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Start-Up Café Financing: What Are Your Options? By Tracy Allen HAVE YOU EVER SEEN that commercial with the guy in the smart glasses on the steps of Congress, telling you there's free money in Washington for the taking if you want to start a business? Well, it's not exactly a lie, but it's definitely a pipe dream. I don't know everything, but over the last 30 years I've worked in business management, struck out on my own, and guided other businesses from the start-up phase through large-scale expansions. I've seen the guts of hundreds of business plans and the ups and downs of entrepreneurship, and I've never met anyone who got free government money to start their business. The guy in the glasses on the commercial is selling a list of addresses to send applications to, nothing more. These are organizations that might grant money to the right cause, but it's a gross exaggeration to think they're giving money to coffee business start-ups—or almost any kind of new venture. While governments occasionally establish programs for stimulating special development goals—such as inner-city growth, minority businesses, and, once in a while, arts and creative businesses—they are always attached to larger social goals. Foundations have social aspirations, too, and their board of directors and the IRS will be looking over the shoulder of any grant recipient very closely. Government loans are a more realistic source of capital to shoot for, though still tough to get. A lot of agencies will lend money at a discount for job creation and related goals, but these are privileged, low-interest loans for development programs that are currently in vogue. You still need to meet any underlying requirements of the government agencies that set them up. For example: An agency with an historic preservation mission will need to be assured that your business helps them do just that. As a coffee-business dreamer, you should probably forget about grants and low-interest government loans. Your great idea, while great, 72 barista magazine is not unlike those of other would-be entrepreneurs, and it's not worth anything if you can't find the funding to get it up and running. There are roughly three types of start-ups that go searching for capital, according to their financing possibilities: % The (really) small start-up just needs customers, not much financing. This tends to include service businesses from your neighborhood dog walker to the sole-proprietor attorney to the one-person graphic art studio. Your coffee business might fall into this category if you plan to start slowly with small-scale office coffee service, roasting out of your garage, or something similar. % The already savvy and well-known entrepreneurs-to-be have established track records in the business that can give them access to angel investment and venture capital. They are leaders in one way or another—as a standout barista, trainer, etc. If you're one of them, you know who you are. % The middle-ground folks who need a big push to get off the ground defines most of us who want to start a coffee business. If this is you, you're seeking serious—as in five figures, but most likely six—start-up money, but you don't have people pounding on your door to invest in your personal brand. If you're in the middle-ground category but don't have assets to put on the table, don't have friends or family with money, and don't have a real track record for investors to buy into, then you're in good company (meaning you're among the masses). You've also got your work cut out for you. For some perspective, here are some rough start-up costs for retail coffee operations. These generally include recruiting, training management and hourly staff, build out, and initial inventory: % Sit-Down Coffee Shop or Coffee Bar: $200,000 to $500,000 % Drive-Through Coffee Shop: Very Small $40,000 to $60,000; Large $75,000 to $300,000 % % Kiosk: $20,000 to $80,000 Coffee Cart: $20,000 to $30,000 How to Get the Cas h Define the odds for investors. % Can your start-up make it? For example, is your idea going to create such a compelling value to customers that your venture can gain a viable chunk of the market? % Will investors get a return? For this, you must specify how much capital you need and project future profits that will grow fast enough for investors to reap an attractive risk-adjusted return. Define your strategy. If you want to convince potential investors that you've really thought about what you will do with the money, you have to define your strategy. A good way to do that is by specifying these four elements: Scope: Here you have to explain what product(s) you plan to sell, what customer groups your business will target, and which markets you plan to sell in. Value proposition: How are you going to convince potential customers that the benefit of buying your coffee product and related services exceeds the price you charge, the distance they must travel to you shop, and their thirst for competitors' java? Economic viability: How will your new coffee business earn a profit? By charging a premium price for a unique product? Volume? Low operating costs? Steps along the way: A critical key to your business plan is demonstrating that you have your feet on the ground. To that end, clearly communicate the first steps you will take once investors' checks have cleared. What will you do first, second, third, and so on? For example, your first step is probably to build out your coffeehouse. Indicate who will oversee this enormous task and the people or contractors you'll be hiring to do the work. Talk about your deadline for opening, projected sales for the first year, and growth plans.