Tag Archives: capital

Start Up Costs for a Cafe Business

Start Up Coast

The startup costs for a cafe can vary greatly depending on whether you’re buying an established business or setting up a small little coffee shop.

Here are some of the major costs of opening a cafe:

  1. Company Setup – Incorporation, Licenses, Legal, Finance and Tax Fees
  2. Business Acquisition – Purchase of existing business (if buying a business)
  3. Franchising Costs -Franchise fees and startup costs (if franchising)
  4. Property Acquisition – If buying the business premises
  5. Property Rental Deposit – If leasing the business premises
  6. First Month Rental – Be prepared to pay the first month’s rental in advance
  7. Utilities Deposit – A deposit is often required when opening an account with the utility companies
  8. Outlet Renovation – The interior design, renovation and decorating costs will vary according to the plans
  9. Furniture & Fittings РFurnishing the café will be a large part of the start up costs
  10. Kitchen & Bar Equipment – Another major cost to bear in mind
  11. Point of Sale & Service Equipment -Don’t save on these essentials
  12. Marketing & Branding Items – Cups, Uniforms, Menus, Namecards, Flyers, Napkins, Coasters, etc
  13. Food & Beverage Stock Items – A key cost that will depend on the menu items and inventory size
  14. Minimum 2 months Working Capital – As cash to rollover and cover wages and essential expenses in the first few months

The main factors that will significantly affect the total capital required are:

  • The Premises – Buying vs Leasing
  • Equipment – Buying New vs Used
  • Working Capital – Budgeting for 3 or 6 months
  • Rental – The Size & Location of the Cafe

Buying vs Leasing a Retail Property

Buying vs Leasing

The question of whether to buy or lease a property for your cafe largely depends on your business plan, financial circumstances and mindset.

There are a lot of advantages to owning your own property but in many cases, it may be more practical and strategic to enter into a well structured lease.

Advantages of Buying

  • Overheads: Potentially lower monthly operating costs from bank loan repayments compared to rental expenses
  • Rental Increase: No unexpected increases in rental rates when it comes to renewing the lease
  • Lease Renewal: No unexpected need to move out if the landlord chooses not to renew the lease
  • Sunk Costs: Lower risk of wasted renovation costs as¬†improvements to the premises will contribute towards an enhancement of the property’s value

Advantages of Leasing

  • Required Capital: Lower initial capital investment for the property to provide more funds for the business
  • Maintenance: Lower cost of building maintenance where the landlord normally has to pay for these repairs
  • Flexible: Flexibility to move and change locations more easily if there are unforeseen issues with the first property

For first time operators, it would probably be wise to lease a property first and focus the company’s limited resources on building the business, which is in operating a cafe and not real estate investment.

For experienced cafe owners who would like to expand their business after starting in a small way, buying may be worth considering as it does offer greater benefits in the medium to long run.