There are many ways to open a coffee shop. An alternative way to set up a coffee shop is to join a franchise.
The dictionary states that a franchise is a permit or authorization given to an individual or organization to promote a business’s products or services in a particular region.
Many industries, like restaurants and coffee shops, take on this kind of business model. You might be familiar with eateries such as Dunkin’ Donuts, The Coffee Bean and Tea Leaf, Scooter’s Coffee, Dunn Brothers Coffee, and Gloria Jean’s Coffees. These are all successful coffee shop franchises.
The most famous coffee chain is Starbucks.
Starbucks is not a franchise. The company holds the rights to all of its 15,149 locations within America and 30,626 shops worldwide (at the moment).
It is evident that the need for coffee has significantly escalated over the past ten years and is anticipated to carry on increasing. In 2019, the value of the coffee shop industry in the United States was estimated to be 47.5 billion U.S. dollars. The figures demonstrate an increase of 3.3 percent when compared to the prior year.
There has been an abundance of coffee shop franchises due to the increased demand for coffee. It is possible for people with significant financial resources to get into the coffee shop business even if they lack retail coffee experience. Many people have the ambition of opening a coffee shop. Many find it hard to accept full responsibility for launching a coffee shop from the ground up. In this situation, starting a coffee franchise is the best way to get into the market.
Coffee shops have become the go-to-spot for hanging out with friends, a popular choice for dating, and the prime location for conducting business meetings. People everywhere demand the opportunity for coffee shops. Folks are fond of reliability and uniformity, which can be seen in the franchise sector.
Pros of a Franchise Coffee Business
Market awareness
The recognition of a reliable coffee shop chain tends to lure customers who have already heard of the company. Familiarity is appealing. As a business owner, there is generally no need to invest money right away in order to publicize your business. You could be asked to consent to setting aside a certain proportion of your sales for promotional activities.
Large franchises tend to pour a lot of money into their branding and promotional efforts (sometimes even more than they do into the quality of their products). Having a strong brand image will assist you in staying competitive with other coffee businesses.
Moreover, customers feel “safer” with big names. Developing confidence in your business is a huge accomplishment, particularly for small family-run coffee shops. It will require a period of effort to advertize and create an impression of your business until people come to associate you as the “coffee shop with great coffee.”
If a person is deciding between your coffee shop and a larger chain-type one, they might feel compelled to select the chain because of the security it provides; familiar brands are perceived to be trustworthy, and predictability is assured. People value consistency, even if it means mediocre.
Corporate marketing
Initial difficulty in gathering patrons is a common experience for people who are opening a coffee shop. Spending on marketing can drain a lot of crucial funds in the early stages, making it very difficult for small companies to keep up. Therefore, numerous coffee shop proprietors decide against initiating extensive advertising activities on television, radio, or the web. Most coffee shops lack the resources to engage in any form of marketing.
If you join a coffee franchise, you may receive a marketing strategy from your franchisor. When a business commences an advertising effort, you become involved in it, whether you want to or not. This may mean you are paying for it on a repetitive basis, such as a monthly or quarterly amount.
In general, the franchise is responsible for all promotional expenses and designs. It makes available to entrepreneurs printed articles (such as advertisements, brochures, cards, and so on), maintains the list of coffee items on the board, and replenishes supplies with items having the business’s name/logo.
If you are a franchisee, you will be obligated to put money into marketing. Depending on the amount of help you get, your franchise staff will provide you with guidance about how to remain consistent and successful with your promotional activities.
Training programs
Franchises are well known for offering the same type of coffee drinks and providing consistent customer service. Only through uniform barista and team member instruction can this be accomplished. Frequently, franchisors have their own programs for locating and teaching baristas, so you won’t have to do the search or education yourself.
No matter who you locate as your baristas, they need to go through exactly the same training program as all other coffee shop employees in the franchise. This can guarantee that the products remain the same throughout the supply chain.
Business support
If you lack expertise running a coffee business, you may be able to obtain beneficial counsel from your franchisor.
You won’t get a signature on your lease, but you can get advice on figuring out the perfect spot for your business.
They will normally demand that you acquire coffee apparatus from them and give you a basic worker manual. Some franchises might be looking to offer a space for rent in many different places.
Nevertheless, you should keep in mind that a franchisor require you to pay for all its services, including any other support they might offer.
Lower equipment and supply costs
Franchises can sometimes receive lower prices from vendors due to their existing connections, which they will then pass on to their customers. They will take a bit of the proceeds to reward themselves for the work they put in.
This may be good or bad for you. For instance, even if you come across a cheaper stock provider, you may not be able to purchase from them since franchises look to guarantee consistency in the espresso machines, grinders, coffee roasts, milk, and syrups they utilize.
Exit strategy
A franchise contract usually gives you a plan for ending your involvement that you should carefully evaluate. The agreement will probably have a section related to what your possibilities are for reselling. A clause like this could detail when a franchise of your coffee shop can be sold, how it should be done, and to whom the franchise can be sold.
