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How to Open a Financially Successful Coffee, Espresso & Tea Shop
By Lora Arduser Douglas R. Brown Elizabeth Godsmark
Atlantic Publishing Group, Inc.Copyright © 2004 Atlantic Publishing Group, Inc.
All right reserved.
Chapter OneSuccessful Pre-Opening Activities
This chapter lists and describes the essential pre-opening activities and procedures which must be completed by any prospective Coffee, Espresso & Tea Shop owner. There are bucks to be made in quality beans and loose tea leaves, but only if you get it right from the start.
Before engaging in any business activity, seek the guidance of a lawyer who can guide you through the many legal issues that are specific to your requirements. You can save yourself a lot of hassle if you seek legal counseling during the early stages of the opening period. The services of a local accountant or CPA should also be retained. The accountant will be instrumental in helping you set up the business, and can provide you with a great deal of financial advice to inform your decision-making.
Fundamental to the set-up of any successful venture is a carefully structured, formal business plan; your future success depends upon it. Your formal business plan will be your road map for success.
Business Plan Outline
Elements of a Business Plan
I. Cover sheet
II. Statement of purpose
III. Table of contents
A. The Business 1. Description of business 2. Marketing 3. Competition 4.Operating procedures 5. Personnel 6. Business insurance 7. Financial data B. Financial Data 1. Loan applications 2. Capital equipment and supply list 3. Balance sheet 4. Break-even analysis 5. Pro-forma income projections (profit and loss statements) a. Three-year summary b. Detail by month, first year c. Detail by quarters, second and third years d. Assumptions upon which projections were based 6. Pro-forma cash flow a. Follow guidelines for number 5 C. Supporting Documents 1. Tax returns of principals for last three years 2. Personal financial statement (all banks have these forms) 3. Copy of proposed lease or purchase agreement for building space 4. Copy of licenses and other legal documents 5. Copy of resumes of all principals 6. Copies of letters of intent from suppliers, etc.
What to Include in Your Business Plan
It is vital that your business plan shows clearly where you want to go with your Coffee, Espresso & Tea Shop business; the plan must include immediate and short- and long-term goals. You must also indicate that you are prepared to cope with the challenges and setbacks that will inevitably occur at various stages along the route to success. Questions need to be asked, and answers provided to cover all likely eventualities.
The body of the business plan can be divided into four distinct sections: 1) the description of the business, 2) the marketing plan, 3) the management plan, and 4) the financial management plan. Addenda to the business plan should include the executive summary, supporting documents and financial projections.
Business Plan: Section 1 Description of Your Coffee, Espresso & Tea Shop
In this section of the business plan, provide a detailed description of your shop. Ask yourself, "What business am I in?" and "What makes my coffee and tea shop special?" In answering these questions, include your products, market and services, as well as a thorough description of what makes your Coffee, Espresso & Tea Shop unique. As you develop your business plan, be prepared to modify or revise your initial questions.
The business description section is divided into three primary sections: Section 1 actually describes your business; Section 2, the product or service you will be offering; and Section 3, the location of your business and why this location is desirable (if you have a franchise, some franchisers assist in site selection). When describing your Coffee, Espresso & Tea Shop, you should explain:
Legalities. Business form: proprietorship, partnership or corporation. What licenses or permits you will need. Business type. What your product or service is. Perhaps sample beverages and food menus could be included. Type of business. Is it a new independent business, a takeover, an expansion, a franchise? Why your business will be profitable. What are the growth opportunities? Will franchising impact growth opportunities? When your business will be open. What days? hours? What you have learned about your kind of business from outside sources (trade suppliers, bankers, other franchise owners, franchiser, publications)?
Place a cover before the description. Include the name, address and telephone number of your shop and the names of all principals.
In the explanation of your business, describe the unique aspects of your shop and how or why they will appeal to consumers. Emphasize any special features that you feel will particularly appeal to customers and explain how and why these features are appealing. The description of your business should clearly identify goals and objectives. It should also clarify why you are, or why you want to be, in business.
