A coffee shop is a great business to open if you want to be your own boss, stay in touch with your community and feel close to 63 percent of Americans who drink multiple cups of coffee each day, according to the National Coffee Association.
So if you love the nutty, smoky or flowery smell of coffee, or enjoy drinking the bold, sweet or bitter brew, one option worth looking into is starting a coffee shop franchise where product and name recognition can provide a boost in sales and customers.
Opening a Coffee Shop Franchise
Unlike a restaurant that people might go to a few times a month, coffee houses can be visited daily by the same customers, either on their way to work, during a break or just as part of their own unique routine. If you want to get into this multi-billion dollar industry, here are five key steps that you need to take to start your coffee shop franchise.
1. Research Your Options
When it comes to the coffee shop business, the first two names that come to mind are usually Starbucks and Dunkin’ (previously known as Dunkin’ Donuts). However, even though Starbucks has over 15,000 stores in the U.S. and 16,000 more abroad, it does not offer franchising opportunities, making Dunkin’ the number one U.S. coffee franchise with close to 10,000 stores across 42 states.
The estimated initial investment for opening up a Dunkin’ franchise can range from $110,000 to over $1 million. But besides Dunkin’, other popular coffee franchises in the United States include:
- Tim Hortons
- The Coffee Bean & Tea Leaf
- Aroma Joe’s Coffee
- Biggby Coffee
- Scooter’s Coffee
- Dunn Brothers Coffee
When deciding between your options, consider if there’s an opportunity in your region to open a particular franchise or if the market oversaturated. What are the requirements needed to gain franchise approval? Take the time to research your options. Look into franchising fees and anticipated costs in opening a store.
For example, If you are interested in buying a Dunkin’ franchise, the lowest capitalization requirement is $250,000 in liquid assets and a total net worth of $500,000. For a Tim Hortons, you will need to have $500,000 in liquid assets and a net worth of $1,500,000.
2. File a Franchise Application
Each franchise has its own application process with different requirements, fees and available territories. For Dunkin’, the franchise application process begins with 1) proof of citizenship or permanent resident/alien registration card, 2) proof of assets and 3) a credit check.
No matter the franchise, expect many questions about your experience, education and background. You will also need to share a lot of personal finance information. Writing up a business plan, as mentioned in the next step, can be a tremendous help in filling out your franchise application.
3. Create a Business Plan
The next step is to come up with a business plan. Make sure to include your mission statement — what is the purpose of your business? Also make sure to highlight opportunities in your area for your business, the needs that it will meet and how you and your community can benefit from your business. Also include information about the market and competition, as well as capitalization, financing needs and growth forecasts.
Also include a financing plan for franchising fees and costs. For instance, Tim Horton’s costs include $35,000 for a 20-year franchising agreement and a weekly royalty rate of 6 percent for gross sales and a monthly advertising levy of 4 percent. How will you acquire the needed money? Make a plan for looking into small business loans and lines of credit from a bank.
4. Choose the Right Location
In addition to finding the right location, you may need to check with the franchise to ensure that you are meeting any preferred site criteria. Dunkin’s requirements include a site at least a fourth acre large, a building size of 1,200–2,600 square feet and a minimum of one parking space for every three seats. There are also eight states, including Alaska, Washington, Oregon, Idaho and Montana, are not listed as available markets to open a Dunkin’ store, so if you live in the northwest, this franchise may not be a viable option.
In addition, regardless of the franchise, you should look for a central location with lots of traffic, a spot that’s easy to locate and a location that is not in close proximity to the same franchise.
5. Form an LLC or Corporation and Apply for Permits and Licenses
Before you operate your business, you should consider establishing your business entity. This will allow you to create a separation between your business and personal finances and can help you apply for business credit and loans. The options will vary depending on your needs, but an LLC is the most common business type and will provide limited liability protection safeguarding your personal assets. Once you’ve established your business, don’t forget to apply for your business license and permits. To operate your business legally, you’ll need a business license, certificate of occupancy and a food service license. Incfile offers a complete Business License Research Package that can research the permits you need and also file the paperwork on your behalf.
Support for Your Coffee Shop Franchise LLC
Once your application is approved, you’ve set up your business entity and you’ve decided on your location, it’s time set up your supply chain, buy your equipment and staff up. The good news is that supplies will be provided by the company that you’re in a licensing agreement with.
Additional support for the franchise company will come in the form of training, branding, marketing and technologies such as mobile apps and virtual gift cards. Some companies even have advisory councils and feedback forums.
Starting a coffee franchise will take a lot of work, and research and planning will play a significant part of the process. For an even more detailed look at the process of how to start a coffee shop franchise, use Incfile’s “How to Start a Franchise Business” guide.