How to Open a Cafe in 9 Steps
- Know who your competition is and what your market currently looks like.
- Create a business plan that will impress investors and keep you organized.
- Keep on top of food regulations.
- Secure proper permits, licenses, and insurance to ensure operations are above board.
- Hire a team you can trust.
- Investigate small business funding to help cover startup costs.
- Find your suppliers and learn how to manage inventory.
- Obtain a top-notch POS system for making sure your payments run smoothly.
- Build the cafe of your dreams.
Starting a cafe is no small endeavor, but anyone who appreciates the Parisian way of life can tell you how integral a local, welcoming cafe is to any community. But when you’re starting a business, there are several things to consider and processes to complete to make it official.
Wondering how to open a cafe in your neighborhood? We’ve got you covered. In this guide, we’ll provide the tools to help you learn how to open a cafe and build a successful business. Let’s get started.
How to Open a Cafe: A Step-by-Step Guide
Not sure how to start a cafe business? These nine steps will help you start the process and prepare for business success.
Step 1: Know Your Competition
There are over one million restaurants and over 30,000 coffee shops in the United States. New cafe owners can expect some steep competition. Of course, these dining options are more concentrated in some areas than others. Your neighborhood may be in desperate need of a great new cafe. That’s why your first step in starting a cafe should be to get to know your competition.
Maybe there is an obvious need you can fill, or perhaps you can take a look at what isn’t working for other local cafes and create a superior option for consumers. Look back at your town’s business records. Which cafes have closed in recent years? Do you know why they closed? Scour review sites like Yelp to see why your competition is being praised and criticized. But most importantly, make sure your business can contribute to local life before you invest too much time or money toward starting a cafe.
Step 2: Create a Business Plan
No matter what type of business you want to start, creating a business plan is key to launching any successful endeavor. Your business plan is made up of eight sections, but you can alter your business plan to suit the specific needs of your cafe. The goal is to create a plan that will keep you on track, organize your research, and prepare to prove your value to potential investors.
1. Executive Summary
The executive summary gives you a chance to summarize your company’s value-proposition. While this section leads your business plan, you will likely write it last as a summary of the subsequent sections of your business plan. You’ll use this section to explain what your business does, as well as what your current state of affairs looks like. You will also give a financial breakdown for where you see the business in three to five years. And of course, you can’t forget to include what factors will drive your business’s success.
2. Company Overview
The company overview is where you’ll describe what your business does in a way that is easy for others to understand, especially potential investors. You’ll also briefly outline the industry and marketplace you are partaking in and how your cafe will contribute to those areas.
This is also a good time to think about what you want the name of your cafe to be. Your business name should be unique, descriptive, and aligned with your brand strategy. Most importantly, it should also be available. Check with your secretary of state’s website to make sure your desired business name isn’t already in use, and you’ll likely want to perform a Google and trademark search as well, especially if you want to reserve a domain name.
3. Market Analysis
This section builds on our first step and offers a more in-depth and higher-level analysis of your industry, market, and any potential competitors. Utilize this section as an opportunity to prove your knowledge of the market and what unique void your cafe will fill.
The number one reason businesses fail is a lack of market need for their products or services, so make sure there’s demand for you cafe before you continue with the next steps.
4. Business Organization
You may currently be a team of one, but your cafe will still need a formal business structure. This section of your business plan should include an outline of the legal structure of your business, so if you haven’t decided which business entity to structure your business as, this is the time to do so. Common business structures include sole proprietorships, general partnerships, limited liability companies (LLCs), and corporations.
If you’re unsure which structure will best serve your cafe, you should consult a business attorney or tax expert who can help you make the right decision. After all, which entity you choose will affect your taxes, how much risk you’re exposed to, and more, so you’ll want to consider all of your options carefully. Once you’ve decided on your business structure, the next step will be to register your business with federal and state agencies.
If you’re going into business with a partner or already have some key employees who you’ll be building your business with, you can introduce them in this section, as well.
