenses may range from storm damage to a supplier being short and having to pay more to buy from someone else to a strike that keeps people from doing their normal routines and so forth.
Cash reserves are also good to compensate your lack of experience. Making mistakes along your way is nearly unavoidable.
You need to make mistakes to learn and gain experience. Even if you learn from others, you still need to have your unique experience.
As you know, mistakes cost money. Accordingly, you need cash to make them.
The bigger cash reserves you have the more time there is for you to go through mistakes and master the skills you need to successfully operate the coffee shop.
You can treat your cash reserves as a fuel. The more you have it the longer you can sustain with no experience.
To help you even further we have put together a little more information on coffee shop business below.
This part of the article will guide you through the actual process of starting a coffee shop and will help you to understand what to expect afterwards.
What are the Requirements to Open a Coffee Shop?
To start up a coffee shop, you would usually need:
- the proper licensing;
- and insurance
that is required by your country.
You should start by looking at the legal requirements that are governed by your country in terms of coffee shops, cafés, and similar eating establishments.
Remember that opening a kiosk in a mall may be different than renting a shop on a street corner.
The same thing with operating a mobile business, such as those on sidewalks and the like compared to having a roof over your head.
Once you have met the legal requirements, the next step is ensuring that you maintain your legal status as a coffee shop.
Keep in mind that if you expand, add new services, or new features to your location then it might mean having to be re-licensed or certified by the local or state authorities.
What You Need to Start a Coffee Shop
Ironically, you will need money to start up your coffee shop (but you already know what to do with this obstacle, right?).
The amount will depend on the type, size, and services your coffee shop will offer. While such costs can vary wildly depending on the location, rent, and circumstances, there are some averages (US) that may help you in determining just how much capital is needed.
- Kiosk: $5,000 to $50,000
- Free-Standing: $80,000 to $200,000
If you start really small the only equipment you might need could be a coffee machine.
Again, there is a big difference between opening a coffee shop as a kiosk inside a mall or existing business compared to starting up a free-standing one. Plus, if your free-standing shop offers seating for several customers or more, expect the cost to exceed $200,000 (espresso machines would usually cost up to $20,000).
So, depending on what you serve and how you treat your customers, the costs will vary considerably. Keep this in mind when creating your business plan.
Starting a Coffee Shop: Equipment Needs
As stated before, an espresso machine costs up to $20,000 or higher. However, if your coffee shop is in a small kiosk, all you may need is a coffee machine, a space for your coffee beans, a counter to take the payments, and cups and lids to serve the coffee.
Naturally, starting your own free-standing coffee shop will require considerably more, including serving areas, tables, chairs, and perhaps servers to assist you in delivering the coffee. Of course, there may be other expenses as well in terms of how many customers you want to serve at once.
One avenue that many coffee shop owners use is to focus only on high-quality brewed coffee and forgoing the espresso machines since they are so expensive and use a lot of milk. When getting started, you should focus on high-quality coffee brands which will also help draw in customers.
Once your coffeehouse is established, you can branch out into other services, which may include serving espresso. You should always keep an eye on expenses and only expand when you have the money to do so if you want to run a successful coffee shop.
Average Café Turnover (Finance)
There is no unified data available on global average café turnovers. These figures vary based on economy and location.
As a rough example, we can note that 24.6% of coffee shops in the UK reported £200,000+ annual turnover in 2015 (Source: Café Culture Show).
In any case, the amount your coffee shop makes on an annual basis will be determined by the number of cups of coffee you sell every day.
So, depending on the size, location, and how much the average customer pays, that will determine how much your coffee shop will make on an annual basis.
On average, a typical coffee shop that sells 250 cups per day makes about $215,000 per year (US). That can vary depending on how much you charge for each cup and how much each customer will typically spend.
The trick for most coffee shop owners is finding a price for each cup that creates a healthy profit but does not turn away customers who might go somewhere else to find a cheaper cup of coffee.
The good news is that if you run an average coffee shop, then you should be able to pay for your startup costs within a few years if your sales meet or exceed what is typical in the US.
Techniques like getting customers to stay longer by using free Wi-Fi or having entertainment during peak hours may increase the number of cups that are purchased.
How Much Do Coffee Shop Owners Make?
Depending on where you live, what you make as a coffee shop owner may vary considerably. This not only means which part of the world or country, but also whether you operate out of the city, suburbs, or in rural areas.
As the coffee shop owner, what you make will be dictated by what you bring in every day in terms of coffee sales.
By comparison, coffee shop managers who work for larger companies make a national (United States) average of just over $46,000 every year. However, during early years of coffee shop business, it should not be surprising that the owner makes less than an average employee. Unlike coffee shop employees owners make their income based on sales and expenses, trying to strike the right balance in charging their customers so they are not turning them away or making too little from each sale.
