The most important thing when starting any new venture is having enough capital to get off the ground. And this is easier said than done. So how can you start a cafe with a low budget? Here are some tips on how to start small and grow fast.
While it may be your dream to open up a neighborhood staple and location known for providing a great atmosphere and even better coffee, it's probably best to start on the smaller scale to test your concept and gain interest. Here are a few ideas that can help you create buzz while generating capital to get that dream of yours closer to reality.
Try a coffee cart.
Coffee carts have been around for years and are an easy way to set up shop and provide customers with their favorite beverages at affordable prices. You don't need much space or equipment to run one either. All you really need is some good quality cups, mugs, lids, filters, grinder, espresso machine, milk frothers, etc., and maybe a couple tables if you want them.
One of the greatest benefits of a coffee cart is the flexibility of location. You can test out different areas to see where your concept works best, which can ultimately help make a decision on where to open that brick & mortar location in the future.
Operate a pop-up.
Pop ups are another option for aspiring cafe owners who would like to try something new but aren’t sure what they should do next. They're also a great way to generate revenue before opening up a permanent store. Usually lasting anywhere from one week to 3 months, pop-ups can again be useful in studying the potential market in different places and create buzz around your brand.
Consider a kiosk.
Kiosks, often found in big cities (but not unfamiliar to suburban areas) are small brick and mortar operations with no customer facing space. Instead they often serve directly over a counter to the customer outdoors or in a larger food market concept. Costs for such operations can be much lower than regular brick and mortar by eliminating the need for customer seating. Mosts kiosks can easily be run by one employee and the rent will reflect the size of the space. While some spaces are more expensive because of their location, you'll be able to afford a location in a more high traffic area by choosing a kiosk.
Growing your concept.
Already tried and tested your cafe idea and want to jump in head first to brick & mortar but don't have the capital to get you there? Let's run through some ideas that can help keep costs low while building the cafe of your dreams.
Get a fair lease.
Oftentimes, areas with high foot traffic (as mentioned above), come along with high rent prices. If you've tested your idea, you probably found a desirable location to open up shop and you'll need to negotiate a lease to make it possible. Let's first calculate what you can afford.
According to research by Restaurant Real Estate Advisors, the general rule of thumb is that your total rent should not exceed 6% to 10% of your total gross sales. You'll have to do the legwork to make your own projections since every coffee shop is different, but for these purposes, we're assuming your gross sales will be $500,000 per year. At that rate, this means you can afford a rent ranging from $30,000 to $50,000 a year or $2,500 to $4,167 a month.
With that being said, you'll still need to put some effort into getting the right lease at the right price. Unfortunately, your number calculations may be different than what the market rate is. So take a look at commercial real estate sites to get a general idea of what you can look for in terms of pricing in your area and go from there.
Configure your space for function.
At the end of the day, there's nothing a little paint can't do. Instead of going into it planning to outfit your space with design as the most important aspect, consider what you can do to make it look it's best without spending too much on looks. After all, people are coming for the coffee, not the decorations.
The best advice we have here? Buy used. Fortunately for you, the hospitality business has a high turnover rate, meaning most of what you need to open up can be found cheaper if you buy used versus new. This includes, but is not limited to, tables, chairs, refrigeration, kitchen equipment, espresso machines, roasting machines, POS systems, and even certain decorative items.
Hire the right people.
The number of employees at your new business depends on many factors including the size of your establishment, its location, whether or not you will offer table service, if you're making food in house and ultimately, how lean you want the operation to be. Depending on these factors, it may be important first to hire a manager that can share your beliefs, work full time and hire the right people underneath them that will get the job done efficiently. If you want to hire more than 10 people, then you should expect to pay them market rate (or above) salaries and potentially include benefits such as health insurance, retirement plans, paid vacation days, and more.
Securing favorable capital.
Unfortunately, traditional bank loans have become less and less favorable for small businesses over the years. In addition, with the country experiencing the economic effects of COVID-19, less people are willing (or simply unable) to donate to traditional crowdfunding campaigns. The solution? Investment crowdfunding.
Investment crowdfunding is often described as a investment vehicle that benefits both the lessee and the borrower. It can come in a variety of forms ranging from equity, where cafes share a percentage of the businesses in exchange for capital, to crowdsources debt. Mainvest falls in the latter category allowing small businesses to raise capital from their community without giving up ownership. We do this by using an innovative new investment vehicle called the revenue sharing note, in which a company borrows money from investors and agrees to pay back a certain Revenue Share Percent of any revenue it may generate every quarter until all principal and interest is repaid.
Want to see it in action? Teatotaller Cafe in Somersworth, NH found success with the help of Mainvest. You can read about their campaign and how they used community capital to grow here. And if it seems right for you, join us.
Written by Lauren Murdock
Lauren is Mainvest's Content Marketing Manager. She is an expert in marketing strategy and leads content generation for Mainvest.