Fulfilling the dream of having your own coffee shop is daunting without funding, but not impossible. Let’s learn how to start a coffee business with no money.
The coffee industry has no signs of slowing down as the number of coffee and snack shops in the United States grew by 3.1% as of 2023, amounting to more than 72,000 in total. This was just a few years after it saw a decline because of the COVID-19 pandemic.
Despite this, aspiring coffee entrepreneurs take a risk in bringing their signature cup of coffee to fellow coffee lovers. It is true that some will close down after a year or two, but you would be surprised that money wasn’t the main culprit.
The lack of planning is usually the crux of every startup. Business owners can splurge an exorbitant amount of cash but ultimately fail by not thinking three steps ahead.
Capital can be acquired through various means, meaning you can start a coffee business with little to no money. Here is a step-by-step on how to get a coffee business started with a limited budget, so you can ultimately operate a successful coffee shop.
- Step One: Set Goals
- Step Two: Expand Your Coffee Knowledge
- Step Three: Observe Your Competitors
- Step Four: Discover Your Target Market
- Step Five: Conceptualize Your Coffee Shop Business Plan
- Step Six: Consider Your Startup Coffee Business Idea
- Step Seven: Think About Your Coffee Shop Marketing Plan
- Step Eight: Determine The Costs
- Step Nine: Get To Work On The Funding
- Step Ten: Adjust And Implement
Step One: Set Goals
Being a coffee lover is great, but you have to do more in-depth research if you plan to start your small business. You can start by analyzing your goals.
Are you aiming to introduce a new java drink that will catch the attention of potential customers? Do you want to offer patrons a cozy venue so they can relax? Did you come up with a new brand of specialty coffee you want to share? Do you just want to do it for profit and clout?
Startups who prefer the latter often fail simply because they don’t have enough motivation to continue with the business. Additionally, a coffee business doesn’t necessarily mean a coffee shop.
Do you want to be a coffee bean or equipment supplier? Do you want to be a coffee farmer? It is best to venture into something that you are passionate about.
Step Two: Expand Your Coffee Knowledge
Now that you know what your objectives are, it is time to expand your coffee knowledge. Set some time to visit seminars or lectures. Take a short coffee course or barista workshops in-person or online; try to attend trade shows if there are any near your area.
If you want something that is more flexible, buy a good book about coffee and start reading. You can read articles, magazines, and everything you can get your hands on to learn more about the industry. You can also look for insightful videos online.
You can even opt to apply as a part-timer in your nearest coffee shop for a more hands-on approach. This can also be a helpful way to earn some savings as a budding coffee shop owner.
It is wise to gain some insight from someone who has experience in the industry. Read some key lessons from a lifelong coffee shop owner by checking out our piece on how to learn about the coffee business.
Step Three: Observe Your Competitors
Research your competitor’s products to understand why they are successful. It can be the major companies such as Starbucks or Dunkin’, or it can be your local independent coffee shop. I suggest going to your nearest establishment and starting from there.
Are their drinks unique? What coffee beans do they use? What music do they play? What furniture are they using?
Look at their business structure and how they operate their business, from operating hours down to their busiest time of the day. Every piece of information you can gather from them can be crucial. Analyze what they are doing right and what they can improve on, which you can implement when you start conceptualizing your business concept.
You don’t have to limit yourself to direct competitors. Check for restaurants or stores that sell coffee on the side. Talk to friends and loved ones who are passionate about coffee.
These people can also provide valuable insights you can utilize.
Try to check for their 5Ps – product, price, promotion, place, and people. These elements will also be crucial when you start working on your marketing plan.
Step Four: Discover Your Target Market
When you plan to open your coffee shop startup, it is important to know who you will cater to. If you already have a place in mind, then you need to think about who your future customers will be.
Are you near a university where college kids are looking for a place to study and socialize? Are you near a busy office building where employees are looking for a strong cup to keep them going? Perhaps they are looking for a neat place to eat or grab a snack.
