Specialty Coffee Storage and Brewing Tips

Coffee loses about half of its flavor in the first 10 days after roasting and even more after grinding.  After coffee is roasted, it should degas or breathe (also referred to as aging) for an initial 8 hours in an open container.  This allows for the extremely pungent gasses (that heavy coffee smell) to dissipate.  These heavy gasses actually cause the coffee to taste overbearing.  It’s not bad to drink at this point; it just tastes better in a few days.  The coffee should sit in a semi-closed container in a cool, dry and dark place for another 3-5 days to further degas.  Freshly roasted coffee is ready to be brewed from day 5 after roasting.

For the next 10 days after the degassing period, the coffee is at its peak of freshness with every ripe note and flavor coming out in its aroma, body, and acidity.  At 15-20 days old, you should really begin to finish brewing it as it is now beginning to stale and will taste flat in about 5 more days.  At 20-25 days old it’s time to brew it or get more!

Air (oxygen), light, moisture and temperature (other than room temperature) are the culprits that kill your fresh coffee, roasted or brewed.  If you follow these tips you will get longer life from your specialty coffee, and undoubtedly enjoy a fresher, fuller-flavored and more superior cup of coffee:

• Whole beans will last longer than ground coffee so don’t grind the beans until you are ready to brew them.
• Remove your beans from the original bag the coffee came in, and put in an airtight container like Tupperware or Glad Ware.  A plastic Ziplock-type bag will work (but is not recommended) if containers are not available.  The more opaque the container, the better to keep harmful light out (read more about light below). Be sure to wipe container clean with damp cloth (no soap or chemicals) in order to reuse.
• Contrary to popular belief whole beans should never be stored in the freezer or refrigerator.  Not even a deep freeze freezer.  Keep them in an airtight container in a cool, dry and dark place like a cupboard or pantry.  Freezers can cause freezer burn, condensation (moisture) freeze and the coffees natural flavor oils to crack and/or dissipate.  These oils are where all the flavor is.  Storing in the freezer builds condensation and each time the coffee is taken out of the freezer condensation has more ability to set in because of the temperature change.  Excess moisture will cause your beans to stale faster and shorten the life span of your coffee so a cool, dry and dark place it recommended for storage.
• Refrigerators harbor many odors.  Coffee is very porous and will act like a sponge to odors whether it’s ground or whole bean.  Coffee in your refrigerator will act the same as baking soda if left open or in a poorly sealed container.  In an enclosed container even if sealed properly, beans will build condensation the same as in the freezer.  Again, moisture will cause your beans to stale faster.
• Extreme light (like keeping coffee in a glass jar on the sink) can cause deterioration of your beans, allowing your final cup of coffee to taste flat or stale.  As described earlier, we suggest keeping your freshly roasted coffee in an opaque, air tight container at room temperature.  A cool, dry and dark place like in a cupboard or pantry works the best.
• Any degree heat over room temperature will also harm your coffee because heat will actually promote more degassing and that will only shorten the life of your beans.  Remember that cupboards are best for storage but none over or next to an oven or stove.
• Before grinding, weigh your beans.  Use approximately .75 oz (by weight) of coffee per 8 oz of COLD water.  You can +/- the coffee to taste.  Fresh, clean tap water or quality spring water is recommended.  Do not use mineral water, distilled water or tap water with any type of odor.  It will make your coffee taste bad.
• Rule of thumb is to only grind enough coffee to use immediately, however if ground coffee is stored correctly (see above, store same as whole bean), it should stay fresh for a maximum of 3 days.  Any longer or stored improperly and it will stale.  Stale coffee makes awful coffee!
• After brewing, drink your fresh coffee within approximately a half hour.  DO NOT keep it on a hot plate or burner to keep ‘warm’.  This will just cook your coffee giving it that strong, bitter taste.  If you brew too much coffee, at the very least shut off your coffee maker’s hot plate.  In actuality though we do not recommend it, reheating your coffee in the microwave would be better than letting it cook on a hot plate.  However as your coffee cools the air will stale it so don’t wait too long!  If you put your coffee in a carafe or thermos, this will hold temperature for about 2-3 hours depending on how much you consume or use.  You should drink your coffee from one of these holding containers within this time frame because even though the temperature of the coffee keeps for a few hours, the coffee can still cook itself giving it that funny, bitter taste.

You can buy an inexpensive coffee grinder at Target or Wal-Mart for about $20.  It is a good idea to only purchase what you intend to be able to grind and brew within a reasonable amount of time, 3-4 weeks at the most.

Coffee stales relatively quickly so following these helpful hints will get you better tasting coffee than you have ever had, ever!  Bet you didn’t know there was so much to know about quality coffee, now did ‘ya?  Happy coffee drinking!

To Franchise or Not?

There is another thing to think abut when starting a coffee shop.  In my coffee shop business plan package, I talk about franchises and how they may give you an edge.  They have some name recognition (in most cases), but more often than not they are not favorable options.  Of course, make your own decision but as a franchisee, you are pretty much land-locked into the franchisor’s way of doing things.

Some Pros

• Name recognition, branding etc.  Though in the coffee industry, franchising is still in its infancy. It is not like the fast food franchise industry.  Just look around you and think about that.
• Most coffee shop franchises are regional and will only be recognized by locals, not that that is a bad thing but you automatically discard any travelers or tourists since they most likely will not know your branding.  Here are a few:  Tim Horton’s, It’s A Grind, Arabica, Cuppy’s, Scooter’s to name a few.  This point is kind of a pro and con both.
• Better pricing on products because of volume.
• Better pricing on equipment because of volume.
• Some support in planning stages like site selection, lease negotiation and build out.
• Ongoing support in marketing and operations (check the particulars on this in the contract).

