How to open a coffee shop: a step-by-step guide

On this page

1. Step 1: Choose your format
2. Step 2: Find the location
3. Step 3: Work out the numbers
4. Step 4: Permits and the health department
5. Step 5: Choose equipment and test your water
6. Step 6: Set up suppliers
7. Step 7: Build the menu and cost every drink
8. Step 8: Hire and train your team
9. Step 9: Set up the register, ordering and payments
10. Step 10: Open and run the first month
11. Where Advantage fits

A coffee shop looks simple from the customer’s side: a counter, a machine and a menu board. Behind it is a business that lives on many small sales, each made quickly and the same way every time. The cost of a drink is counted in cents, so small leaks add up.

This guide puts the work in order for an independent owner opening one coffee shop. Many steps are the same as for any food business, and our guide on how to open a restaurant covers them in more detail. Here we focus on what is different about coffee.

Permits, health rules, taxes and labor laws differ by state, county and city. Treat each rule named here as a reminder to ask, not as the law where you are, and have an accountant and an attorney review your plans.

Step 1: Choose your format

Decide how customers will buy from you, because it shapes the space, the permits and the equipment:

• A café with seating. More room for guests, longer visits, more cleaning.
• Grab and go. A small space built for speed, with little or no seating.
• A drive-through. Ask the city early whether one is allowed at the site and how much room it needs for waiting cars.
• A cart, kiosk or counter inside another business. Lower rent, but ask the health department what a small setup needs for sinks and water.

Then decide on food. Pastries bought from a bakery, food baked on site and a full kitchen menu each need different equipment and permits. Decide too whether you will roast your own beans. Roasting adds equipment and may need its own permits, so ask your city and your local air quality agency before you plan for it.

Step 2: Find the location

Visit each site at the hours you expect to be busy, and at the hours you hope to fill.

• Count people walking and cars passing at those hours. Note whether drivers can turn in easily on their way to work.
• List nearby coffee shops and cafés, with their hours and their prices for a drip coffee, a latte and a pastry.
• Look up the area in the Census Bureau’s free Census Business Builder, which shows demographic, consumer spending and business data for a place you pick.
• Ask the city whether a café is allowed at the address, and about signs, outdoor seating and hours. Zoning can restrict or ban some businesses in an area.
• Ask equipment suppliers what water line, drain and electrical circuit each machine needs, then have a contractor confirm the space can provide them.

Have an attorney review the lease, and ask for rent to start after your permits are approved.

Step 3: Work out the numbers

Write a short plan following the SBA’s business plan guide. One-time costs include build-out, the espresso machine and grinders, brewers, water filtration, refrigeration, an ice machine, the counter and display case, furniture, smallwares, the register, permits, opening inventory and working capital. Monthly costs include rent, payroll, coffee, milk, food, cups and lids, utilities, insurance, card fees, equipment service and loan payments.

Break-even, with made-up numbers

Say the costs that stay the same every month (rent, insurance, salaries, loan payments) come to $15,000. Say coffee, milk, cups, food, hourly wages and card fees take 60 cents of every sales dollar. Each dollar then leaves 40 cents for the fixed costs.

$15,000 divided by 0.40 is $37,500 a month, or $1,250 a day over 30 days. If the average ticket is $7, that is about 179 tickets a day. Raise the average ticket to $8, for example by selling a pastry with more of the coffees, and you need about 157.

That is why the average ticket matters as much as the number of customers. Try your own numbers in our break-even calculator.

Money and setup

Look at your own savings, bank loans including SBA-backed loans, and equipment leasing. Then form the business, get an EIN, open a business bank account, register for sales and payroll taxes, and buy insurance. Ask your state revenue department how it taxes coffee drinks and food, and whether orders to go are taxed the same way as orders to stay.

Step 4: Permits and the health department

A coffee shop is a food business, so the health department is your most important call. Regulators use the FDA Food Code as a model for their own rules, but they adopt different editions and make changes of their own. Ask your health department:

1. Which code it uses, and whether it reviews plans before you build. The FDA’s plan review guide explains why this saves money.
2. How many handwashing sinks you need and where, and how you must wash dishes and equipment.
3. Whether you need a certified food protection manager, which the Food Code calls for, and whether baristas need food handler training.
4. What you may serve. The Food Code expects food to come from sources that comply with the law, and generally not from a home kitchen. Ask before you buy pastries from a home baker.

Then the rest of the list, which varies by place:

Permit or registration	Where to ask
Business license	City or county licensing office
Building, plumbing and electrical permits	City or county building department
Sign and outdoor seating permits	City or county
Fire inspection and occupancy limit	Local fire marshal
Drive-through approval	City or county planning department
Sales tax registration	State revenue department

Ask your city two more questions: whether it limits foam cups, plastic straws or other single-use items, and what grease trap or interceptor you need, if any.

If you will play music for customers, ask an attorney about licenses. Under federal law, copyright owners control the public performance of their work.

Step 5: Choose equipment and test your water

The espresso machine and grinders do most of the work, so choose them with care:

• Size the machine for your busiest hour, not your average one.
• Get a grinder for espresso and another for brewed coffee, so baristas are not changing settings all morning.
• Ask who repairs the machine, how fast they come, and whether a loaner is available.
• Ask the supplier to test your water and recommend a filter, and ask what your water means for taste and for scale in the machine.
• Write a cleaning schedule for the machine and grinders, daily and weekly, and keep a log.