Less risk
As a franchisee, you invest in a fully operational coffee shop business; complete with a built-in customer base, loyalty schemes, and the benefit of experienced knowledge. Having a well-thought-out plan for a coffee shop minimizes the danger of failure, reduced economic gain, or insolvency.
These advantages enable you to get special prices on the goods, gain access to an existing pool of clients, reduce costs on advertising campaigns, and so forth.
Should You Form an LLC for a Coffee Shop?
No doubt, owning a coffee shop can be a very worthwhile investment. It is highly attractive to companies in the food or beverage industry to be able to make a profit of $2.50 from something costing only 50 cents to produce. Consumption of coffee remains steady regardless of the economic situation.
If you intend to launch this kind of enterprise, be aware of how you organize it as there is a potential threat of damage to your possessions when running it. There are several choices. You have the option to establish the business either as a single proprietorship where you are the sole proprietor; collaborate with other people and form a partnership; or generate a limited liability company (LLC).
If you haven’t heard of an LLC, it is a kind of business organization in the United States that shields you from liability and is more accommodating and less of a hassle to manage than a corporation.
Advantages of an LLC for Coffee Shops
Little personal risk and adaptability are only two of the numerous benefits of organizing your coffee shop as a Limited Liability Company. Here are a few of the benefits you get from setting up an LLC.
Personal liability protection.
An LLC provides strong protection against individual responsibility. When you have an LLC, you are only responsible for the property and resources owned by the business. Someone who has won a lawsuit against you cannot pursue your possessions such as your home, automobile, or bank account.
How could this happen? Unfortunately, all too easily. Suppose that someone falls on a patch of ice near your business and decides to take legal action against you for their medical bills. McDonald’s has been taken to court for providing coffee that was overly hot. Maybe you extend to a coffee van that crashes into another car. Can someone become ill from consuming your food? Here are actual cases that can potentially lead to legal action against a coffee shop.
Protecting personal privacy.
As a LLC entity, your coffee shop will have more confidentiality than if you chose a sole proprietorship or partnership structure. No details of your personal information, such as your address and communication details, will be made public if you have an LLC.
In certain jurisdictions, no need to list the owners’ names on the Articles of Organization, only a manager of the business has to be specified. This can keep unsatisfied employees or purchasers from locating you at your abode or excessively eager vendors from getting in touch with you at your domicile during your non-working hours.
Tax benefits
The significant fiscal edges obtained from forming an LLC are another big pro of this sort of structure. An LLC offers more lavish tax freedom in comparison to a single proprietorship, association, or other widespread forms of company organization.
In an LLC, the profits can be given to the owners without the company being responsible for paying federal taxes on the profits. This is analogous to the way a sole proprietorship and collaboration operate. The proprietor then pays tax on the money that they have acquired, with the aim of avoiding being taxed twice.
The Internal Revenue Service gives proprietors of a Limited Liability Company the choice of deciding how their taxes should be paid according to particular regulations. It would be a good idea to consult your tax accountant prior to submitting your Articles of Organization. Bear in mind that income sourced from a limited liability company (LLC) is not subjected to federal withholding. Therefore, if you opt for a pass-through mechanism of taxation, you must pay your estimated taxes on a quarterly basis or you face repercussions.
Fewer corporate formalities
If you were to structure your business as a Limited Liability Company (LLC) rather than a corporation, you would have significantly fewer formalities and obligations to fulfill. You don’t need to assemble for gatherings, document what occurred in these meetings, or present yearly summaries to the government as you would with a company.
Ability to grow with your business by changing the structure.
If you choose to register your coffee shop as a limited liability company, you are preparing it in advance for whatever lies ahead. You don’t need to make any changes to how your business is organized if you form it as a partnership or corporation from the beginning, rather than starting out as a sole proprietorship and having to reorganize it later. An LLC can have one owner or multiple principals.
Giving your business credibility to creditors and customers
Organizing your coffee shop as a limited liability corporation can provide your business with an added layer of trustworthiness. When applying to a bank for a loan or the Small Business Administration for a grant, you are demonstrating to them that you have taken the effort to build a business that will last for the long haul; this implies that your business is not a short-term venture, and that it has been thoughtfully established.
Clients can also see your business data through various webpages which make open details available. People who see your assets secured under this structure will more likely to view you in a more professional manner, and they will grasp that the risk of litigation is decreased.
How Much Does an LLC Cost for a Coffee Shop
The fee for an LLC varies from state to state, with a range of between $40 and $500, depending on the state the coffee shop is placed in. The cost of living in Kentucky is the lowest, whereas Massachusetts has the highest price tag. Most states charge around $100 for a filing fee.
Licenses, Permits, and Protection You’ll Need Beyond LLC to Operate
Besides forming your LLC, you’ll need to acquire a business license, acquire a building permit, acquire a state tax license, and be granted a retail food and beverage establishment license. You will have to obtain an Employer Identification Number from the Internal Revenue Service for your business. It is possible that other licensing standards may have to be met by you depending on the state, county, or local town you live in.