How to Start a Coffee Shop: 9 Steps to Success

Starting a coffee shop can be an exciting and rewarding venture for entrepreneurs who are passionate about great coffee and want to create a thriving business.

That said, regardless of whether your goal is to create a cozy community hub, a trendy specialty café, or a fast-paced grab-and-go spot, you should note that opening a coffee shop will require a combination of practical planning, a strong understanding of your market, and an overall commitment to quality.

In this comprehensive guide, we’ll walk you through all the essential steps you’ll need to take to start your own coffee shop, from conducting market research and securing funding to choosing the right location, setting up operations, and attracting customers.

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Industry Overview

The U.S. coffee market is a dynamic and rapidly expanding sector, projected to grow from an estimated USD $28.06 billion in 2024 to USD $33.64 billion by 2029, at a steady compound annual growth rate (CAGR) of 3.69%.

This growth is fueled by the changing dynamics of modern city life, where people typically work longer hours and have less leisure time, coupled with the fact that over 85% of Americans consume coffee daily, resulting in a consistent and rising demand for coffee.

Looking ahead, the sector is set to grow further, driven by a rising working youth population that increasingly prefers takeaway coffee, with 2023 data from the National Coffee Association showing nearly 50% of consumers favor this option.

Startup Costs

If you’re considering whether a coffee shop is right for you, the first thing you’ll need to know is whether it’s a) affordable, and b) worth the investment. I mean, how much can you actually make running your own coffee shop?

Well, it depends; the initial investment for a coffee shop can vary widely based on factors such as your location, the type of business model you plan to implement, and the quality of equipment you’ll choose.

We’ve included the most common startup costs to be aware of below:

• Location costs ($25,000 – $70,000+): You will need to secure a space for your coffee shop, with costs varying significantly based on the size of the premises and the location of your business.
• Renovations and Interior Design ($10,000 – $100,000): You will likely need to renovate and customize the space to reflect your brand and create an inviting atmosphere for customers, with costs varying based on the size of the space, the complexity of the upgrades, and the materials you’ll select.
• Equipment ($5,000 – $20,000): You will need to purchase espresso machines, grinders, coffee brewers, refrigerators, dishwashers, and any other appliances required for your coffee shop, with costs varying depending on factors such as the quality of the equipment and on whether you choose new or used equipment.
• Licenses and Permits ($500 – $5,000): You will need to obtain the necessary licenses and permits to operate, such as health permits, business licenses, and food service certifications, with requirements and costs depending on your business’s location.
• Marketing and Advertising ($1,000 – $10,000): You will likely need to invest in a comprehensive marketing campaign to attract customers and establish your coffee shop’s presence. This can include developing a professional website, running targeted social media ads, distributing local flyers, and hosting promotional events, with costs varying based on the scale of your efforts.
• Inventory ($5,000 – $15,000): You will need to stock up on coffee beans, milk, syrups, teas, pastries, and other food or beverage items you plan to offer, with costs varying based on the volume of inventory needed and the quality of ingredients you choose.
• Staffing and Training ($15,000 – $40,000): If you plan to hire additional staff, you will need to account for the initial costs of recruitment, training, and wages to cover the first few months of operation until your coffee shop starts generating consistent revenue.

Note: Although not exactly a startup cost, it’s highly recommended to set aside working capital to cover 3 to 6 months of operating expenses, ensuring you can handle any cash flow gaps or unexpected costs during the early stages of running your coffee shop.

Earning Potential

The earning potential of a coffee shop is promising, though heavily dependent on achieving sufficient sales volume.

This is because while coffee typically offers high-profit margins — often selling for two to three times what it costs to make — the overhead expenses associated with running a coffee shop are quite substantial.

To put this into perspective, if one cup sells for $5, with $3.50 being profit, a monthly rent of $2,000 would require you to sell approximately 570 cups just to cover that single expense. Add in salaries, utilities, and other fixed costs, and you may need to sell a total of 1,500 to 2,500 cups per month to break even.

This means that profitability is highly dependent on achieving and maintaining a consistent sales volume above your break-even point (e.g., 300 cups a day) — the more you manage to exceed this threshold, the more you will be able to capitalize on coffee’s high-profit margins.

8 Steps to Starting a Coffee Shop

In order to start a coffee shop, you’ll need to complete the following steps:

1. Planning Your Coffee Shop
2. Registering Your Business
3. Secure Funding (If Applicable)
4. Finding the Right Location
5. Setting up Business Accounting
6. Opening a Business Bank Account and Credit Card
7. Getting all Applicable Licenses and Permits
8. Obtaining Business Insurance

We’ve broken each one of these down in more detail below.

Still exploring your options? Check out other small business ideas.

Step 1: Plan Your Coffee Shop

Before diving into your coffee shop, you’ll need to spend some time conducting thorough market research to understand where your business will fit and how it can stand out.

This will involve analyzing your target market, exploring the competitive landscape, and assessing local demand for coffee, as well as identifying customer preferences for factors like quality, price, and convenience.