Cons

• Mandated proprietary ingredients, coffee, equipment, etc (usually).  You have less leeway for freedom to use products that you want to use.  If your franchisor uses bad coffee (I know of one in Ohio that is AWFUL!), you are not going to do well in the long run.
• Up front franchise fee, sometimes as high as $100,000 before you actually start anything.
• Ongoing royalties paid monthly, usually 3-7% of your GROSS sales.  Suppose you do $30,000 per month; do the math on that one.
• The franchise agreement is usually a locked in period of time from 5-10 years.
• Ongoing marketing fees of 3-7% of your monthly GROSS!   Though this is comforting to know someone has your back for marketing, marketing is not this expensive for a specialty coffee retailer.
• A fairly high personal net worth is usually needed of all owners.  Again, this is something that is not a bad thing, and can actually benefit the business.  They usually look for a personal net worth in the neighborhood of $100,000-500,000, with anywhere between $50,000 -300,000 of that liquid assets depending on the franchisor.  Those are high numbers to achieve for the average new entrepreneur.  However,  just because you have money or high ‘paper’ net worth does not mean you know how to or have what it takes to run a business.  Take the time to learn how to run a business.

So there are a few tidbits about franchising in the coffee business.  I go into more detail in my coffee shop business plan but at least you have something to get you thinking on the best track for your business.  For more information, have a look at my coffee shop buiness plan at http://www.tonys-coffee-shop-business-plan.com Good luck!

Starting a Coffee Shop: Equipment Needs

So you have decided on starting a coffee shop! Congratulations! In my coffee shop business plan package, I go into more detail regarding equipment but due to space here, I am only going to give you some basic ideas of what to consider when looking at your equipment needs.

First of all, do yourself a favor and DO NOT buy any used equipment unless you know the exact age, where it came from, who used it, and that maintenance records are verifiable. I am only referring to anything with a motor or compressor. Used sinks, tables, counters, etc are fine as long as they are in decent shape. All other equipment, be VERY careful!

Even if you get it from a friend, you might be assured by them that the equipment was maintained properly and often, however did they get it used and can they get that guarantee from whom they bought it from? And how old really is it?

As you may have guessed, I fell into this trap and had things breaking down when I did not expect it shortly after I opened my coffee shop. Yes even my espresso machine. I was in a bad spot then! Luckily I had access to a one group machine for backup and a local guy was able to fix the other fast but you may not be as lucky.

I eventually upgraded to mostly new equipment when, but this can be avoided by getting new equipment at the start. You will be glad you did it, trust me!

Equipment Needs

Cash register or POS computer? – A computer POS (point of sale) system is good there is no doubt about it. These are the ones that have the touch screen monitors and such. However, they are probably (and arguably) best for analyzing your sales and inventory only, and not much more. They do not speed up your customer line.

If you want one of these guys, be prepared to pay about $5000 for a base system. The price goes up for multiple terminals and printers, monitors, a kitchen printer, etc.

In my opinion though, a POS fast food register that has price look ups (PLU) and department categories is sufficient for most coffee shops. Try to get one that allows you to download the information to your computer. Most have this feature today. It may, however increase your manual inventory and sales tracking if you have to put this info into your accounting software and spreadsheets manually but it can be a big money saver. If you get in the habit of entering the figures daily, you will not have a huge amount of data entry to do at month’s end. You can usually get these types of registers for about $800 or so.

If you end up opening other stores, I think the touch screen computer POS may be the way to go then because it will make your management and inventory control much easier, and you can link all of your stores together and control them from one place.

Espresso Machine

This is the Mack daddy of the whole business, your life blood. DO NOT SKIMP ON IT! However, having said that there is the line of overkill you do not need to cross either. I say, two group maximum, if you need more power or want a backup, get a one group as well.

The feasibility of a three or four group is great but it’s difficult to get more than one person working on them due to spacing of the group heads, etc. Ordinarily, you do not need more than one person pulling shots and making the espresso beverages anyway. It is almost impossible for one barista to use all four groups at one time so you be the judge! However that may be up to debate if you get REALLY busy. However, a two group is always my choice.

There are three basic types of espresso machines: Semi-Automatic, Automatic or Super Automatic. Well My choice is always the automatic because you can program them to cut off a shot at 23 seconds, or whatever you choose but still do it manually. The semi-automatic requires manual shut off by the operator.

The super automatic machine will grind the beans, tamp, pull the shot, shut it off and even discard the used grounds. Yes, I am serious. I believe you lose a lot of ‘art’ when you use one of these. You’d be surprised at the amount of people that love to see a barista set up and then pull a great shot. These super autos are also big bucks. But if all you want to do is move your cattle call through the line, this is the machine for you!

The boiler capacity should be large enough for a big rush, 9-14 liters should be sufficient. You do not want to run out of steam or hot water in a rush and with a smaller boiler that will happen! Trust me on this from experience!

Buy a machine based on the availability to get parts and service locally. Do not buy based on price alone, or ‘coolness’ or ‘features’ of a machine. They are all good these days. Features will not mean anything if you cannot get local service on your machine.

As far as water softeners, the choice to get a whole water system softener is going to depend on where you are located. In central Texas, the water is VERY hard but I chose to not soften my whole water system, just for the espresso machine. If you are not familiar with hard water, this is what causes lime build-up. It’s a white, crusty looking build up that will kill your $5000 or 10,000 espresso machine. It clogs up the piping that in time, builds up to the point of the water not being able to get through. Then your machine needs to be completely taken apart and de-limed. Not pretty and not cheap!

You will most likely have to have a complete de-liming performed several times over the life of your machine, however if your water is very hard and you do not soften it for your espresso machine, you will most likely have to have it de-limed at a minimum of once per year. This will get time-consuming and expensive, even if you learn to do it yourself. I had my one group de-limed for about $900 so do the math. Avoid lime scale build-up by getting a water softener.

Espresso Grinders

You will need one for decaf and one for regular espresso. There are several manufacturers and models. I will tell you though to be sure it’s automatic and has a doser/coffee hopper. They make a doserless model that grinds right into the portafilter and though this is freshly ground espresso, it does not work well in a rush! The units with a hopper allow the hopper to fill with ground espresso and have a lid to keep out the air. The bigger units have a bigger hopper and vice versa. Also, these have a bean hopper that you can get about 2 lbs of espresso beans in.

