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Any small business owners here? Seeking advice.

JM Aggie08

JM Aggie08

Diamond Member
Before we get too deep into this:
  • My wife makes more money than I do.
  • My wife has access to similar medical coverage than I do.
  • We would be comfortable with one of us working/pulling in the majority of our household's money.
I've been flirting with the idea of opening a craft coffee shop for some time now. Moving from the inner city to the burbs have left a quality-coffee-shaped hole in my heart, and there are currently no offerings within a 20 mile radius (conveniently located/not off the beaten path). Coffee preparation in all forms has been a hobby of mine, and I couldn't think of a better way to spend my time than doing it full time. The recent passing of my mother also has me really looking at how I spend my time on earth, and being in a career/industry that I just simply am not passionate about for 35 years does not seem like a good use of my time.

Seeing as there is a significant gap and need (higher income area, decent student population, tech companies) for such an establishment, I feel like now would be the best time to jump, prior to someone else filling the void. I have a good grasp on the industry side of owning a coffee shop, but am a little in the dark on the financial/employee side of things. I plan to do a lot of reading on the subject, but thought some folks here might be able to shed some light on a few things before I begin investing a ton of time into research.

  • Small business loans -- how does this process generally work? How much is a reasonable up-front investment from a bank's perspective?
  • Insuring employees -- I assume this is generally done for full-time employees. I don't recall what is required by law (obviously, I would want to go above and beyond for the folks that work for me).
  • Renting/Leasing v. New construction -- I believe renting is the obvious answer, but wanted some thoughts.
My other thought has been to simply retrofit a food truck with coffee equipment and park at business parks -- this could very well be a solid starting point with minimal up-front investment. Establish a customer base, move to B&M once there is a following.
 
Personally, I feel if you need a loan, then you can't afford to be in the food industry. Like tynopik said, it is brutal. Long hours, terrible employees (that will be your biggest headache), and low profit until you can figure out how to make it into a chain. And I don't think that a chain and your passion are necessarily compatible.

Insurance requirements will vary by location. I cannot help here.

As for the rent/new construction, decide how much money you want to lose with no option to ever get it back. That will make the choice for you. Unless you can turn a dump or a half-assed renovation into some sort of theme for your coffee shop, people don't like paying a premium for coffee to sit in some dingy, ugly location. So, you need to pump real money into it. If you rent, you lose that all when the rent is up and the landlord decides that now it can be rented to someone else for more money since it is now renovated. Or, if it is new construction, you are further in the hole to start with which makes the coffee shop even harder to start.

I had a friend who started a coffee shop. It can be done properly and profitably. He did it in a quirky neighborhood just a block from a university for wealthy unconventional students. So, he didn't need to pump tens of thousands into a renovation because a quirky, unfinished corner location was exactly what his customers liked. Even then, he said he nearly went bankrupt until he decided to start giving customers what they wanted (not the coffee that he was passionate about). He stumbled across a way to cheaply flavor cream cheese that still makes my mouth water just thinking about it. Then he slapped it on a cheap bagel and sold it for $6. Then, and only then, could he make his passion about selling coffee profitable. People flocked to the store for bagels and then bought some coffee (not the reverse).
 
We had a so-called "Third Wave" coffeehouse open up near where I live recently that has done extremely well and is now about to open a 2nd location. I can't really help you on your business side of things, but I dare say you need to find your niche first and lay out a business plan including the investment costs before you go any further.

A food truck might be a good idea, but think about how people get coffee: either as a routine (speed of service is key) or as an experience (quality of service is key). With a food truck, you really can't provide a quality of service, but you also can't rely on routine because you're not going to be in the same place, every day.

Our local house became extremely successful by:
- Offering an experience (relaxation, sit and talk, coffee takes time to make)
- Offering very limited variety (only 2 types of pour over, basic espresso drinks only, and a cold brew)
- Extremely high quality coffee (small batch beans, roasted in house, less than a week from sourcing to brew)
- Perceived "coolness" (call this the hipster effect, $8 for 16oz pour over, $4 for cold brew, $16 for 8oz of coffee beans)

They opened up with an old school roaster, a high end RO water filter system, one auto espresso machine, and a handful of pour over implements, as well as glassware, etc. Which all in total is probably around $15k in equipment. The buy-in is pretty cheap therefore to get up and running.
 
deadlyapp said:
We had a so-called "Third Wave" coffeehouse open up near where I live recently that has done extremely well and is now about to open a 2nd location. I can't really help you on your business side of things, but I dare say you need to find your niche first and lay out a business plan including the investment costs before you go any further.