Therefore, it is hard to come up with more or less accurate numbers here.
Every coffee shop is different.
Two coffee shops of the same chain in comparable locations can drastically differ in revenue they get.
For example, the combined revenue of all 20000 coffee shops in the US was $10 billion in 2011. On average, this means $500000 revenue per coffee shop. However, this number is far from the reality as 70% of all sales go to 50 top coffee shop operators.
This average profit of coffee shop is even harder to estimate on a global scale, as economies are very different across the globe.
Therefore, the best advice would be to not rely on extremely high profits at least during first few years. If you are into this business then it would be better to focus on doing things that can help to increase your profits – things that are within your control.
For coffeehouse owners, a good start is the price that is charged by competing coffee shops which provides a clue to how much you can charge without turning people away.
Plus, you’ll need to factor in all expenses as well. This is hard to do, but it will show you a much clearer picture.
Despite of not-so-optimistic outlook over the typical coffee shop profits you still can take it above the standards with a more innovative approach and better creativity.
For example, did you know that in the US at least 10% of all payments at Starbucks comes exclusively from mobile devices? Would you expect that from an average coffee shop? Starbucks now pushes mobile even further.
The same principle applies to small coffee shops. The more value (in this specific example the ease mobile payments) you provide to your customers the more chances you have in earning more than the average coffee shop owner earns.
Average Profit Margin for Coffee Shops
Just like what a coffee shop owner makes, the average profit margin may vary considerably due to several factors:
- where you operate your business;
- what you pay in rent;
- how many customers you serve;
- what you charge for each item;
- how much tax you pay;
- your employee salaries;
- and so forth.
All those aspects play a powerful role in the profit margin that you see.
The key is to ensure that what you make is higher than what you pay.
What can be said is that the gross margin, which is net sales minus the cost of the food or coffee, should be around 85%. This assumes that the overall cost of the coffee or food will take about 15% of the revenues on average. Of course, any profit that is larger than your expenses represents money in your pocket, but in general, you want your gross margin to be around 85%. Single owner coffee shops actually need less of a profit margin to survive compared to company or corporate-owned coffee shops.
What is the Average Café Turnover (Workforce)?
As with the rest of the hospitality industry, the turnover rate is quite high. This is because working at a coffee shop is considered transitional for most people. Usually, those working their way through school, working there until a higher-paying job opens up, or moving up in the industry by becoming a manager or an owner of their own coffeehouse.
Currently, the turnover rate is around 70% (US) for café and coffee shops.
This is mostly employees for employees who do not need much training to do their work, such as waiters and waitresses, busboys, dishwashers, servers, and the like. Chefs and their staff, however, have a lower turnover rate since building experience at one place is important to their careers.
Naturally, the turnover rate will vary due to location and the state of the economy. During economic swings, it’s quite common for the turnover rate to go up due to people transitioning into different types of work, moving to another part of the country, or changing responsibilities.
Overall, although quite high, café employee turnover should be a bearable thing with some effort and the right attitude.
How to Run a Successful Coffee Shop?
Let’s assume that you managed to start your own coffee shop. How do you make it successful?
Understanding how to run a successful coffee shop is no easy task because what may work for one coffee shop owner may not for another. In addition, it depends on several factors that include location, cost, and ability to adapt to your customer base.
However, running a coffee shop is easier if you do what it takes to make it successful such as the following.
Advertise Every Day
You should ask yourself the same question every day: “what are you doing to reach new customers?”. If you are not doing anything, then that is one more opportunity missed to build your customer base.
You do not need to go overboard on your marketing expenses, but spending time on the Internet, social media, and taking advantage of low-cost local advertising will build up your business every day.
Emphasize Customer Service
What makes coffee shops different?
It’s usually the service they provide which separates the successful ones from those that struggle. Remember, the faster you can serve coffee to your customers (without comprising on the quality), the more likely they are to visit your shop again.
So, you should spend time looking at how your shop can serve its customers and do so with the fewest mistakes possible.
Build Around a Favorite Brand
A wide variety is nice, but the secret to success is building around a special brand that helps make your shop identifiable.
This is because you need a hook to anchor your marketing campaign and serving a specific brand helps to get the attention of potential customers. Of course, you can serve other types, but you should emphasize one at first, which will help limit expenses as well.
In conclusion, it is important to note that coffee shop business is not an easy business.
It’s competitive and hectic.
Expect running your coffee shop 90% of your time, meaning that you are going to be at work more than if you would be working for someone else.
Nevertheless, hard work and right mindset can beat anything. If the coffee shop is exactly what you want to do – go ahead!