Discover your target market and learn their motivations for why they go to a coffee shop. Research the demographics, their purchasing power, and their preferred type of coffee, their taste in aesthetics, to name a few. Once you have these strong foundations, you can now pinpoint how to capture your potential customers’ hearts.
Step Five: Conceptualize Your Coffee Shop Business Plan
Conceptualizing a coffee shop business plan is one of, if not the most grueling part of this venture. Don’t fret yet. If you have done your homework and learned more about the coffee industry, competitors, and target market, then the process will be less tedious.
In this part, you will now determine your business model and business ideas. As for the former, here are some traditional ones you are most likely familiar with.
This refers to when an established coffee brand grants an independent entrepreneur permission to use its business model and intellectual properties, among others. The franchisee can then use the trade name and trademark, the brand’s marketing strategies, and the products as long as it falls within the signed agreement.
Its strongest advantage is that since you will be using its established brand, you are less susceptible to failure and have a higher chance of attracting consistent customers. A drawback is that it can be costly, which makes this unsuitable for those who have little to no capital. It also offers less room for creative freedom.
This pertains to the selling of your coffee products outside of a retail environment. These can be large or small businesses that sell at home, online, door-to-door, or any other setup that doesn’t require a middleman.
Direct selling offers a number of advantages, the most attractive one being that it gives an opportunity for more income. This model can also allow you to work from home, giving you enough flexibility in your working hours to attend to other things.
Determine what business model is the most appropriate for the product you are going to sell. You can try to read business articles for more in-depth knowledge and to learn their advantages and disadvantages.
Brick-and-mortar locations are where most coffee houses and coffee shop startups stand. These are your physical stores wherein they offer products and services to their customers directly. Arguably, it is the same as what you call retail stores.
Most independent coffee shops choose this business model because it can offer not just the product but the location as well.
One advantage of this setup is that it gives a sort of personal experience to the customers. Patrons can see, smell and hear their products. Food and drinks are served fresh.
They can appreciate the atmosphere of the coffee shop.
A disadvantage of this is the expenses. You have to pay for manpower and operational costs, and your scope of service is limited to a particular area only.
There are various types of business models you can implement, and you can also combine two or three if you think it works for your startup.
Step Six: Consider Your Startup Coffee Business Idea
Once you have come up with your model, you can move on to thinking about your business idea. This should be the theme or the concept of your new business.
The main question you should answer is how you will attract your target market to go to your coffee shop location and spend money. Here are some you can consider.
Mobile Coffee Shop
Think of it as a sort of food truck. You have the option to move around an area with high foot traffic if you have a bicycle set-up similar to the Coffee-Bike’s business model, a mobile coffee company situated in Germany. If you are thinking of the more traditional structure, wherein the vehicle is parked in one location, consider if the city permits it and how it will affect your cost.
The great advantage this business idea can bring is its flexibility because you can move from place to place at a certain point in time. It also has a relatively low operational cost.
You can also play around with the design of your vehicle. This is difficult to achieve when it comes to a traditional coffee shop. Businesses like Karpatia Trucks offer a step van, a tuk-tuk, or a vintage truck design potential coffee entrepreneurs can choose from.
Coffee Shop Kiosk
Setting up a small coffee stand is something you can consider as well. You can look for a prime location with just enough space to set up, or you can consider building a partnership with other business establishments.
An interesting one I found in the countryside is a small coffee cart that partners with a bike repair shop. While riders are waiting for their vehicles to be fixed, they are encouraged to wait at a small kiosk and socialize with fellow bikers.
A common partnership you can think about is with an independent bookshop. Readers love to sip a cup of coffee, so you can attract them with a whiff of roasted coffee beans.
A gaming café is something you can consider, as well. As a gamer myself, I love a good cup of Joe when things are getting intense.
You might also want to consider a drive-thru coffee shop idea if you are near a prime location. This can fall under the traditional coffee shop as it might require a large set-up. You should try to grab a location that cars already drive through and park in.
Traditional Coffee Shop
This is the first business idea that comes to mind when you think about a coffee business. There are various factors as to how to make it, but I believe finding your niche is key when you are planning to set up an independent coffee shop.