A food truck might be a good idea, but think about how people get coffee: either as a routine (speed of service is key) or as an experience (quality of service is key). With a food truck, you really can't provide a quality of service, but you also can't rely on routine because you're not going to be in the same place, every day.

Our local house became extremely successful by:
- Offering an experience (relaxation, sit and talk, coffee takes time to make)
- Offering very limited variety (only 2 types of pour over, basic espresso drinks only, and a cold brew)
- Extremely high quality coffee (small batch beans, roasted in house, less than a week from sourcing to brew)
- Perceived "coolness" (call this the hipster effect, $8 for 16oz pour over, $4 for cold brew, $16 for 8oz of coffee beans)

They opened up with an old school roaster, a high end RO water filter system, one auto espresso machine, and a handful of pour over implements, as well as glassware, etc. Which all in total is probably around $15k in equipment. The buy-in is pretty cheap therefore to get up and running.
Click to expand...

This is what I envision. Simple and straightforward. Would probably need to differentiate some to accommodate a broader audience.
 
deadlyapp said:
We had a so-called "Third Wave" coffeehouse open up near where I live recently that has done extremely well and is now about to open a 2nd location. I can't really help you on your business side of things, but I dare say you need to find your niche first and lay out a business plan including the investment costs before you go any further.

A food truck might be a good idea, but think about how people get coffee: either as a routine (speed of service is key) or as an experience (quality of service is key). With a food truck, you really can't provide a quality of service, but you also can't rely on routine because you're not going to be in the same place, every day.

Our local house became extremely successful by:
- Offering an experience (relaxation, sit and talk, coffee takes time to make)
- Offering very limited variety (only 2 types of pour over, basic espresso drinks only, and a cold brew)
- Extremely high quality coffee (small batch beans, roasted in house, less than a week from sourcing to brew)
- Perceived "coolness" (call this the hipster effect, $8 for 16oz pour over, $4 for cold brew, $16 for 8oz of coffee beans)

They opened up with an old school roaster, a high end RO water filter system, one auto espresso machine, and a handful of pour over implements, as well as glassware, etc. Which all in total is probably around $15k in equipment. The buy-in is pretty cheap therefore to get up and running.
Click to expand...

Another option is to not-exactly-advertise yourself as the strange neighborhood religio-cult that you actually are, but sort of play off it with a shrug. Like these guys:

http://vigilantecoffee.com/
 
I'm a small business owner and will try and answer you questions as straight forward as possible. I know nothing about coffee or food trucks so please keep that in mind. I'm located in the state of Illinois so what I'm writing is written with that in mind. It might be different for your state.
  • Different banks have different requirements for what it takes to qualify for a small business loan. I would suggest calling several and see what information they require. It may be as simple as a business plan or get more complicated depending on the bank. Just call and ask. It's up to you to decide how much you need to get a loan for. How much does it cost to open a coffee shop? 100k, 250k, maybe 500k? Do your research and decide how much you are comfortable getting a loan for.
  • Insurance is a must. You will need unemployment insurance, workmans comp insurance, and liability insurance at the very least. It does not matter if your employees are full time, part time, or seasonal. If you are asking about providing a health insurance plan then if you have under 50 employees it is not required by law to provide one.
  • I would rent at first until you start turning a profit. After several years of making money then you can look at building. Most landlords are pretty open to you modifying the space you are renting to fit your needs. Building is just to expensive for a first timer.
One thing to consider that most first time business owners don't is advertising. It's very expensive but in my opinion is a must. Do not rely solely on free advertising like social media such as Facebook and Twitter. They are great but a more well rounded advertising plan is necessary and should be added into the loan amount that you initially ask for.
 
Food industry is BRUTAL.

I grew up in my family's food industry. Answer these Qs. Let's talk about REAL changes that WILL happen in your life:

1. Think about how fickle restaurant businesses are when you drive downtown. How many new restaurants pop and change in matter of few years? Some are super well prepared + seasoned owners and still go down.

2. Are you ready to work 7 days a week? No clear vacation, staffing issues, supply/vendor issues, etc.

3. Coffee shop hours.. lol. You are now doing retail hours (i.e. the hours that office people use to relax). Are you ready for waking up at 5:30am and opening by 6:30am? We all know people love visiting coffee shops in the evenings... so close by 10pm? This is going to destroying you day after day.

4. A small coffee shop means you will likely provide 100% coverage for opening hours. Retail people suck, man. Employees will steal from you, flake out, do no-show, etc. Customers will be a headache and will blame you if you were there OR NOT there.
 
