Barista Magazine

DEC 2018 - JAN 2019

Serving People Serving Coffee Since 2005

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Page 94 of 107

THE OF OPENING A COFFEE SHOP C O S T T he idea of opening a coffee shop initially sounds romantic. Freedom to tailor a space, a brand, a culture, a brewed cup of coffee, an espresso exactly the way you like it? Yes, please. However, the fi nancial practicality of build-out costs, taxes, and lease negotiations can often throttle the creative liberties of an aspiring shop owner. The white fl ag of surrender goes up before the dream even launches. But the reality of the cost and the romance of the dream need not war against one another. Wise fi nancial decisions can be made without stifl ing creativity, but doing so requires knowledge of the expenses new coffee-shop owners face, and an understanding of your business's priorities and brand, as well as how to integrate the two into a realistic budget. This article provides a breakdown of expenses, average budgets in the U.S.A. (from big-city Chicago to small-town Nebraska), and pro tips from seasoned coffee profes- sionals to help new shop owners celebrate creative freedom within realistic fi nancial parameters. CREATE A FINANCIAL FRAMEWORK After multiple interviews with shop owners and consultants across the country, one common thread to success has emerged: Build your brand and choose your priorities, and base fi nancial decisions on the two. Prior to any major fi nancial decisions: Envision the shop's brand and its market: i.e., do you aim to serve cosmopolitan commuters or your neighborhood community? Do you want to be known for tradition or creativity? Make a list of priorities and choose one or two for initial fi nancial focus (the others will get a chance to shine as the business creates profi t). This list may include a contemporary atmosphere, quality and consistency of your product, wages for your employees, etc. An anticipated brand and determined priorities can serve as a framework to build a budget based on the following categories. EXPENSES PRIOR TO OPENING A: Lease The cost of a lease agreement is one of the largest long-term shop expenses and therefore requires crucial consideration. A fi rm understanding of a business's anticipated market will help stream- line the decision of where to set up shop. Tracy Allen, coffee-shop consultant and CEO of Brewed Behavior, recommends that café owners keep yearly lease payments under 10 percent of gross revenue, with 6 to 8 percent being the ideal range. That is to say, the lower the better. "For planning purposes, the best guide to total lease cost is to determine a fairly accurate gross revenue predic- tion matrix for year 1, 2 and 3," Tracy says. Most lease agreements measure rent by square footage, and the value of that square footage depends, unsurprisingly, on city, foot traffi c, and quality of the building. Further, as shop owners look for the perfect space, they may come across a couple of lease options: • Gross lease. This resembles an average apartment lease in which the landlord holds responsibility for real-estate taxes and building maintenance. Older buildings in less-developed areas generally carry this type of lease. • Triple net lease (aka NNN). This lease agreement requires the tenant to pay an additional fee on top of rent to cover real estate tax, building maintenance, and building insurance (aka the three "nets"). New developments or high-demand areas commonly carry triple net leases, which may benefi t from higher foot traffi c and better-quality infrastructure. However, this lease gives room for percentage escalation each year depending on the rise of insurance costs and taxes. The additional fees can range from ARTICLE BY MAGGIE RIVARD • ILLUSTRATION BY KATE HABERER 95

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