Bulk Coffee Grinder

These are the types you see in the food store bulk coffee aisle. Be sure to get the full scale version, not the shorter one. The only difference I can see is the taller one is easier to get a bag under to grind beans for customers. The shorter one is not! Try to have one grinder for regular and decaf, and another for flavored coffee if you will serve it. Using the same for all three will make the regular and decaf coffee taste like the flavored coffee. This grinder will need proper maintenance and burr replacement after so many hours as well. Follow the manufacturer’s recommendations on this.

Coffee Maker (drip)

Be sure to buy for your volume. Automatics are best as they are plumbed to a water line. Pour over units will you need to fill manually! The air pot brewers are the better fits because they brew the coffee directly into the air pots. There are single unit models and double unit models. You will save a lot of time especially in a rush, with a double brew unit.

Pastry Case (refrigerated and non)

There are several different sizes. Take your floor space into consideration but also buy for capacity and visual display. A nice, attractive unit that holds and displays a nice array of pastries is key for merchandising. Dual zone cases are a good idea because they let you have part cold, and part room temperature (dry case) pastries that do not need to be refrigerated.

Blender

There are several models to choose from but some have features you just won’t need. Be sure to get a commercial blender. Consumer units do not have the heavy duty types of motors that commercial units have. That means they will break down a lot faster than a commercial one! I would suggest you give Vitamix a look here.

Sandwich Prep Unit

These come in single, double and triple door units. Of course, plan for your overall room but your needs as well. The larger units have more capacity inside the unit, but the bigger plus is the prep top area that has more compartments to put meats, vegetables, etc in. If you are planning on a regular deli and Panini service, I would say the double door unit would be good. You may even get away with the smaller one!

Under Counter Refrigerator

Do yourself a favor and get a double door unit. These are basically like the sandwich prep units but without the top compartments. The inside capacity should be big enough to hold a good portion of your dairy, as well as opened soy cartons, smoothie mix, bottled water and soda (if you do not have a larger unit or merchandiser for water and soda. Plan accordingly.

Storage Refrigerator

This is for the back of your shop. This will be your commercial refrigerator in the back area to house your back stock of refrigerated items such as milk, as well as your baking ingredients, food items, etc. There are double and single door units.

Ice Maker

Getting an ice maker that can make an average of 600-1000 lbs per day is good. It will give you enough and still be able to make more within 24 hours. In a busy shop, you’d be surprised how much ice you can go through: sodas, fruit smoothies, frappes, frozen chai.

Freezer

You will need one of these to keep your ice cream, and other food ingredients that can and need to be frozen.

Oven

Get this based on your baking level. A ¼ size may be too small and a full size may be too big. The median unit is a ½ size and has 3 racks.

Convection oven? Most pastries, pies and other baking can be done well in a convection oven. That is an oven that has a blower wheel that disperses the heat evenly and faster throughout the oven. Therefore your baking time is usually cut in half.

Panini Grill

Cast iron (non-ceramic) with ribbed plates are the better units. With the ribbed, rather than flat plates you will get the ‘grill marks’ on the bread and that always looks impressive. I recommend a double plate unit so you can effectively grill up to four Panini at once if you have a large order

Three Compartment Sink

This will be essential per most health departments for wash, rinse and sanitize. If you have a commercial dishwasher, it usually overrides the 3 bay sink. However, most restaurants have both. You don’t need a big one, just one big enough to get your biggest ‘washable’ piece of baking or cooking hardware into.

Hand Sink(s)

Check your health department requirements because you may need a hand sink every so many feet or based on how many employees you have, or based on your floor plan. These are sinks only big enough to wash your hands in and that is it. That is why they are so small.

Furniture

Pick and choose what is in between comfortable and not. This will help you avoid squatters that love to stay all day. Ordinarily, people in your store is a good thing but not if they are taking up space and just being comfy! This will include your tables and chairs, as well as couch, wing hairs, etc. If you are an eclectic coffee house, good finds can be had at Goodwill and other resale shops.

Phone

Just get one that you can hear when it rings! A cordless phone is a great idea.

Radio System

If u can, get extra speakers and have one in at least all four corners for best sound quality.

Credit Card Machine

This is the swiper w/pin pad – If you accept credit and debit cards, this is essential. Usually they are purchased from your credit card processor. Leasing one of these is usually a rip-off. Try to buy it outright.

Prep Tables

These are stainless steel or aluminum and great to make a kitchen prep area. They clean easily too. They come in various heights and widths, with or without a backsplash and usually have a shelf underneath.

So there you have some information to get you started on planning your equipment needs for staring a coffee shop. Be sure you take your floor space into account when figuring the sizes of your equipment. Also be sure you account for your anticipated customer volume. Early planning is key to having the right equipment to begin with.

Of course you can find more detailed information in Tony’s Coffee Shop Business Plan, and you can find that at tonys-coffee-shop-business-plan.com

Start a Coffee Shop or Buy An Existing Shop?

So you want to get into the coffee shop business? Maybe the thought of a coffee shop start up is not amusing you. Sure you know you are going to work hard whether it is in starting a coffee shop or working in and/or managing one that you are going to buy. But which one do you choose to do?

Maybe you don’t want all of the heartache and stress that comes with starting a business. Maybe you just want the heartache and stress that comes with buying a business! Whatever your decision is be sure that you are well informed. Hopefully I can give you some direction as to what to look for and what to expect.

Many people have asked me if buying an existing shop is a good idea. I have actually looked at many shops for sale but the biggest issue I always see is that most owners think their shop is worth two or three times more than it actually is. The reason for this phenomenon is that we become emotionally attached to our stores. That is not a bad thing, as it normally keeps us in check.

However, most owners put the store up for sale and even end up selling when they NEED to and their back is up against the wall. The need to sell is for various reasons like divorce, default on notes, lack of enthusiasm, poor sales, there are as many reasons to sell as there are shops for sale. They often have to sell before the business has reached maturity and they try to get what they have invested in it, which is usually more than it is worth. The objective is to sell when they have an offer, as most often the offer will come from an observer that has been watching the business day after day and has a general idea of what is going on and wants to make an awesome offer.

