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:
- Company Setup – Incorporation, Licenses, Legal, Finance and Tax Fees
- Business Acquisition – Purchase of existing business (if buying a business)
- Franchising Costs -Franchise fees and startup costs (if franchising)
- Property Acquisition – If buying the business premises
- Property Rental Deposit – If leasing the business premises
- First Month Rental – Be prepared to pay the first month’s rental in advance
- Utilities Deposit – A deposit is often required when opening an account with the utility companies
- Outlet Renovation – The interior design, renovation and decorating costs will vary according to the plans
- Furniture & Fittings – Furnishing the café will be a large part of the start up costs
- Kitchen & Bar Equipment – Another major cost to bear in mind
- Point of Sale & Service Equipment -Don’t save on these essentials
- Marketing & Branding Items – Cups, Uniforms, Menus, Namecards, Flyers, Napkins, Coasters, etc
- Food & Beverage Stock Items – A key cost that will depend on the menu items and inventory size
- 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
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.
Rental of the business premises is normally one of the most significant running costs of operating a cafe and it is wise to choose carefully when starting up.
The monthly rental cost will depend on the location and size of the actual property.
From the business plan, it should be clear whether the cafe requires a large space or if a small shop lot is sufficient. At the same time, the concept should also help to determine the ideal location for the business.
For example, city-based cafes are often very compact and located in central areas with lots of natural foot traffic and correspondingly high rental rates. In contrast, some cafe’s are destinations at the edge of town where patrons can spend a leisurely time to sip coffee or have a relaxed meal.
Here are some useful points to consider when deciding on the rental location for your cafe:
- Concept – confirm your concept, size and location requirements
- In the City – choose to be in the city for more potential business but be prepared to pay higher rental costs
- Outskirts of Town – get a bigger space by opting for more affordable locations outside of the city center
- Advertising – create better awareness by being located in a prominent position in the high street
- Marketing – save on rental and spend more on marketing and promotions by opening outside of town
Getting the right location is a critical decision when opening a cafe that could make or break the business from the outset.
Take your time and view as many properties as possible. Try not to rush when making this decision, especially if none of the shops you’ve viewed are suitable.
Remember, you’re going to be spending a lot of time there in the future, so don’t make a rash move just because you’re impatient to start the cafe.
From business plan and design concept to staff recruitment and confirming your menu pricing, here’s a 25 step guide on how to open a cafe or small restaurant.
While we’ve tried to cover most of key areas when starting up a cafe, there are likely to be topics that havn’t been included in this guide.
Please feel free to share ideas, suggestions and requests for us to cover any of the points in more detail or ask about things that are not listed, by making a comment below.
- Concept: Confirm the Concept
- Business Plan: Write the Business Plan
- Financial Projections: Do a detailed Financial Projection
- Profitability: Make sure the Business can Make Money
- Funding: Find the Capital Required to Startup the Venture
- Location: Look for an Ideal Location for your Business Premises
- Rental: Sign a Lease to Rent a Retail Property or Buy it if you can Afford
- Renovation: Renovate the Space you’ve rented for the Café to suit your Design Style
- Equipment: Purchase all food and beverage equipment for the Kitchen, Bar and other areas
- Decorations: Buy Furniture, Fittings and Fixtures to decorate and furnish the café
- Coffee Machines: Invest in good coffee making machines that can cater to your café’s size
- Signboard: Design an attractive Signboard and place it in a prominent place that’s visible
- Branding: Get custom printed menus, napkins, paper bags and drinks coasters with the café’s logo on them
- POS: Install a Point of Sale system or some sort of manual way to track and record daily sales
- Cash Register: Buy a Cash Register to keep all the money received and make sure there’s a daily float available
- Notice Boards: Put up an internal Special’s board with the main menu items so that it’s easy for takeout customers to order
- Flyers: Design promotional flyers featuring special offers and an attached discount voucher
- Team: Hire and Train the Service staff, Baristas, Kitchen helpers and Café Managers
- Uniforms: Get impressive uniforms, aprons, and other accessories for the staff to wear
- Supplies: Get all the stocks and supplies necessary to operate the cafe
- Tasting: Hold a Food and Beverage tasting session with the team to verify your product quality
- Menu: Refine your menu items, their pricing, recipes, ingredients and costs
- Licenses: Make sure you have all the required business licenses and health & safety approvals
- Bank Account: Open a bank account to deposit daily earnings and pay suppliers for goods supplied
- Open: Open your café and start doing business
Opening a little coffee shop is a lot easier than trying to start a restaurant type cafe with a full kitchen and food menu.
It’s important to be clear about your concept from the beginning as this will affect many areas of your business plan and financial forecasts.
As a retail business, one of the most significant decisions and expenses for the company is the rental for the cafe’s premises. The rent will be determined by the size and location of the property, so entrepreneurs will need to carefully consider the trade-off between paying higher rates to be in a popular area or finding a cheaper alternative in a quieter part of town.
These decisions will normally depend on your cafe’s concept, which in turn affects all the other areas of the business.
Here are some things to consider:
- What’s the Concept
- Who’s the Target Market
- What are the Opening Times
- What’s the Premise Size Required
- Where’s the ideal Location for the Cafe
- Do you serve Premium or Gourmet Coffee
- What other Beverages do you Offer
- Do you provide a Snacks or Food Menu
- How do you Intend to Prepare the Food
- Will you have a Kitchen to Make Fresh Meals
- Does the Cafe Offer a Take Out service
- How many Staff do you need to Run the Cafe
- How many Baristas do you need
- Do you serve Alcohol or have a Bar in the Cafe
- Is Food available throughout the Day or only at Meal times