Coffee shops are often really popular places to grab a snack or a drink on the go and they can provide a great place for people to meet up and hang out. Many people think of coffee shops first when they are planning to start a business because it seems on the surface like these are easy shops to open and run. While this might overall be the case when you are comparing a coffee shop to a large restaurant, there are factors that go into the ownership of a business that can still trip people up.
You should never jump into business ownership without learning about the ways that your business might fail. Avoiding pitfalls that are common for any type of business can help your business to make it through the ups and downs of good and bad times that are sure to come during your ownership of your coffee shop. You should always be sure to consider these factors before you decide to open any business and this is particularly true of a food industry business.
If you want to learn more about the reasons that coffee shops fail, you should read on for more information!
Why Do Small Businesses Fail?
There are many reasons that small businesses often don’t make it through the first years that they are open. In some cases, these incidents were not easy to avoid and could not have been planned for, but overall, most small businesses fail due to a variety of factors that could have been prevented.
- 42% of small businesses fail due to a lack of market demand for their products and services. It is important to remember that just because you love a coffee shop does not mean that there is enough business in your area to support another coffee shop. You need to be sure that you do some market research in your area to make certain that you will be able to get enough business to keep your doors open.
- Many small businesses fail due to a lack of visibility, accessibility, or parking. You might be shocked at how many businesses that have really nice products and great services to offer are forced to close their doors due to location problems that could have been avoided if they had been opened in a better place.
- As many as 20% of small businesses fail within the first year of being open. This is often due to a combination of factors from a lack of startup cash to a lack of a business plan, to issues with their location or their products. Being able to plan to stay ahead of this average is important and you need to think ahead about all of the possible reasons that your business might become a statistic.
Many small businesses could have been saved through the use of proper market research and funding. If you want to open a small business, you need to be certain that you know what all the costs will be and you should have some funds in reserve or you will likely not be able to keep your doors open for more than a year.
Why Do Coffee Shops Fail?
1. Lack of Preparations
This is the biggest killer of any small business, and coffee shops are no different. While it might seem simple to open a coffee shop because you will sell one product, this is not entirely the case. You will need to offer variations on the theme of coffee and all of them will need their own products and components.
While you will still need to have coffee and coffee machines on hand for almost all of the products that you sell, you need to be sure that you can also source the flavorings, syrups, chocolate ingredients, milk products, and other ingredients that you will need to keep your doors open.
Running out of even one ingredient can mean that a customer is unhappy and leaves a bad review or decides not to get anything from your shop. You want to avoid missing out on a single sale in the early days and you will be able to defend your business against this issue through planning.
Sourcing, supply chain, and funding planning are all essential items to have locked down before you open your coffee shop. You should also think about staffing and make sure that you are prepared to be open at the right hours for your customers. These kinds of mistakes are common and can actually lead to many businesses having to shut their doors after just a few months.
2. Not Having a Business Plan Can Lead to Coffee Shop Failure
Just like planning the details of how your business will operate on a daily basis, you need to have a good solid business plan for your coffee shop. This is like the bible that will guide your operations management and help to direct you toward your annual goals as you move forward with your coffee shop’s plan to grow and develop.
Without a good business plan, even Amazon and companies of its size could have failed. Business plans are really important to make because they help keep you from straying from the essential goals that you need to be meeting to be able to keep your business viable and make it profitable. If you have never made a business plan before, you need to look into the way that this plan is crafted and make sure that you do not skip any of the steps.
The things that must be considered in your business plan are:
- Funding
- Business partners
- Ownership shares between partners
- Personal time for working on this project
- Protection of personal finances from business finances through incorporation or proper business format
- Menu and products
- Product research and market research results and goals
- Financial projections for 3 to 5 years
- Marketing plans
- Location and site costs
- Overhead and wages
- Market analysis
You need to use your business plan to track your business’ progress and make sure that you are not straying from your goals. Meeting milestones is necessary to move your business forward and make sure that you are going to be able to create a coffee shop that will support you with ease.
3. Being Unwilling to be Nimble
If you are starting a coffee shop, you might already have some experience in this area which has led you to consider this as a good option for your business. Even if you have owned another business or have worked in the coffee shop industry before, you will never know it all. Business owners who stop being willing to learn and grow will often find that they are not able to keep up with changes to the market as a whole.