Having said all of this, if you happen upon a shop for sale be observant and make a few visits before you know much. It will tell you a lot. I have been involved in a lot of discussions about buying an existing coffee shop. You have to take into effect the age of the business and the time left on the lease (w/renewal options). That is where half of the worth is at. There is always the case that someone may see value where others do not as well.

You will need to get the financial information from the owner or the broker to get an accurate valuation. A good rule of thumb is that 50% of the yearly gross is the approximate worth of a business. Of course the only way to actually find the fair market value is a valuation done by a business valuator but sometimes these are not accurate either. But that is the seller’s responsibility. I like the following method. It is usually the best way to valuate a coffee shop:

Figure out what the seller’s true discretionary cash flow is: Take the owner’s salary, add back anything a new owner may not spend money on yearly (these are called add backs) like a car lease, a lawsuit, use of a big CPA firm, health insurance for the owner and his kid etc. That resulting number is the true cash flow of the business. That number can be multiplied from 1 through 6 times to get your asking price or value of the business. The scale of 1-6 is mostly proportionate to the age of business and the time left on premises lease. If the business is only two years old, then the price should reflect the lower end of the spectrum and vice versa.

I keep mentioning time left on the lease because it is very important. You could buy a business that was cash flowing nicely, and then the lease is up in a year and the landlord decided for whatever reason to not renew it. You are not in a good position! Having renewal options on the lease and time left on it is very important. If the lease is about up, renegotiating it or signing a new one in your favor may be an option for you if the cash flow is worth it.

Keep in mind that as a new owner, you have to use that discretionary income to base what your debt service is going to be. Debt service is what a new owner can comfortably spend every month on paying off the note to buy your business, including a recoup of the down payment. The objective for buying a business is opposite of buying a house being that it should be paid off ASAP, three years max, so the price should also be in line with future debt service.

I say this because most people do not have the cash to buy a business outright. There will almost always be some seller financing involved, which is good news for you! Most owners consider owner financing with terms to make it more appealing because getting a loan to buy a business is very difficult, even with stellar credit and assets for a prospective buyer. Banks do not see a business as an asset because there are too many working and movable parts, and the equipment is usually not worth what was paid for it.

If you want to figure out what the debt service is for this business, take the true discretionary cash flow and divide it by 33%, as the most a buyer should pay yearly on debt service is 33% of their cash flow. That number is then divided by 12 for the year. The result is the most that your business can afford to pay monthly, including a recoup of a down payment and still pay an owner, and remain solvent.

Here is an example: Let’s say you are dealing with a true discretionary cash flow of $75k per yr. The calculation should be as follows:

$75,000 divided by 3 = $25,000 divided by 12 = $2080 (approx). This is what should be spent monthly, P&I (principle and interest) on debt service. This does not include the down payment recoup, which should come out of the buyer’s pre-tax discretionary cash flow AFTER debt service. As a buyer, getting the down payment back should take 12-24 months based on the business growth and future potential. So say that your final sales price is $150k. The buyer should recoup $75k down payment within 24 months via the discretionary cash flow.

Another thing working in a buyer’s favor is that businesses are not flying off the market right now. If you really want to buy a shop and its solvent, you can make the owners a much lower offer than they would expect, but without being insulting. They just may surprise you. A good place to start is contacting a business broker in your area.

You must also qualify as a prospective buyer. The reason for this is the same as looking for a house: A broker is not going to waste theirs or a seller’s time on a prospective ‘buyer’ that does not have two dimes to rub together. Be prepared to divulge your financial status with documented proof and sign a non-disclosure statement as well. Of course, you are prepared to put down 50% of the purchase price, and have plenty of working capital, right?

If you do buy an existing coffee shop, as a first time shop owner I’d be sure it is not a failing one. The worst thing to happen is to try and turn around a failing shop when you have no working experience yourself in a profitable one. Look for a shop making money, but also be prepared to not change much, if anything if you do buy it. Reality is, if you do change what is working and making money you can open yourself up to losing business. That would not be good!

Then again, it’s always a gamble buying an existing business because what an owner says, what’s on the tax returns, and what is reality may be completely different things. That is where a trained eye and lots of observing come in real handy.

A good way to do a visual valuation is to watch the day to day operations and actually count the customers daily, foot and vehicle traffic over at least a month’s time. Yes, count. Sit inside the store but don’t be obvious. Observe and count! You will become a ‘regular’. This will also give you the opportunity to not only see the customer flow but also get an approximate of what the actual sales are. Sit close enough to hear what customers order and keep a generic tally. That will give you a little more vision of what IS reality.

If this truly interests you, work with a business broker. However, be sure you know what you are getting into by buying or starting a coffee shop business. Have a coffee shop business plan in either case to plan your course by and for ultimate possibilities of success! Take a look at my business plan package at http://www.tonys-coffee-shop-business-plan.com for further lots of great information.  Good luck in your endeavor of specialty coffee!

Starting A Coffee Shop: To Franchise or Not?

So you are starting a coffee shop and working on your coffee shop business plan. You are thinking: ‘maybe buying a coffee shop franchise would work better because I am not sure how to go about this coffee shop start up.’ Or maybe you are thinking ‘I can get operational support after I open that I would not have without the franchise.’ Or, “if I buy a nationally known franchise, will that make potential customers more comfortable about coming into my store because they recognize my company name?” All are very good thoughts.

Franchises can give you an edge because they have some name recognition and support but think it through before getting the sales pitch and going the franchise route. Of course, make your own decision but as a franchisee, you are pretty much land-locked into the franchisor’s way of operating.

You are looking for name recognition and branding. In the coffee industry, franchising is still in its infancy. I say this because there aren’t many specialty coffee franchises even though there is plenty of interest in the concept. Well, at least not as many as there are food franchises but surely not many recognizable ones at that. Most coffee franchises are regional but you may recognize names like Seeker’s, PJ’s, Beaner’s, It’s A Grind Unwind, Arabica, Cuppy’s and Scooter’s. Contrary to popular belief, Starbucks is not a franchise.