There are pet cafés that cater to animal lovers and gaming cafés that serve as a refuge for gamers who just want to have fun. There are coffee shops that host spoken word poetry nights every week. Some shops offer other products on the side, such as art supplies and shirts, to name a few.
Try to determine what will set your coffee shop apart from your competitors based on the research you have conducted prior, and make sure you are interested in it, too.
The advantage of having a traditional coffee shop is probably the level of control you will get. You can adjust on the fly if certain parts of your business operation aren’t working.
The drawback is that this business idea will require hard work. In addition, you should be prepared to shell out a high amount as the real-estate cost for your location, plus the logistics it requires, will drive up your spending.
Online Coffee Business
Going digital is another channel you can consider venturing into. One of the best-selling products online is coffee, and it even reached the top spot in 2018 for e-commerce sales. You can dive into the topic more by checking out our step-by-step guides on how to sell coffee online and how to start an online coffee business.
Step Seven: Think About Your Coffee Shop Marketing Plan
Once you have done all of your research and followed the steps above, then you will have an easier time coming up with the perfect marketing strategy. There are templates that you can follow online.
We also have a list you can use as references. You can check out our guide on how to create a marketing plan, as well as our coffee shop marketing mix to help you determine the best way to advertise your business.
The gist is you have to research how your competitors do it. Don’t restrict yourself to just the ones located in the country. Look at other coffee businesses around the world, as they might provide a unique insight not found domestically.
This is when you should also think of a name for your coffee business. Think of something eye-catching but at the same time encapsulates the brand of your business, whether it is the product or the service that you will provide.
Next, determine what channels you should use in spreading the word. There are various ways to advertise, such as word-of-mouth or social media marketing. Social media platforms offer a ton of ways to promote your brand that you can customize down to the smallest details, but it will come with a price.
You can consider setting up a loyalty program down the line for your potential customers. It is an effective method of retaining frequent customers while attracting new patrons.
Step Eight: Determine The Costs
Now it is time to determine your startup cost. Your cost estimate should entail all of the details we have discussed in the previous steps. Once you have the type of business plan and business idea in mind, you can refer to the average figures to start.
Depending on how established the coffee brand is, buying a franchise can reach as much as $1.5 million. This should be the least of your options if you plan to start a coffee business with no money.
This is the most affordable option, as a typical direct-selling setup requires just the raw materials and equipment. The cost has a chance to go up if you plan to direct sell brewed or specialty coffee. This can range from around $500 up to $15,000.
The same cost more or less applies to an online business setup, as well. If you are taking a conservative approach and want to explore the coffee industry, consider this option.
The cost comes down to the size of your coffee business if you decide to establish a brick-and-mortar setup. A small shop with few seats can cost around $40,000 to $150,000 on average and will still depend on the location. High foot traffic can demand a higher rental fee for the spot unless you already own a space.
For a larger shop, it can cost $70,000 to $350,000 or even more.
Most traditional coffee houses fall under this setting. Do these same costs apply to the business ideas I mentioned prior? Thankfully, it doesn’t.
Mobile coffee shops, or coffee stands and kiosks, usually cost less than $100,000 to start. It is even cheaper when you consider partnering with other establishments. It can go down to as low as $20,000 on average.
If you consider a long-term partnership, in most cases, the bulk of the cost goes to the renting of the space.
Cost Estimate Specifics
What falls under your cost estimate? It should include all of your expenses from the moment you start researching your competitors and hatching out a business and marketing plan down to the operational expenses.
A well-thought-out marketing strategy should cost you around $100 to $500 per month on average as long as you have pinpointed your target market and your selling point to attract them.
The estimates I have mentioned for the different business plans and business ideas should include all of the administrative and operational costs.
Documents And Licenses
Before you can operate your own business, settle all of the licenses, certifications, and permits you will need. If you are going to be serving alcohol, a liquor license is needed.
Moving coffee carts or trucks would need to have permits before they can operate. You can contact your city’s corresponding government offices to know the complete list of requirements.