You cannot hope to predict every change in the wind, but when you see businesses releasing popular new drinks or products, you should always be willing to consider making a change to your own product line. Including new products that offer the same features that people are looking for from other shops is a solid way to stay ahead of the curve and remain relevant.
While there is something to be said for making traditional and good coffee products, you cannot hope to just make a few simple drinks and grow your coffee business. You will always have to look at ways to market, create new products and services and grow as a business owner if you want to keep up with the competition.
Branding and company ethos are critical to helping attract a loyal customer base and you cannot run a generic business these days and stay afloat. You will need to be willing to make adjustments to your branding and the message that you are delivering to your consumers sometimes as well. The business reality of any niche market can change on a dime and you need to be able to keep up if you want your coffee shop to survive in the long run.
4. Coffee Shops That Lack a Concept Don’t Make It
One of the biggest reasons that coffee giants or restaurant chains are so popular is that they are connected with a cohesive concept that makes connections with consumers. You can open a coffee shop that just offers good coffee and nothing else and you might make a reasonable living this way. However, if you want to grow your business to be something special and to take on a larger share of the market space, you need a concept that draws attention and creates brand loyalty.
Many successful brands are connected with lifestyle and ethics for consumers. You might want to attach your brand to sustainability, to charity, to a certain kind of lifestyle, or any other hook that you can bond your products to in order to create interest and demand for your products.
Companies like Starbucks started out with concepts that they felt would connect with those who lived in the Pacific Northwest. As their business grew, they shifted the focus of their messaging and concept to be more inclusive for other areas of the country. This branding shift has obviously been very successful and should serve as one of many examples of tying your brand to a concept and a standard that speaks to consumers.
The concept that drives your business helps you to make decisions about where to allocate marketing dollars and guides future decisions that will make your shop more successful. Concepts do not have to be grandiose; they only have to speak to consumers. Once you have found the right hook to get people interested, you can take this first major branding decision and run with it!
5. Not Considering Overhead
One of the biggest stumbling blocks of many small business entities is a lack of consideration for the cost of space rentals. It can cost many thousands a month to keep the lights on at your business and if your shop location requires a high rent each month, this can be the straw that breaks the camel’s back in the end.
While you have to be careful about picking the cheapest location that you can find due to a lack of traffic and attention to your business, you will also have to be cautious about jumping on the most ideal location that you could ever want. You might have to pay high rent in a really ideal business location and you could run out of spare cash to make up the difference between what you have made and what rent costs each month.
You should look at the spare cash that you can put toward your overhead and space rent and make sure that you do not exceed your emergency cash budget. Always assume that you will make half of the sales that you want to make and be certain that you can afford to keep your location even on half of what you should be making each month.
The food industry can suffer a lot of ups and downs due to weather and other factors that are hard to predict and assuming that you will make the most money possible each day that you open your doors is not realistic. This is one of the major stumbles that many small businesses make when they open their doors and it is often not something that they can recover from after a few months of not making any money or losing money.
6. Spending Too Much on Equipment
While you need to be sure that your machines won’t break down and make you have to close your doors during prime business hours, you should be careful that you do not break the bank by buying really quality and expensive machines right off the bat. You will need to be aware that used machines can be a much better choice for a new business and try to look for reliable machines that will get you started.
Some of the other issues that can be related to equipment purchases are things like buying the wrong machines and having to send them back at a loss or trying to get more than one machine of each kind when you really are not busy enough to justify this added cost.
If you are going to have just one person working at your stand, in the beginning, you will only need one set of materials and machines for your needs. Being practical now and buying machines later can help your new business to make it through its first year of being open.
Also, be sure that you consider carefully if it is worth taking out a loan or putting a coffee machine on a credit card just to get it. You will always be better off to buy with cash and tolerate the finicky nature of an older machine if need be to avoid stacking debt onto your new business’ shoulders. If you do need to borrow money, consider asking for a loan from a friend instead of getting a business loan or using a high-interest business credit card.
Shopping around for the right machines and tools can help you to save money on quality used items that might last for many more years than you ever thought they would. You cannot go wrong by saving money in the early days of any business and this is a great place to help your overhead and total costs to open your business stay under control.
7. Not Estimating Cash Flow Right Can Destroy Your Coffee Business
This is one of the key factors that can bring down many small businesses. If you are not sure that you know how much it will cost to pay your employees or how much you will need to pay for products each week, you will eventually trip up along the way. Estimating your cash flow is critical to the survival of your business and you need to balance this projected cash flow against the daily operating costs of your coffee shop to stay out of danger financially.