Name recognition will not tremendously help a franchisee succeed however, with such limited recognizable names, but that can be debated and best left for another day! What you most likely have here is the potential to succeed more so from an operational and experience standpoint. Hopefully your prospective franchisor’s management has a lot of practical experience to assist you.

You will usually get better pricing on supply products because of the franchisor’s buying volume. You also will normally get better pricing on equipment because of the franchisor’s volume and usage of such.

The commitment of the franchisor’s support in planning stages like site selection, lease negotiation and build out is a plus to franchisees. Also, the ongoing support in marketing and operations after you open. Of course, this is usually not free! (see below)

As a franchisee, you will most likely be mandated to use proprietary supplies and ingredients, coffee, equipment, etc. You have less leeway for freedom to use products that you want to use, and maybe even something you feel is better tasting. If your franchisor uses bad or cheap coffee, you are not going to do well in the long run. I know of three franchises that have absolutely awful tasting coffee, of course names withheld! This is not a good thing though.

You will also have an upfront franchise fee, sometimes as high as $100,000 before you actually start anything. This is just to use the name! You will also have ongoing royalties that have to be paid monthly, usually 3-7% of your GROSS sales. Suppose you do $30,000 per month; that is $900-2100 per month just to use someone else’s name! That is a lot of YOUR salary! Before when I said that ongoing support is not free, this is what I meant.

Also, the franchise agreement is usually for a set period of time, like from 5-10 years. When it is over, it is usually renewable or you can go your own way but you normally have to drop the use of their name so now you would have to start marketing your name change.

You also will most likely have ongoing marketing fees of about 3-7% per month. That is taken from your monthly GROSS as well! That is a lot more of YOUR salary! Though this is comforting to know someone has your back for marketing, marketing is not this expensive for a specialty coffee retailer. In fact, if you are spending 3-7% or your gross sales per month for marketing you are spending too much! But that’s a whole other article.

After you add up all the ongoing fees every month, that is somewhere between $1800-4200. EVERY MONTH just to use someone else’s name! Your volume has to be very high to support this. Can you achieve it without using someone else’s name? With the right location you bet you can!

Another thing to consider is the fairly high personal net worth that is usually needed of all owners. Again, this is not something that is a bad thing to have when going into business. However, the franchisor usually looks for a personal net worth in the neighborhood of $100,000-500,000, with anywhere between $50,000 -300,000 of that to be liquid assets, depending on the franchisor.

Those are high numbers to achieve for the average new entrepreneur. However, just because you have money or a high ‘paper’ net worth does not mean you know how to or have what it takes to run a business. You definitely need passion, commitment and will.

Quite honestly, I do not know of one specialty coffee franchise that I can justify making the initial investment in for the name and branding that you’d be paying for. In other words, if you were looking for a food franchise you are virtually guaranteed success with McDonald’s or Subway provided you follow the franchisor’s lead because of the name and image. That I would recommend. But it IS the name and the company’s image you are essentially paying a lot of money for so keep that in mind.

One last thing to be sure of is your right and ability to sell or close your business for whatever reason. It is actually a multi faceted question: Can you sell your remaining time on the franchise? Can you break your agreement at all? If so, is there a penalty and how much is it? Does the buyer have to buy the franchise? Does selling or closing nullify your agreement? You will need answers to all of these questions before you sign anything and write out any checks!

So if you can stomach the large outlay of cash and justify the ongoing fees for buying a franchise maybe that method will work for you. There is nothing wrong with that. However if you take the time to network, do great research on this industry, learn how to run a business and craft an awesome coffee shop business plan you will be on the road to success as an independent specialty coffee shop, on your own for a lot less money and may be better off for it. Whatever you choose to do, good luck to you!

Starting a Coffee Shop: Funding Sources

Besides having a coffee shop business plan, you need to have your funding source(s) defined when starting a coffee shop. There are many options available for you, but we will talk about the most common.

SBA – So many sources push SBA loans, SBA LOANS, SBA LOANS!!!! Let me first say, the Small Business Administration loan program is awesome, if you can get approved. Although they have loosened up some of the requirements lately, it is still somewhat tough to get approved.

First of all, the government does not loan the money. The standard program is a bank loan though there are some micro loan programs available that use funds from capital groups. Most of these loans are normally collateralized loans, and they are backed by the US government similar to HUD and FHA home loans. What that means is that if you should happen to default on the loan, the government will reimburse the bank for certain percentage of the loan amount. That is good for the bank, and good for you if you can qualify for one of these loans. They are tough to get I’ll say again, and there is a lot of paperwork to fill out and file. You also have to have good credit, very good assets, low debt to income ratio, and unencumbered collateral.

Some SBA loans can take some time to get approved and then funded, but if you are approved, they usually have up to a 7 year repayment period and a favorable interest rate. It’s best to talk to an approved SBA lender for particular details, as the bank calls the shots, the SBA only backs the loan. You can work with a local SBA office as well for details or go to www.sba.gov

Personal – This is the easiest form of financing, but less likely for most people. Try to put all you can into this venture from your own pocket without ruining your marriage, family or jeopardizing your home. If you do get financing, you will be required to pitch in at least 25% of the total you need to start your coffee shop anyway. The more you have in, the more the bank knows how serious you are and more likely they are to fund you. They also know the more you have in personally, the less likely you are to run when the times get tough.

Cash is king. Liquid assets are a great source of funding. Liquid assets are assets that can be converted to cash quickly like stock, bonds, or a 401(k). I only recommend any retirement plan as funding as a last resort. This is what I did when I ran into capital problems and could not get a loan because I was maxed out. It’s best though to leave this money alone and search out other options.

Real estate equity – This is a good source of funding if you have enough equity in your home or another piece of real estate. The interest rates are usually favorable as well.