You should also research potential supplier options to ensure you’re fully prepared for the operational aspects of running a coffee shop.

This will help you evaluate the financial viability of your project — including projected revenues and expenses — and create a solid basis for future growth and profitability.

Finding a Suitable Name

Choosing the right business name is both important and challenging.

This is because your name will need to be eye-catching, memorable, and (at least somewhat) related to your industry.

If you don’t already have a name in mind and need help, you can visit our How to Name a Business guide or use our free Business Name Generator tool.

If you do have a name in mind, we recommend researching the following:

• Your state’s business records
• Federal and state trademark records
• Social media platforms

You will also need to make sure that your business’s name is available as a domain — this is your website’s URL address.

Note: If you’re planning to operate a sole proprietorship, you might want to operate under a business name other than your own name — known as a “Doing Business As” (DBA) name. Keep in mind that this is not recommended for a coffee shop.

Choosing Your Theme

Before opening your coffee shop, it’s important to spend some time deciding the theme and style that will define your business.

Will you opt for a cozy, rustic ambiance, a sleek and modern design, or a theme inspired by local culture — or perhaps a combination of these elements?

Generally, your choice of theme will shape not only the atmosphere of your coffee shop but also the type of customers you’ll attract, and therefore you should base it on the findings of your market research to ensure it resonates with your target audience and differentiates your business from your competitors.

That said, operational feasibility is something you should also take into account, meaning that your theme should not only reflect your vision but also prioritize customer comfort.

Step 2: Register Your Business

One important aspect that cannot be overlooked when starting your coffee shop is the importance of establishing a solid business foundation. While sole proprietorships and partnerships are the most common entity types for small businesses, they’re a far less stable and advantageous option than LLCs.

This is because unincorporated business structures (i.e., sole proprietorships and partnerships) expose you as an owner to personal liability for your business’s debts and legal actions, while LLCs protect you by keeping your personal assets separate from your business’s liabilities.

In practice, this means that if your coffee shop company were to face a lawsuit or incur any debts, your savings, home, and other personal assets could not be used to cover these costs. On top of this, forming your business as an LLC also helps it to appear more legitimate and trustworthy.

Note: If you’re interested in more information before getting started, we recommend having a look at our How to Start a Business guide (DIY) or our in-depth Best Business Formation Services review (for those opting for a professional service).

Step 3: Secure Funding (If Applicable)

Nearly every business, especially in the early stages, will require some level of financing to get off the ground, with the most common options available being:

• Small Business Administration (SBA) loans
• Traditional bank loans
• Private investors
• Angel investors
• Crowdfunding campaigns

That said, you should never borrow against your business without knowing exactly how much additional revenue it will generate, meaning any debt you take on should be productive debt — debt that directly contributes to growth and profitability.

A common approach for new coffee shop owners is to minimize borrowing during the startup phase — focusing instead on building steady sales and a loyal customer base — and using funding for strategic growth opportunities later on, such as expanding to a new location.

Step 4: Find and Secure the Right Location

The next step you’ll want to take is to find (and secure) the right location for your coffee shop.

While many factors come into play when finding the right location for your business, when it comes to coffee shops you will generally want to focus on three main factors: high foot traffic, easy accessibility, and strong visibility.

For instance, areas near offices, universities, or retail districts are often considered ideal, as they typically provide the high foot traffic you’ll need, along with easy accessibility through public transportation and strong visibility from busy streets or pedestrian routes.

You should also consider the competition in the area — too many coffee shops nearby could make it harder to establish your presence, whereas a location near complementary businesses, such as bookstores or bakeries, would typically enhance your appeal.

Note: You will also need to make sure that your prospective property is zoned for commercial use and complies with all applicable local and state regulations (discussed in more detail in Step 7).

Step 5: Set up Business Accounting

Recording your various expenses and sources of income is very important to understanding the financial performance of your business.

To do this, you will need to organize your finances into distinct categories, such as:

• Inventory Costs (e.g., coffee beans, syrups, milk, cups, lids, sleeves)
• Labor Costs (e.g., salaries, wages, benefits, payroll taxes)
• Fixed Costs (e.g., rent, utilities, insurance, loan payments)
• Marketing Expenses (e.g., advertising, social media, promotional materials, events)
• Beverage Sales (e.g., coffee drinks, teas, smoothies, specialty drinks)
• Food Sales (e.g., pastries, sandwiches, snacks)
• Retail Sales (e.g., coffee beans, merchandise, mugs)

This should provide clear visibility into your business’s financial performance and aid in accurate cost analysis.

Step 6: Open a Business Bank Account and Credit Card

Using dedicated business banking and credit accounts is essential when operating as a business owner; this is because when your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) can be at risk in the event your business is sued.

In business law, this is referred to as piercing your corporate veil and is a result of the fact that not having a separate business bank account can be interpreted by some courts as evidence that you are not treating your business as a separate financial entity.

As a result, you could lose your limited liability protections even if you’ve registered a separate business such as an LLC or C Corp.

There are also a variety of practical and economic benefits to this step, such as a larger access to business loans and a more legitimate look.