Many people surprisingly have no idea how much their business costs to run each day and you should avoid being one of these people. You will need to be sure that you are realistic about what your shop will make in a day as well. Aiming at the low side is a good rule of thumb to be sure that you do not end up in financial difficulties caused by a lack of cash flow to offset the costs of supplies and overhead.
You should re-work these numbers each quarter to make sure that you are not basing your projections and predictions on invalid data as well. You should not use your first quarter’s data to judge the performance and needs of your business two years later for example.
Using the right numbers to predict your cash flow and your overall costs is important to be sure that you are not throwing money away on products and services that are not generating income for you.
8. Hiring the Wrong Employees
Everyone knows that good customer service leads to happy customers. You should be sure that you are going to be able to provide this kind of customer service experience to everyone who comes to visit your store. Consistency of customer service is how you will build a good reputation in your community and having even one surly or poorly performing person on your staff can ruin your reputation.
Coffee shops also require that you hire very reliable people. These locations have to be opened early each day which can lead to problems with staffing if you have hired people who don’t like to show up early in the morning and get right to work. While personality matters for your business and customer service needs, you should also be sure that your employees will be good about opening and closing on time each day.
Customer service is about being open on time just as much as it is about offering service with a smile. Make sure that you are hiring people who know what they are doing or be sure that you have time to train them. Poorly trained employees will be problematic for your business even if they are pleasant and nice to talk to.
You need to be sure that you take the time to hire people who are going to fit all of your needs and not just one or two of them. You should always be picky when you are hiring to avoid disappointment after you have gotten someone trained and left them alone in the stand or store for the first time. Picking the right employees can make your business fail even if you have the right funding and business plan on your side.
9. A Lack of Management
If you want to open a business, get it going and then walk away and hope that it will run itself, you will find that a coffee shop is not the right choice for your needs. You will need to be involved in your coffee shop as a manager even if you have an onsite manager that handles the day-to-day needs of the business.
Overall management is necessary for your business to succeed and you will need to be willing to provide services for conflict resolution, advice about how to market and adjust to changes in your customer base, and more. You should also consider retaining control of your payroll because this will help prevent fraud and other issues that are common when a third party is brought in to handle the money portion of your business needs.
Being involved in your business will prevent it from going off course through a lack of attention to detail as well. Even if you can trust your manager to handle the day-to-day needs of your company, they did not start the business and they are not you. You alone know what you want your business to stand for and your passion will often be the difference between a successful company and one that just limps along.
10. Taking on Too Much Debt
This is often the last straw for businesses that are already struggling. You might have thought that you could afford to finance new machines or that you could take on a business loan for improvements to your shop space, but if you run into a bad spell where you are not making money, debt can be the last thing that you are able to handle.
Remember that loans and other kinds of debt like credit card payments charge interest that can stack up. You need to think about the interest that is attached to these loan payments before you take out a loan. If your shop is just breaking even, you need to be sure that you think it’s really worth it to take the chance that you will not be able to pay back a large loan. Companies need to be truly profitable to pay off business loans with ease.
This is why it is well worth it to have a good budget and a solid business plan in place before you open your doors. This kind of prediction will be built into any good business plan. Being able to take action when your debts start to get out of hand can make the difference between saving your business and not being able to stop the financial bleed until it is too late.
Used machines and tools as well as affordable space rent can make all the difference between your company surviving the first few years that it is open and having to close its doors. You can always move to a better location or get new machines once you have become solvent, but trying to put the car before the horse can lead to disaster.
Planning Ahead Can Make the Difference Between Coffee Shop Success and Failure
If you have always wanted to open a coffee shop but are afraid that you might not be able to make the business work out, you simply need to take the time to research and plan out your potential business first.
You will be able to see right off if your business plan isn’t going to work once you see the facts and figures on paper. Being sure that you can make the business work on paper before you even start buying products, machines and looking for a space to rent can prevent a costly financial mistake.
Many people who are not able to make their small business a success simply failed to plan out the business correctly when they were first interested in opening it. A clear business plan and proper business funding can eliminate many of the issues that often lead to business failure and you should be sure that you take the time to invest the effort into these important business planning before you ever open your doors.
Coffee shops can be enjoyable to manage and can make really good money if they are planned correctly. Take the time to plan your business in advance and you will be able to open up a coffee shop that will be a big success!