Friends and family – if you cannot put in as much as you need to, friends and family are a good way to raise additional capital. Just be sure it’s clear how you structure the money deal: are they investors, partners, both? Are you issuing them stock in your corporation? Whatever the deal, get a contract attorney to draft the paperwork to make it legal. It will cost you about $500-1000 or so for this service and when it’s done, you will be glad you did it. Spell out all details.

I once saw a guy invest in a restaurant and the owner wanted a loan only, so they had a repayment plan but not any written contract stating what was what. The investor assumed he was now a ‘partner’, as in part owner and started showing up daily, scheduling meetings, wanting to rearrange the store and making menu change suggestions. That was not a pretty situation!

Investors – most high dollar investors want to see success before they pony up cash to someone they do not know. However, it can happen at the beginning though. You need to surround yourself with PWM: People with Money. This can also be the friends and family route. Ads online and in the paper are ok, but will most likely bring you more weirdoes than real investors.

Join local business organizations, talk with the Economic Development Corporations and chambers of commerce in the areas you are looking to open and ask them for investor referrals. A lot of investors shy away from seeding food and beverage related businesses unless it is a liquor establishment but they are out there.

Non-traditional lenders – aka private equity firms, capital groups fall into this category. Their guidelines are less stringent but again, most want existing businesses looking to expand. They also are not normally looking for food industry investments because the risk is too high and search out tech type companies that have a higher return. However, this is again certainly not the law.

Banks – traditional lenders, they are tough ones to get on your side if you have NO money to kick in or marginal to bad credit, and no collateral. Sometimes just a lot of work, a lot of talking and an awesome coffee shop business plan may just be the thing you need to get them to help you. A banker on your side that believes in you, and you have established a relationship with could be what stands between you and a funded loan. Treat them like gold.

Credit Unions – usually most do not do much in the way of business financing, but for those that do, their guidelines are slightly more relaxed than a traditional bank, like those for personal financing but you will still have to qualify.

Credit Cards – I am not recommending this option! If you do use them, be sure they are a very low interest rate, even 0% with some of the introductory rates some banks give. You may want to have back up cash in case you run into problems with one.

Be careful, however because after the intro period is over, the rate may go higher than you think if you are still carrying a balance. Also, if you are late one time, you run the risk of getting rate-jacked. That is when the credit card company jacks the interest rate to the default rate, as high as 29%! Yes it should be illegal but unfortunately for us, it is not. They can also raise the rate whenever they want regardless if you are in default or not. It’s in your agreement with them; i.e. the fine print. Once the rate is up there, it is very difficult to get it lowered again. Chase is the most famous for this. Just be careful!

Credit cards are good for purchasing however, if you get the rewards points or airline miles programs. I have several I use for purchasing and have gotten several airline tickets and thousands of dollars in gift cards for using the cards and getting points. Besides that, you can effectively buy more time for your accounts payable if you plan the billing dates correctly.

So whatever source(s) of funding you choose for starting a coffee shop, be sure you know what you are up against. Do your research and talk to the people that can help you. Stay focused, and well informed regarding your planning stages. Be sure your prospective lender gets a copy of your coffee shop business plan. All lenders will want to be sure you know what you are up against! Good luck.

Writing Your Coffee Shop Business Plan Is Worth Beans!

If you fail to plan, you plan to fail. Simple, short and to the point.

People ask quite often of the importance of a business plan when starting a coffee shop. My response is always a statistic: Most businesses fail within the first year due to lack of planning. If you don’t have anything to plan your course by, how can you move forward? Any business vision is blurry without a written plan.

Your plan takes time to write now, but it’s designed to help you avoid costly mistakes later. The true value of creating a business plan for your endeavor is not the finished product, but in the process of writing it.

Experience has taught me that while planning to open a coffee shop, templates and generic plans will not help you much except for the typical form the plan should follow so be very careful. You need to make yours unique, and as coffee shop friendly and specific as possible.

When I wrote my original business plan I read and studied quite a few versions of them on the internet, and picked out sections I liked best. I rewrote it until I was satisfied and then gave it to my banker. He said it was the best business plan he had ever seen. So I put the plan to use and opened my coffee shop, and made lots of mistakes!

My banker loved it but he was not a small business person, nor anyone that was familiar with coffee shop operations. Had I wrote the plan realistically and pertaining specifically to a coffee shop I’d have avoided a bad location, incorrect demographics, lack of capital, and a lot of other mistakes.

You have to be realistic with your prospective numbers and in many ways you have to get creative, especially with marketing. The specialty coffee business is unlike a lot of other food service businesses because of its nature. Writing your coffee shop business plan will force you to think about your business in a way that you will always have to think about it: it’s unique.

And just because you open your shop and may be open for a year doesn’t mean you can put the plan away. You should always be tweaking it. Trust me you will always be a business person and thinking about what you can do different and new. Things change, markets change and trends change so your business has to change as well to adapt. Otherwise, you will be closed before you know it.

It bears repeating: If you fail to plan, you plan to fail. It’s as simple as that! Be sure you have a specific business plan when starting a coffee shop. Your plan won’t be worth beans otherwise!

Not Another Coffee Shop Start Up!

First of all, let me start off by saying congratulations! You have decided on starting a coffee shop. Welcome to the wonderful world of specialty coffee!

Before you start your own coffee shop, in order to gain ultimate success you will need to find an under served area (under served by this industry, I mean!) to open your shop in. This will be your best option.

You don’t have to be the only coffee shop in any given radius, however. If there are other shops in the area, determine if the people of your target area are in need of another coffee shop. You can do this by visiting the existing shops to see if they are hitting the mark with excellent quality, service, ambiance, etc.

Using Starbucks to your advantage can actually gain you success. Starbucks has done your demographic and feasibility study for you in a specific area. Think about it: do you think they would open a store in a poor or unfeasible area? The answer is no. Find a Starbucks and open up the street from them. Why not? You will ultimately have much better quality!

The biggest plus is that Starbucks brings to any area awareness for specialty coffee, telling people it’s ok to pay $5.00 for it. And once people have a choice of quality or below average, who do you think they are going to choose?