Products and Services
Try to describe the benefits of your products and services from your customers' perspective. Successful Coffee, Espresso & Tea Shop owners will have carefully researched what their prospective customers want or expect from them. This type of anticipation can be helpful in building customer satisfaction and loyalty. And, it is certainly a good strategy for beating the competition or retaining a competitive edge. You will need to describe:
What you are selling-include your beverage and food menus here. How your product or service will benefit the customer. Which specific products/services are in demand and whether these products or services can maintain a steady cash flow. What is different about the product or service your shop is offering.
The location of your Coffee, Espresso & Tea Shop can play a decisive role in its success or failure. Your chosen location should be customer-centered; the location should be accessible and provide a sense of security. Consider these questions when addressing this section of your business plan:
What are your location needs? What kind of space will you need? Why is the building or area desirable? Is it easily accessible? Is public transportation available? Is street lighting adequate? Are market shifts or demographic shifts occurring?
Finally, make a checklist of questions you identify when developing your business plan. Categorize your questions and, as you answer each question, remove it from your list.
Business Plan: Section 2 The Marketing Plan
Marketing plays a vital role in successful business ventures. How well you market your Coffee, Espresso & Tea Shop, along with a few other considerations, will ultimately determine your degree of success or failure. The key element of a successful marketing plan is to know your customers-their likes, dislikes and expectations. By identifying these factors, you can develop a marketing strategy that will allow you to arouse and fulfill their needs.
Identify your customers by their age, gender, income/educational level and residence. At first, target only those customers who are more likely to visit your shop. As your customer base expands, you may need to consider modifying the marketing plan to include other customers.
Develop a marketing plan for your business by answering these questions (potential franchise owners will have to use the marketing strategy the franchiser has developed). Your marketing plan should answer the questions outlined below:
Who are your customers? Define your target market(s). Are your markets growing? steady? declining? Is your market share growing? steady? declining? If a franchise, how is your market segmented? Are your markets large enough to expand? What pricing strategy have you devised? How will you attract, hold and increase your market share? If a franchise, will the franchiser provide assistance in this area? Based on the franchiser's strategy, how will you promote your sales?
Competition in the specialty coffee and tea segment of the beverage service industry is fierce. Because of the volatility and competitiveness in this area of the beverage market, it is vital that you know and understand your competitors. Questions like these can help you stay ahead of the competition:
Who are your five nearest direct competitors? Who are your five nearest indirect competitors; for example, gourmet coffee and tea retail stores? Are their businesses steady? increasing? decreasing? What have you learned from their operations? from their advertising? What are their strengths and weaknesses? How do their menus or service differ from yours?
Create a file on each of your competitors containing examples of their advertising and promotional materials, and their pricing strategy techniques. Review these files periodically, determining when and how often they advertise, sponsor promotions and offer sales. Study, for example, whether their copy is short, descriptive or catchy, and whether they reduce prices for certain promotions.
Pricing and Sales
Your pricing strategy is another marketing technique you can use to improve your overall competitiveness. Get a feel for the pricing strategy your competitors are using. That way you can determine if your prices are in line with your competitors and if they are in line with specialty coffee and tea service industry averages. Pricing considerations should include:
Beverage and food menu cost and pricing Competitive position Pricing below competition Pricing above competition Price lining Multiple pricing Service components Material costs Labor costs Overhead costs
The key to success is to have a well-planned strategy, to establish your policies and monitor prices and operating costs constantly in order to ensure profits. Even in a franchise where the franchiser provides operational procedures and materials, it is a good policy to keep abreast of the changes in the marketplace, because these changes can affect your competitiveness and profit margins.