5. Products and Services
Now for the fun part! What products and services will your cafe offer? And how much can you reasonably expect to charge for them? You should start by providing a general look at your cafe’s offerings. Then, you’ll fill in the blanks about the current stock, sourcing, development, fulfillment, and research status of your products or services.
6. Marketing and Sales Plan
If you want your business to succeed, you’re going to need a little more than word of mouth to reach new customers—at least when you’re first starting out. Once you’re more established, word-of-mouth marketing can be an effective way to gain new customers.
Your marketing strategy and sales plan should have a two part approach. Positioning and promotion. How are you going to position your products to customers? What makes your goods or services special or valuable? Now that you know what your sell is, come up with a promotional plan that will get your brand in front of the eyes and ears of customers.
7. Financial Plan and Projections
When you share your financial plan and projections, you’ll give a glimpse at the current state of your business finances. You’ll also project where you see your finances going in the future based on your expected sales, expenses, and more. Existing businesses that are creating, or updating, a business plan can use data from their past financial performance. They may want to include information such as income history, cash flow, and balance sheets. If you’re just starting your cafe, you’ll likely have to use research and estimations to complete this section.
Your appendix is your last chance to say what you need to say about your business. Data, graphics, footnotes, or any form of detailed information you feel is necessary to include should find a home in the appendix. You may also want to use this space to get personal. Share a bit about your history and experience or some background on key team members.
With a thorough business plan completed, you’ll be equipped with a roadmap to take your cafe from an idea to a profitable business.
Step 3: Learn the Rules
You know what they say, running a cafe is all fun and games until someone gets food poisoning. Okay, maybe no one has ever said that—but they should. Like any food services business, operating a cafe comes with an added degree of responsibility to your consumers, which is why the government will hold you accountable for cleanliness and safety. Before you open a cafe, learn more about the food services regulations in your state. Each state has different rules in place, so make sure you’re familiar with your state’s and devise a plan to comply. If possible, talk to other small business owners in the food services industry to be sure you have all the information you need.
Step 4: Get the Proper Licenses, Permits, and Insurance
You’re well on your way to starting a cafe, but before you can continue you’ll need to make sure you’re legally allowed to operate your business. The legal requirements of registering and licensing your business will vary based on your industry and location. However, you will likely need multiple business licenses at the state, federal, and local level when starting a cafe.
Again, because you’ll be handling and serving food, you’ll be required to obtain more licenses and permits than a non-food services business, including food and health code licenses, health department permits, and more. If you plan on serving alcohol in your cafe, you’ll also need a liquor license. Additional licenses or permits may apply, including building, zoning, or land-use permits; signage permits; and more.
If you plan on hiring employees to work in your cafe, you’ll also need to obtain an employer identification number (EIN). This will be required for tax purposes, among other things, but even if you don’t plan on hiring employees, there are several benefits of getting an EIN.
Additionally, you will need to obtain some type of business insurance for your cafe. If you have employees, you’ll be required to carry workers compensation, unemployment, and potentially disability insurance. General liability and commercial property insurance are also common types of coverage. However, for the food services industry specifically, you’ll want to look into even more insurance policies, such as liquor and auto liability, fire, and food contamination insurance.
If you haven’t consulted with a business lawyer yet, now is a good time to do so to ensure you’re starting a cafe that is compliant with the law and protected from any potential issues down the road.
Step 5: Hire the Right People
A good cafe can make you feel right at home. And no one wants to feel uncomfortable in their own home. Thus, it’s important to hire cooks, servers, cashiers, and management that will commit to maintaining your brand’s level of quality so that both you and your customers feel comfortable.
Not only do you want to hire the best employees, but you also want to create a productive and safe work environment so you can retain your talent. And if you’re new to hiring, avoiding these mistakes can help the process go more smoothly.