Getting a business credit card can also be a great idea as it can help you build your company’s credit history from the start.

Recommended: Read our Best Banks for Small Business review to find the best national bank or credit union.

Step 7: Secure All Required Licenses And Permits

The applicable licenses and permits that you’ll need will largely depend on your state and local regulations.

Even so, we’ve compiled a list of some of the common licensing regulations that you’ll likely need to satisfy in order to operate legitimately.

Food Service License

In most states, you’ll need to obtain a Food Service License in order to operate your coffee shop legally.

Having said that, this can depend on whether you plan to serve just beverages or offer a broader menu that will include pastries, sandwiches, or other prepared or packaged foods.

To obtain this license, you will likely need to pass an inspection that will assess your coffee shop’s food handling practices, the condition and suitability of its equipment, and the overall cleanliness of its kitchen and storage spaces.

Zoning and Land Use Permits

Before opening a coffee shop, you’ll need to ensure that your chosen location complies with all local zoning and land use regulations.

To do this, you will typically need to obtain a permit from your local zoning office confirming that the site is approved for commercial use; this will also relate to any specific requirements when it comes to signage, parking, and waste disposal.

Health and Safety Inspections

Local health and safety inspections are mandatory to ensure that your coffee shop complies with health codes and safety standards.

These inspections will typically involve reviewing your food handling practices, equipment cleanliness, storage protocols, and overall hygiene standards, as well as assessing the layout of your kitchen and seating areas to confirm compliance with fire safety regulations.

Keep in mind that regular inspections help maintain a safe environment for patrons and are often required for the renewal of operating permits.

ADA Compliance

The Americans with Disabilities Act (ADA) requires all businesses, including coffee shops, to be accessible to individuals with disabilities.

This means your coffee shop will need to provide wheelchair-accessible entrances, restrooms, and seating areas, as well as ensure pathways are wide enough to accommodate mobility devices.

These measures will ensure that all customers can navigate the space comfortably and without barriers, fostering an inclusive and welcoming environment for everyone.

Step 8: Secure Business Insurance

In addition to securing the necessary permits and licenses, you will need to obtain the right business insurance.

Note

Even if you form an LLC, purchasing business insurance is still a good idea. This is because an LLC structure protects your personal assets, not your business’s.

While specific coverage needs may vary based on factors such as location, size, and unique risks, there are several key types of insurance that most coffee shops should consider.

General Liability Insurance

General liability insurance is a foundational coverage that’s essential for coffee shops because it protects against claims of bodily injury, property damage, and personal injury that may occur on your premises.

For example, if a customer slips and falls on a wet floor or accidentally spills hot coffee and burns themselves, general liability insurance would cover any medical costs and/or legal fees associated with such incidents.

Product Liability Insurance

One of the most important types of insurance that every coffee shop should have is product liability insurance, which protects your business from claims related to harm or illness caused by the products you serve.

For example, this would protect your business in the event that a customer became ill after consuming a contaminated beverage or experienced an allergic reaction to an ingredient not disclosed on your menu.

Property Insurance

Property insurance is essential for safeguarding your coffee shop’s physical assets — such as the building, equipment, and inventory — from risks like fire, theft, vandalism, and certain natural disasters.

The median cost for business property insurance is approximately $63 per month for plans with a $1,000 deductible and a $60,000 policy limit.

Having said that, rates can vary significantly based on factors such as your location, risk profile, and the value of the property in question.

Workers’ Compensation Insurance

If your coffee shop will have employees, workers’ compensation insurance is likely going to be a legal requirement depending on your state.

This insurance policy provides coverage for medical expenses and lost wages to employees who are injured during work.

The average cost of workers’ compensation insurance ranges between $45 per month, but this can vary based on factors such as payroll, location, and (once again) your business’s specific risk profile.

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How to Start a Coffee Shop FAQs

Is the coffee shop business profitable?

Yes, the coffee shop business is typically quite profitable, especially when considering the high-profit margins on coffee (which are often between 200% and 300%).

That said, your business’s profitability will ultimately depend on maintaining a consistent sales volume to cover the significant overhead costs associated with running a coffee shop.

How much do you need to set up a coffee shop?

To set up a coffee shop you will generally need to spend anywhere between $80,000 and $250,000, though this will depend heavily on the location you choose, the extent of renovations you’ll require, and the quality of equipment you’ll purchase.

If that sounds like a lot, you can check out our How to Start a Mobile Coffee Cart guide for a lower-cost alternative.

How to start a small cafe?

To start a small cafe, you’ll need to research your target market, choose a unique theme, and obtain all licenses and permits required for your operation.

You will also need to find a suitable location, purchase the necessary equipment, and develop a comprehensive marketing strategy to attract and retain customers.

How do I run a successful coffee shop?

To run a successful coffee shop, you will need to offer high-quality products, deliver exceptional customer service, and create a welcoming atmosphere that keeps customers coming back.

You should also manage costs effectively, streamline your operations for efficiency, and stay attuned to customer preferences, regularly updating your menu and services to meet their expectations.