To put things in your favor, do not mimic Starbucks or anyone for that matter. Set yourself apart and be unique! If you can, roast your own beans on premises. Push the fresh coffee concept, they sure don’t have that! Have signature drinks that are going to be much better than anything else anyone can offer. Charge more for quality coffee, have FREE Wi-Fi and latte art. Do all you can to set yourself apart from ANYONE.

Coming up with a theme will work in your favor too. For instance, in Ohio where I am from there is a talkie-era themed coffee house called, appropriately ‘Talkies’. It’s decorated with talkie–era film memorabilia. Even the sign and logo reflect it. Things like this are original but carry the specialty coffee image.

I mentioned latte art. This is where you can create visually appealing items in your foam. This sounds strange, yes but it will be a focal point to your customers. You can create roses, faces, figures and a lot more! It takes a lot of practice but if you offer latte art, you will see people come in because they want to see it! It is better with ‘for here’ cups because it is visual. On to go cups your latte art will only be covered with the lid!

Have open mike nights, singer/songwriter performances and events like book signings and poetry reading. Local artisan shows and displays are another area that you can set yourself apart from other shops.

If you close early you may consider renting your shop after hours or on a day you are closed. Or if you have extra space, or a party room you can have another revenue stream while you are open. That is very different than other shops.

Another area of uniqueness is deli catering and coffee service. Both can be available any time for local business meetings and lunches, grand openings of stores near you. The list goes on.

Espresso catering can be lucrative if done correctly and marketed to the right prospective customers. You must also charge accordingly because of the work involved. You usually need a minimum of two people due the heavy equipment and set up. It’s basically a small espresso shop set up at someone’s event but if done correctly, it will set your shop apart from the rest.

There are some that will argue, however that this concept above I have described is really being outdone. Another newbie slicing the almighty coffee shop pie and cutting into existing shop profits. That may be true in some aspects, however I do not think it have been exhausted.

However, if you think it is a pot ready to boil over, you may consider a different angle. Maybe pair coffee exclusively with a different product altogether. Come up with something different, something that will compliment coffee.

If there is not a bakery in town, having a bakery side of your shop that offers more than a few scones and muffins can be a great success. Not necessarily a full blown bakery where you have to go in at 2am, but a larger scale version of basic coffee shop bakery offerings.

Making homemade ice cream, handmade chocolates, truffles or the like will also set you apart. There are dozens of complimentary angles to consider that pair well with coffee and the coffee house character. This will set you apart.

I will offer one thing to watch out for though. If your pairing idea is going to overpower your coffee, be sure to have a separate room or side of your shop for the complimentary concept you are going to offer. As an example, say you want to pair your shop with a BBQ take out window. Odd yes and not my choice of paring but hey, it’s enough to set you apart! However, be sure to have a closed off area to prepare your BBQ in.

Do not over power the coffee or people will forget you are a coffee shop. Remember, you will be a coffee shop that offers BBQ, not the other way around.

Whatever you decide to do, be sure you are going to be original when starting a coffee shop. Don’t beat any concept to death and your coffee shop start up will go smoothly! Good luck!

What Type of Coffee Shop Should I Open?

When I wrote my business plan, I designed it for a sit down coffee shop, with or without a drive thru (the mix as I call it). However, it can be adapted to any of these forms. Here are some points to consider for each type when planning to open a coffee shop:

Sit down (and mix) – most advantageous if you are planning on having entertainment and events. This would be considered, more often than not the full-service coffee shop. Outside of the purist coffee house that serves nothing but coffee in only a few forms, most sit downs serve light foods to full menus, also called cafes. The mix is pretty much adding a drive thru window if space allows. A drive thru window can add as much as 20% more revenue to your sales because of its convenience.

Drive thru (stand alone) – usually a lesser start up cost, you can have your drive thru constructed off-site by a company specializing in such for about $20,000 or less. A lot of times you can get a ground lease from the owner of a parking lot that does not need all that parking space. Be sure to consult with the city planning department to be sure you can do this. It will most likely require a certain square footage of lot space for employee parking and customer vehicle ‘stacking’. This is a fancy way to say how many cars can be in line at your drive through window on your property and still allow easy flow in and out and, to still have enough space for the other tenants in the plaza. Note that if your city and/or health department does not allow portable water and sewage onsite, you will be required to install plumbing and sewer. This can get costly but if the location is prime, it will outweigh your upfront costs.

You can also find a stand-alone building that can be converted to a drive thru. Gas stations and some former fast food places (without an inside dining area) are good for this. On the gas station, be sure to visit your city planning and zoning department to be sure you can convert it into a coffee drive through. You may have an issue with the car stacking again.

Kiosk – these are great for malls, hospitals, car dealerships or anywhere that you do not have or need a storefront. It’s a step above the cart (below) because the kiosk is pretty much a coffee shop that can be taken down and moved fairly easy. They are basically a prefabricated, fancy group of counters all connected together. It gives the feel of a stand-alone coffee shop. A lot of jewelry places and such have these in malls.

Cart – That pretty much says it all. A cart will cost you from $8000-12,000 or so to have built. They are also usually found in malls, car dealerships, hospitals etc. They have considerably less room than a kiosk but are a great option if you want to be in a mall or the like. You would normally be limited to serving food and bakery that is pre-packaged.

No matter what kind of coffee shop you decide to open, be sure you have researched it all, and are ready to be very immersed in it all! It will take up a lot of your time but will be worth it in the long run! Good luck!

Effective Marketing Ideas for Your Coffee Shop

Most of what I am going to talk about here is geared toward the new coffee shop. However, it can be utilized and directed toward an established shop.

Outside of your regulars, coffee is an impulse buy because the customer saw your sign. Aside from your regulars, most folks do not set out to ‘go to the coffee shop’ like they would to a restaurant (unless you ask them to so more on this later). You need a steady stream of customers outside of your normal morning commute business.