Step 6: Find Small Business Funding
At some point along this journey you likely wondered, how much does it cost to open a cafe? The costs will depend on your cafe’s location, renovation, marketing, employment, and supply needs. There’s a very good chance you’ll need to find a business loan for your cafe to help with startup costs. There is no one-size-fits-all approach to business funding, so take your time when you consider what path you want to take. You may find the following funding options are a good fit for your business.
- Business loans: While some business loans, such as SBA loans, may be out of reach for a brand-new business, if your cafe has been operating and profitable for a few years, these could be a great solution to your cafe’s funding needs.
- Business lines of credit: With more flexibility than a standard business loan, a business line of credit gives you a set amount of money from which you can draw to cover your business expenses.
- Business credit cards: A business credit card is a good option for startup business owners whose lack of credit history and time in business may put more traditional funding options out of reach. In fact, a 0% intro APR credit card can be treated almost like an interest-free loan. Just make sure you have a plan to pay off your balance before the introductory offer ends.
- Equipment financing: Starting a cafe comes with significant upfront costs due to the equipment required, including kitchen appliances, furniture, and more. With equipment financing, a lender fronts you the money specifically for the purchase of equipment, which then serves as collateral on the loan, making this type of financing easier to qualify for than other options.
- Startup funding: There are some types of startup financing that cater toward new businesses, such as SBA microloans and some business grant. You may also turn to crowdfunding to get your cafe business off the ground.
Step 7: Find and Manage Supplies
Whether you’re all about the farm-to-table movement or will be offering a very specific item, you need to get your suppliers settled before opening your cafe. How you source your ingredients, as well as less thrilling supplies like to-go containers and utensils, is an integral part of running a cafe. You’ll want to sit down and calculate how much inventory to carry, as well as how much it will cost and where you’ll source it from.
Don’t forget to look up reviews of your suppliers or ask for customer testimonials. You need to work with suppliers you can rely on. Feel free to make the rounds in your local entrepreneur network, as well. Recommendations from business owners you trust are a great place to start.
Next, you’ll have to create an inventory system that is easy to follow and reliable. Any cafe worth their salt knows you can’t risk accidentally running out of coffee filters on a busy Sunday morning. A good place to start may be with an inventory management app so you can keep track of what’s going in and out of your cafe, and when.
Step 8: Choose a POS System
You’re likely dreaming of the day you’ll make your first dollar. While you may want to hang that dollar up on the wall, you’re also going to want to have systems in place that ensure you receive payment properly for every sale you make. A point of sale (POS) system will be essential to process these payments. While there are various POS systems to choose from, you’ll likely want to opt for one geared specifically toward business in the food services industry. Finding a good POS system for your cafe is a business necessity and will help all of your transactions run smoothly.
Step 9: Build Your Dream Cafe
When you first started thinking about how to open a cafe, this is likely what you imagined. Now that the paperwork and less creative work has been established, it’s time to do the work you love: Find your perfect location, hunt down the decor that gives you all the good vibes, build the perfect menu, play around with ideas for how to make your cafe stand out.
Visit other cafes and take notes on what you like and dislike. Is free Wi-Fi a must? How about comfy chairs or pretty plants? Do you like a menu with a lot of versatile choices or a more specialized one? Stay true to your vision and beliefs and you’ll create a cafe that customers will flock to.
The Bottom Line
There will be countless long days spent making your cafe dreams a reality. Hopefully, this guide on how to start a cafe business will give you the jumping off point you need. With these steps accomplished, you’ll be in a great position to start welcoming customers into your new cafe. Where you take it from there is up to you!
- Restaurant.org. “National Statistics“
- Statista.com. “Number of Specialty Coffee Shops in the United States from 1991 to 2015“
Jacqueline DeMarco is a small business owner and freelance writer and editor based in Southern California. She has written on everything from finance to travel for publications including LendingTree, SoFi, MagnifyMoney, LearnVest, Northwestern Mutual, and Apartment Therapy, among others.