2 businesses. 1 makes $$. The other just about bankrupted me before I sold for a massive loss. After the fact, a friend said, "Don't buy a barber shop if you can't cut hair." So you could get a part time gig at something similar or small retail. You might decide that you hate the public more than you love the idea of owning your own shop.

SBA was a bust for me. They offered to be the go between for my bank. My banker said hell no. They just complicate things. The bank wouldn't lend on my finance office because I basically have no assets. Just a bunch of contracts. They would lend to me personally so your situation might depend on your assets.

What has been posted above plus all of the fed/state tax paperwork unless you pay someone to do it. Quickbooks is an option but I'm too cheap to renew them every year for payroll so I do it.

May have been mentioned already, local/state regulations for food/drinks will surely be a pain in the ass. Fire systems/handicap access/+100 other things. Cost me $2k for an architect to map the building with a fire escape route that the state required. It was never ending.

Not to be so negative but better to know up front.
 
If we haven't scared you enough, then do this. Lots of people do this.

Do work in a coffee shop as an employee. Dive into the weeds. See how that's like. And imagine what that is like. (Although it's 300%+ harder being an OWNER vs just going home as an employee).
 
JM Aggie08 said:
  • Small business loans -- how does this process generally work? How much is a reasonable up-front investment from a bank's perspective?
  • Insuring employees -- I assume this is generally done for full-time employees. I don't recall what is required by law (obviously, I would want to go above and beyond for the folks that work for me).
  • Renting/Leasing v. New construction -- I believe renting is the obvious answer, but wanted some thoughts.
My other thought has been to simply retrofit a food truck with coffee equipment and park at business parks -- this could very well be a solid starting point with minimal up-front investment. Establish a customer base, move to B&M once there is a following.
Click to expand...

Loans? Seem a bit tougher to come by since 2007. Banks need to see solid info that they won't take a loss. Remember a bank is not investing in your business, they're loaning you money. They'll likely require that you can show the cash flow to pay back the loan, even if the business never develops. I.e., hoped for profits from the coffee shop likely won't count for much. They'll also want assets sufficient to be collateral. I would also expect that both you and likely your wife will have to personally sign for any loan. They may require your house as collateral too.

One problem you will likely have from the bank's perspective is a lack of experience in coffee shop management etc.

Insurance? You'll have less than 50 employees so are exempt from Obamacare. Speak to an insurance rep if you're still interested in providing HI for them under Obama.

Rent or buy? Rent is my suggestion. You're not in the commercial real estate biz so no real reason to get into it. Get a lease with plenty of extension periods/options. If you establish the business, customers will be used to coming by that location. You lose the lease, you lose the customers (it's a way to acquire the biz without having to buy it. Just swoop in and take over the location, and by extension the customers). Also selling the biz without having a lease that provides for a lengthy lease renewal is much more difficult (or it's value is much less).

Fern
 
JM Aggie08 said:
Small business loans -- how does this process generally work? How much is a reasonable up-front investment from a bank's perspective?
Click to expand...
I owned a small business and was turned down by three lenders for an SBA loan. Fortunately, I had enough capital to open the business without one.

Why was I turned down? I was given several reasons but basically it boiled down to my not having experience in the business. The pisser of the whole thing was that the franchise I opened was on the SBA good guy list. The icing on the cake is that the .gov guarantees the loans so the bank is assuming no real risk.

In the eighteen months I owned the business, we never went in the red. In month 13 we became profitable and annualized it would have been more net profit than my wife and I had coming in the door when we worked for "the man". My biased opinion is that I didn't need any experience. I was turned down for other reasons. Reasons not specified.

Curiously (or not...) the woman that bought the business from me in month 18 was able to obtain a loan through the SBA program. I'll let you figure out the politics underlying that.

You will have to submit a business plan. This is the most daunting of the requirements.

The political climate has changed and the process may have changed along with it so my story may no longer be relevant.

Edit: Get some representation or experienced oversight in the leasing process. Landlords can make or break your business and some don't really care if you succeed or fail. Just because they own the property does not mean that they are intelligent and assuming they are is a mistake.
 
boomerang said:
Curiously (or not...) the woman that bought the business from me in month 18 was able to obtain a loan through the SBA program. I'll let you figure out the politics underlying that.
Click to expand...

she was buying an established business with proven profitability?

seems a much better risk than some chucklehead with no experience creating a new location from scratch with very uncertain demand
 
tynopik said:
she was buying an established business with proven profitability?

seems a much better risk than some chucklehead with no experience creating a new location from scratch with very uncertain demand
Click to expand...
Nonsense, I'm sure it was some evul lib SJW Feminism run amok!
 