The morning commuters are your bread and butter, the rest helps fill in the revenue holes. These are your impulse buyers. They are going to come to you mainly via your sign outside, so instead of sending out 10,000 post cards to your neighborhood residents, spend that money on a premium location, visible sign and branding your image. You’ll be glad you did.

As far as your signage, get one that is AS BIG AS POSSIBLE. That is, as allowable by your city ordinance and landlord, without being tacky! The bigger the sign is, the more visible it is.

By branding your image, you are identifying your existence within your community. Be sure you have a unique logo. If you cannot design it, get one custom made by a professional! I have seen a lot of cheap looking logos that do not help the image.

Another step in branding your image is to secure your shop’s name on the world wide web by registering the domain name. Try to get all the domain tags: .com, .net, .org, etc. This is for email, and your website. You will be glad you did because it gives you a more professional image. Remember, the more common your business name is, the more difficult getting it registered online is going to be because the name may be taken.

As for your website, get one! If you can do this on your own, more power to you here too. I know just enough to be dangerous but you can get a nice website, even with online sales capabilities done economically. Check around locally, I bet there are a few web gurus in your area.

Here is where you have the chance to have every customer take your name with them when they leave allowing others to see it. Whether you have sleeves custom printed or you use stickers and put one on each cup or protective sleeve, they are all part of your branding. Be sure the design is clear and defines your shop well. The same goes for stamps. You can have a rubber stamp made to stamp your whole bean coffee bags with. Note that the brown Kraft paper bags are what you’d need for this. If you use the foil bags, your stickers will work well for this too.

Press releases are an inexpensive way to tell the world what you are doing. A carefully crafted press release sent to the right person at the right news outlet can be the best form of advertising for you. Just be sure that whomever is on the press release as the contact person is actually available to be contacted.
Another great form of marketing is your use of tee shirts, caps and other wearable’s. These are walking billboards for you courtesy of the folks that buy them. You can give them away if you want, it’s all good advertising. Yes, they are expensive but I consider this great advertising and an expense under that category. Better, yes if you can make up the cost on them. But put this cost into your advertising budget. See if you can get them locally, if not there are several reputable companies on the internet. You will pay about $15.00 each in the end, but again the investment is very well worth it.

Where would we be without business cards? Think about it: how many people have you run into that do not have a business card for whatever it is they do for a living? Not many that I can remember. This is your time to tell everyone you meet that you are in the coffee business. Everyone you meet should get one of these and a few to spare. Do not be shy about handing them out!

Menus are a great example of simple marketing. These are the take out type so try to keep it simple. Under four pages, printed on an 8.5”x11” sheet of BRIGHT colored paper and folded in half is best. You can leave them at area businesses if they allow it. You can also put them on your counter by the checkout and anywhere else your customers will see and take them. You can have them copied at any copy place, or see if you can have a local copy shop do them. They should cost about .10-.15 cents each. All you need is a place to make them on a copy machine. Menus printed on a printing press will be more expensive in most cases.
Support materials are also a good way to advertise your products. You can usually get POS materials FREE from any supplier you are using. This goes for tent cards to put on your counter to full color posters to hang in your windows. Check with your distributor. If they do not keep these kinds of materials on hand, a call to the manufacturer can usually get them in your hands relatively quickly.

Vinyl lettering on your vehicle is another form of advertising, and another type of moving billboard. There are several places online that will allow you to use a particular vehicle template to design your lettering. Again, check around locally for better service and pricing. I had vehicle lettering made for my SUV: rear window and both rear side windows or under $100.00. Your vehicle will essentially become a moving billboard.

Vinyl lettering can be gotten for your store windows too, which will be similar to your vehicle lettering. Check with the same source.

Word of mouth is an excellent source of marketing. Customers can be your biggest and best marketing source for you. It can also backfire on you if you tick someone off or if a customer ends up having a bad experience at your shop, for whatever reason.

Make every effort that all customers are satisfied before they walk out of your door. You may never have the chance to do it again and everyone that that dissatisfied customer meets may be told of the unfortunate incident at your store. They may not come to your store if there was ever that chance they would.
Talk to the world online via your blog. This has got to be the best invention since a website and the internet itself started. Where else can you talk about nearly anything and let the world read it? You may just develop a following not only locally, but around the world.

Have event nights. This is great for weekends and ‘dead’ times. Earlier, I spoke about customers coming to your shop if you asked them to. This is where you have that chance. Events that will bring in business are almost plentiful. A few examples are trivia night, open mikes, singer-songwriter and other music performances, book signings and poetry. It can also be just about anything else you can think of that is of interest to others. A word of caution about playing DVD’s and TV/cable shows: Most of these are copyright protected and although you may not think you are breaking any laws, it can be construed as such. It’s a royalty issue because you are making money on your beverages, in your establishment showing a DVD bought for ‘personal’ use. Just be careful here.

It’s been my experience that this coupon mailers are usually a waste of money in the specialty coffee industry. There are way too many coupons in most of these mailers and most recipients throw them out. I know I do.

Internet advertising is good if you can limit to advertising locally using your zip code. You can reach a captive audience on the internet. It’s relatively inexpensive because you choose what to spend on each ad and only pay per click. This is also good if you choose to sell whole beans online, however if you do not roast in-house this may be cost and inventory prohibitive.

Be careful when using coupons in any form. Coupons tend to cheapen the specialty coffee industry so I do not recommend using them. Bogo’s (buy one get one) are ok for some advertising, like opening a new coffee shop but, you will get your bargain seekers that wait for those coupons in order to patronize you. You could create more monsters!

You will also, occasionally get regulars that bring in the coupons. Even though they are as deserving of the coupon as anyone else is, your aim is to get NEW customers so the ‘coupon’ doesn’t always work. The only way I recommend a coupon is for a first time customer. You can usually get mailing addresses of new residents from your chamber of commerce and do a select, targeted mailing to the new residents only.
So there are some easy, mostly economic ways to effectively advertise and market your coffee shop.

Remember, your customer service and quality will always have to be top notch but you can skimp on some advertising dollars by being crafty and conservative.