Advertising and Public Relations
How you advertise and promote your Coffee, Espresso & Tea Shop may make or break your business. Many owners of retail beverage outlets operate under the mistaken concept that the business, its products and service will promote itself, and end up channeling money that should be used for advertising and promotions to other areas of the enterprise. Advertising and promotions, however, are the lifeline of a business and should be treated as such. We have, therefore, devoted a whole chapter to marketing and promoting your Coffee, Espresso & Tea Shop (see Chapter 16: Internal Marketing: How to Keep Customers Coming Back to Your Establishment).
Develop a plan that uses advertising and networking as a means to promote your specialty beverage business. Create short, descriptive copy (text material) that clearly identifies your beverages, services and prices and your shop's location. Use catchy phrases to arouse the interest of your readers, listeners or viewers. In the case of a franchise, the franchiser will provide advertising and promotional materials as part of the franchise package; you may need approval to use any materials that you and your staff develop. Whether or not this is the case, as a courtesy, allow the franchiser the opportunity to review, comment on and, if required, approve these materials before using them. Make sure the advertisements you create are consistent with the image the franchiser is trying to project. Remember, the more care and attention you devote to your marketing program, the more successful your Coffee, Espresso & Tea Shop will be.
Business Plan: Section 3 The Management Plan
Managing a business requires dedication, persistence, the ability to make decisions and the ability to manage both employees and finances. Your overall management plan, along with your marketing and financial management plans, sets the foundation for the success of your business.
Your employees are your most important resources and will play an important role in the total operation of your business. Consequently, it's imperative that you know what skills you do and do not possess since you will have to hire personnel to supply the skills that you lack. Additionally, it is important that you know how to manage and treat your employees. Make them part of the team. Keep them informed of any changes and ask for their feedback. Employees oftentimes have excellent ideas that can lead to new market areas or improvements of existing products or services that can improve your overall competitiveness.
Your management plan should answer questions such as:
How does your background/business experience help you in this business? What are your weaknesses, and how can you compensate for them? Who will be on the management team? What are their strengths/weaknesses? What are their duties? Are these duties clearly defined? If a franchise, what type of assistance can you expect from the franchiser? Will this assistance be ongoing? What are your current personnel needs? What are your plans for hiring and training personnel? What salaries, benefits, vacations and holidays will you offer? If a franchise, are these issues covered in the management package the franchiser will provide?
If your business is a franchise, the operating procedures, manuals and materials devised by the franchiser should be included in this section of the business plan. The franchiser should assist you with managing your franchise. Take advantage of their expertise and develop a management plan that will ensure the success of your franchise and satisfy the needs and expectations of employees, as well as those of the franchiser.
Business Plan: Section 4 The Financial Management Plan
Each year thousands of potentially successful businesses fail because of poor financial management. As a Coffee, Espresso & Tea Shop owner, you will need to identify and implement policies that will lead to and ensure that you will meet your financial obligations.
To manage your finances effectively, plan a sound, realistic budget by determining the actual amount of money needed to open your shop (start-up costs) and the amount needed to keep it open (operating costs). The first step to building a sound financial plan is to devise a start-up budget. Your start-up budget will usually include such one-time-only costs such as major equipment, utility deposits, down payments, etc.
Personnel (costs prior to opening) Occupancy Equipment Supplies Salaries/Wages Income Payroll expenses Legal/Professional Fees Licenses/Permits Insurance Advertising/Promotions Accounting Utilities
An operating budget is prepared when you are actually ready to open for business. The operating budget will reflect your priorities in terms of how you spend your money, the expenses you will incur and how you will meet those expenses (from income). Your operating budget should also include money to cover the first 3 to 6 months of operation. It should allow for the following expenses:
Personnel Rent Loan payments Legal/Accounting Supplies Salaries/Wages Dues/Subscriptions/Fees Repairs/Maintenance Insurance Depreciation Advertising/Promotions Miscellaneous expenses Payroll expenses Utilities Taxes
Excerpted from How to Open a Financially Successful Coffee, Espresso & Tea Shop by Lora Arduser Douglas R. Brown Elizabeth Godsmark Copyright © 2004 by Atlantic Publishing Group, Inc. . Excerpted by permission.
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