This includes your rent, as well as your electricity, water, gas, or internet bills. This might cost more or less a thousand dollars, depending on the size and location of your shop.
Going for a look that best represents your brand inside or out is something you should also consider. Furniture, signs, and lights are some things you should include in your cost estimate. The interior design is just as important as the exterior, so make sure no part gets left behind.
Supplies And Equipment
You can divide this into two – for the shop and for the employees. For the shop supplies, it should include coffee beans, a refrigerator, coffee grinders, coffee makers, and an espresso machine, among others. Office equipment such as company phones and a computer would fall under this, too.
If you have enough space to get a coffee roaster, you can include one, but I suggest startups such as yours should build a partnership with a dedicated roaster first. For employee supplies, these are your uniforms, identification cards, aprons, gloves, and any type of supplies necessary for your coffee business.
Point Of Sale System
A POS system is extremely important in a coffee shop as its features can cover a lot of things, from credit card processing to inventory logistics down to employee performance. You might want to check our list of the best tea shop POS systems, which you can also carry over to a coffee shop setting.
List down all the food, coffee drinks like lattes, and caffeine-free beverages like tea you will include in your menu and break down the ingredients. This should give you a rough idea of how much you need to spend during your opening week and how much it will cost you to replenish it after.
Last but not least is your employees. These are your operational manpower, such as your baristas and managers, among others. Typically, the amount should cover the salary from three to six months.
It should also include those you employed outside the coffee shop setting, such as your marketing experts, graphic artists, decorators, etc. At this point, you might think it is pointless because this will cost a lot of money, and you have none at the moment. While it is true, there are a number of ways you can get some capital.
Step Nine: Get To Work On The Funding
Now that you have your cost estimate, you should have a clearer picture of how much capital you would need to acquire. There are several ways to acquire funding, starting with easier choices.
Using Your Savings
When you first started dreaming of owning a coffee business, you may have accumulated a small amount of savings. If your business plan and idea fall within the amount, then it is wise to use them so you can avoid debt as much as possible.
What if your savings aren’t enough? You can proceed with the next option.
Borrow From Your Family Or Close Friends
This option banks on trust. Your loved ones will give you their support, but you have to convince them that you are serious about your venture and that you will pay them back on time. They are flexible since you can negotiate the due date and interest rate but never take them for granted!
Partner Up With A Friend
You don’t need to borrow from a friend if you both have a passion for coffee! You can consider forming a partnership with them and pool your savings. In addition, they can also aid you in doing your research when conceptualizing your business plan and ideas and might provide valuable insights along the way.
I chanced upon crowdfunding back when one of my most anticipated developers opened a Kickstarter to fund their latest game. You can also utilize this for your coffee business, and there are a number of platforms, such as Indiegogo and GoFundMe, to help you with it.
You just need to commit to your donors and make sure to deliver the product, service, or package you promised in return for their donation.
Business loans might be the most effective way to get more than enough capital for your startup and take care of your upfront cost.
The catch is you have to prepare your pitch to the smallest detail in order to get it. Some lenders require that your business should have at least $10,000 per month in gross sales, so it is best to prepare some projections that are accurate and feasible as possible. This is also a drawback, as it is a challenge to qualify if you can’t convince the lender.
Another disadvantage is the high-interest rates. If you are going to apply for a business loan, make sure to take this into account when you do your cost estimate.
Your capital can fall under just one or a combination of all these options but always remember to keep track. If you are thinking of using all these options, I suggest you create a funding mix to determine how much funds you will be getting per source.
Step Ten: Adjust And Implement
Take a step back and read your output from step one to step nine numerous times. Make sure that you don’t miss anything.
For instance, if you realize in step nine that you wouldn’t be able to acquire the capital for your original plan, go back to the previous steps and check where you can cut your costs. Do you need to adjust your business idea? Do you need to revamp your business plan?
Remember, it takes patience and hard work before you see the fruits of your labor. Who knows, your new coffee shop might be the next Starbucks.