Plan refrigeration for milk at the bar, an ice machine, a dish area, handwashing sinks where the code requires them, a display case if you sell food, and the register with a card reader and receipt printer.

Step 6: Set up suppliers

• Coffee. Ask roasters for samples, wholesale prices per pound, roast dates, delivery days and minimums. If a roaster offers equipment or training with a supply agreement, read the terms, including what happens if you switch. USDA’s Foreign Agricultural Service publishes reports on world coffee production and trade. Ask your roaster how and when it changes prices.
• Milk. Ask about delivery days, minimums and how prices change. USDA’s dairy market reports show wholesale dairy prices.
• Cups, lids and sleeves. Buy sizes that match your menu, and count them in the cost of every drink.
• Food. Buy from suppliers your health department accepts, and agree on delivery times that beat your morning rush.
• Syrups, sauces, tea and plant-based milks. Keep the list short at first.

Check every delivery against the invoice, check the dates on dairy, and follow up on every credit.

Step 7: Build the menu and cost every drink

Start small: a few espresso drinks in two or three sizes, brewed coffee, tea, a cold drink and a short list of food. Every drink needs a written recipe: the dose of coffee, the amount of milk, the cup and any syrup. A recipe that changes from barista to barista changes your cost too.

Cost per cup, with made-up numbers

Say you pay $12 for a pound of roasted coffee. A pound is about 454 grams, so the coffee costs about 2.6 cents a gram. For a 12-ounce latte:

Part	Amount	Cost
Espresso	18 grams of coffee	$0.48
Milk	10 ounces, at $4.00 a gallon	$0.31
Cup, lid and sleeve	1 each	$0.25
Cost per drink		$1.04

At $5.00, the drink cost is about 21% of the price. A pump of flavor syrup might cost you $0.08. Charge $0.75 for it and the add-on earns its keep. Give it away and the drink cost rises with every pump.

Price every modifier: extra shots, plant-based milks, syrups and cold foam. Each one costs you something. Brewed coffee has its own leak: coffee that sits too long and is poured out. Brew smaller batches in slow hours and log what you pour out.

Use our markup and margin calculator to check each drink, and our menu design guide to lay out the board.

Allergens

Milk, soy and tree nuts are among the FDA’s nine major food allergens, and they turn up in coffee drinks, plant-based milks, syrups and pastries. Train baristas to answer allergen questions from the written recipe, never from memory, and ask your health department what notice to customers it requires.

Step 8: Hire and train your team

Schedule your strongest baristas for your busiest hours, and use slow hours for prep, cleaning and training. To budget pay, check the Bureau of Labor Statistics’ wage estimates by job and area.

For every hire, complete Form I-9, collect a Form W-4, report the new hire to your state and display the workplace posters that apply to you. If you hire teenagers, federal law limits their hours and tasks. For example, 14- and 15-year-olds may not bake. Your state may add more.

Tips

Decide how tips work before you open, and write it down:

• Who shares in tips and how, for example by hours worked.
• Under federal law, employers, managers and supervisors may not keep employees’ tips, and tip pool rules depend on whether you take a tip credit. Many states have their own tipped wage rules.
• Staff must report tips of $20 or more in a month to you, card tips as well as cash, as the IRS explains.
• If your card reader asks for a tip, keep a no-tip choice. The IRS treats a prompt that requires a tip greater than zero as a service charge, not a tip.

Train every barista on the recipes, the register, cleaning, food safety and handwashing, allergens and cash handling.

Step 9: Set up the register, ordering and payments

A coffee counter needs a register that keeps up with a line: quick keys for favorites, modifiers with the right prices, a card reader that takes tips, and every order shown or printed for the barista making it.

Decide whether to take orders ahead. An online ordering page for pickup, or a self-order kiosk, can take orders while the line is long, but every order still lands on the same bar. Plan how pickup orders are timed and where they wait.

The ADA applies to the goods and services that businesses open to the public offer online, so ask any provider how its ordering page works for customers with disabilities. If you collect emails or phone numbers for offers, follow the FTC’s email marketing rules and get the consent the FCC requires before sending marketing texts.

Our restaurant technology guide covers each piece in more detail.

Step 10: Open and run the first month

Before you open, run practice shifts: make every drink on the menu, ring it up, take a card payment with a tip, refund one and close the drawer. Then hold a soft opening for a few days.

Then build the routines:

• Every shift: count the drawer, record tips, check the waste log, and clean the machine on schedule.
• Every week: check cost per drink against your invoices, count coffee, milk and cups, compare labor with sales by hour using our labor cost calculator, and look at your best and slowest sellers.
• Every month: go over the profit and loss statement with your accountant, and file sales tax on time.

Where Advantage fits

Advantage for cafés and bakeries pairs Advantage POS at the counter with the Advantage back office. Advantage POS takes orders from a menu built once with sizes, add-ons and combos, lets guests add a tip, and sends each order to the kitchen screen or printer. Online ordering gives you your own ordering page for pickup and delivery, priced from the same menu, with each paid order arriving at your register and kitchen.