I own a small business. I think if you are passionate about what you want to do, that's an excellent first step! Secondly, being mindful that it's at least as much about pleasing your customers as it is the product. Both are critical, the best coffee won't matter to a pissed-off client. Thirdly, you have to be ready to sacrifice for your vision, VERY long hours and even losing money in the beginning are very normal. Most small businesses around me that failed did so mostly because of this last reason, they simply gave up too soon, imo.
 
Do you like your marriage, OP? Opening up a business, slaving long hours to try to make it work, and then going bankrupt is a good way to ruin a marriage. Not saying it will happen in your case, but there are at least 999 things (depending on local ordinances, laws, and health dept regulations - perhaps even more) which you probably have not accounted for. Owning anything food service related is brutal.

There aren't as many coffee aficionados who will buy from stores as you would think, so you really need some sort of food item that would draw in foot traffic. Only then would your coffee sell. People are lazy. If they can get their breakfast/lunch/snack/whatever AND their coffee, and both are good, then they might consider going to your place. Whereas coffee snobs like yours truly have their own particular set of preferences and own $$$ in machines at home to make coffee just the way we like it.
 
My parents were small business owners for many years. They first started off in the furniture business and in the 90s went straight into the Cafe industry. As my dad would always say "you're married to your business." The food industry is very non-forgiving.

In the early to mid 90s they opened a coffee house. This was when Starbucks got very popular. They had acoustic shows, and plays. Anything to draw in customers. They lasted 2 years. I can still remember my dad falling asleep on the Cafe floor because he was too tired to drive home.

Took them about 15 years before they found success with a cafe that specialized in organic sandwiches. They were located in a very wealthy area. People there had no issues spending $9 on a sandwich.

Anyway, that's my experience. The main thing is getting people to know that you exist. The hardest part of any new business. I'd focus on social media to advertise your business. You could go traditional, but it doesn't have the reach like FB, Instagram and YT. Do streams. Post content every week.
 
Sonikku said:
Nonsense, I'm sure it was some evul lib SJW Feminism run amok!
Click to expand...
You know, I have a successful business and tried the SBA. Nope. Why? Nope. The SBA had $17B for non-traditional borrowers. That would be me. A guy with a business generating 21% per $ brought in profit. Still nope. Why? Nope. Must have @lxskllr 's cup of nope.

I had already mortgaged the wife, house, kid, dog, concrete yard duck...the 1st time around. Paid a shit ton in taxes since but Nope. And people wonder why rats asses aren't given for the man starting up. :rolleyes;
 
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It sounds to me like starting out with a smaller truck would be the best approach. There are several business hubs nearby that get a lot of foot traffic. Minimal investment (other than time), just to see how well it would work out.
 
What makes you think a truck would be the better approach? Besides the minimal investment aspect what else is drawing you towards that option?
 
Anybody thinking a coffee/food truck is a good idea needs to check out the local regulations where that truck is intended to operate. Most B&M retailers are strongly opposed to truck vendors. Trucks don't pay r/e tax in the area and draw off their customers etc.

Fern
 
JM Aggie08 said:
It sounds to me like starting out with a smaller truck would be the best approach. There are several business hubs nearby that get a lot of foot traffic. Minimal investment (other than time), just to see how well it would work out.
Click to expand...

Have you considered working at a coffee shop for a time? Or do you have any other experience dealing with the public? And I am talking along the lines of working front line restaurant\retail\call center stuff. People are soul sucking assholes and the biggest pricks get passed up to the boss. It takes a lot of patience to deal with customers who expect you to give them free stuff because of their own laziness, stupidity, underhandedness and nastiness.

I did this for years and was good at it but have been removed long enough for the scars to largely subside (besides a lasting disdain for people). They subsided enough for me to take on a project where I had to deal with them again. I was very quickly reminded how much people suck. "Are you going to run the next iteration of this project.?" Nope. Fuck. That. Shit.

Maybe you've got the personality for it. Maybe the people in your area don't suck. But it might be good to find out while someone else is the boss and dealing with the rent.

Fern said:
Anybody thinking a coffee/food truck is a good idea needs to check out the local regulations where that truck is intended to operate. Most B&M retailers are strongly opposed to truck vendors. Trucks don't pay r/e tax in the area and draw off their customers etc.

Fern
Click to expand...

There are also often a host of regulations about where you can park the truck. Some don't let you use metered spots or within 1000' of a B&M restaurant which can turn entire downtown areas into complete No Go zones for a food truck.
 
Numerous people have suggested that you start working part or full time as a cafe staff.

Even my parents didn't get into restaurant biz first. They worked full time as cook and manager at their friends' place for couple years.
 
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