Coffee News: from Seed to Cup

3 Ways to Open a Coffee Shop Without Taking Out a Loan

,

You’ve planned out everything for your future coffee shop, and I mean everything: the coffee, the espresso machine, the décor, the prices… But there’s just one problem. On your barista’s income, you simply don’t have enough saved to start your own shop. And you don’t want to take out a loan.

Although launching a café without a loan may seem like an option only for the wealthy, there are other ways to raise money: ways that may be difficult but are, with persistence and hard work, doable. So if you want to turn your plan into reality, read on for our three alternative funding options – along with advice on how to prepare your pitch.

Spanish Version: 3 Maneras de Abrir una Tienda de Café sin Sacar un Préstamo

copper coins spilling out o a jar

Can saving your pennies get you your coffee shop? Credit: Pixabay

Essential Preparation

Before we begin looking at sources of funding, we need to examine the essential steps to preparing your brief. And the one thing you cannot do without is your business plan.

Reading about starting a coffee shop is not good enough. Planning it in your head is not good enough. Pinning things to Pinterest boards is not good enough. You need to have a well-thought-out and written-down business plan. Without it, your funding attempts will fail.

Your business plan is how you sell yourself and your future shop to the people who might decide to give you their money. And no one will want to invest in an idea that isn’t well-articulated. So spend a lot of time on your business plan before you even begin approaching investors. It needs to be so fully developed that you can get started on it the moment that cash hits your bank account.

SEE ALSO: 5 Things No One Tells You About Opening a Third Wave Coffee Shop

And then, and only then, you can start applying for funding.

man sitting at desk writing notes

A business plan isn’t a plan until it’s written down (or typed up). Credit: Pixabay

Angel Investors

The first of three funding methods we’re going to look at is an angel investor: someone who is looking to invest in a startup.

Angel investors will often put $25,000 to $100,000 into a business. They tend to base their investment more on the people behind the idea than the idea itself. Often, they are a family member or friend of the investee, and so don’t seek a large return – but that doesn’t mean they don’t want to make their money back.

Treat making your pitch to an angel investor exactly like you would a pitch to any other investor or bank. Be just as serious about it and just as prepared.

Raising capital through angel investors will take longer than you think; not everyone you talk to about your plans will want to help fund it. But don’t let that discourage you. Keep at it until your dreams are realisable.

idea and lightbulb

Funding bridges the gap between ideas and reality. Credit: Pixabay

Crowdfunding

It might be harder to get a stranger to invest $50,000 in your idea – but $50? That’s a lot more achievable. And if 1,000 invest $50, that’s the same as one angel investor.

Sites like GoFundMe, Kickstarter, and IndieGoGo have become hugely popular in recent years. They help entrepreneurs fund all sorts of dream projects – including coffee shops.

However, this isn’t an easy option: because coffee shops are so localized, they can also be a hard sell. Often crowdfunding works better in major metropolitan areas.

When crowdfunding a coffee shop, try giving incentives for various levels of donations. This will encourage people to donate and to donate more than they were previously considering.

But think carefully about what you will offer your benefactors in return for their generous donations. Make sure that your incentives are easy to fulfill and can be covered by the amount of the donation. Incentives that take too long to materialize will leave your donors feeling like you forgot about them. Plus, if you reach your goal, you’ll have plenty to do moving forward. Don’t make it any harder on yourself than it needs to be.

Also, your funding target will need to be slightly higher when crowdfunding. There will be processing fees; most sites take 5% off the top plus 3%. Read the fine print, know what you’re getting into, and adjust your fundraising goals accordingly.

a crowd of people

Crowdfunding lets future customers support you from the beginning. Credit: Pixabay

Self-Funding

This is the one no one wants to hear, but it is perhaps the most effective way to fund your coffee shop. It’s also a good way to encourage investors to take you seriously – why should they invest in your business if you won’t? – and to force yourself to make financially sensible decisions.

You see, when you’re financially invested in your business venture, you’re also more emotionally and intellectually invested. Since your economic well-being depends on the success of your business, you’ll make smarter decisions. You’ll have to. You won’t play around with risky or cost-ineffective ideas; instead, you’ll find a way to make your dreams come true without breaking the bank.

So if you really believe in your coffee house, invest your own money – even if you don’t have enough to get it off the ground solely by yourself.

It won’t necessarily be as difficult as it sounds, either. Simone and Roberto of Chairs and Coffee, London know what it means to invest in themselves and their your ideas. With a small amount of savings and a no-debt policy, they found a location, did the buildout themselves, and found mostly used equipment. They reinvested the profits early on and slowly started to upgrade equipment. They’ve grown Chairs and Coffee into one of the best coffee shops in the city – and they did it without any outside financial investment.

constructing a bar out of wood

Get your hands dirty and do some construction yourself. Credit: Chairs and Coffee

Finding the right funding isn’t always easy. And even once you have it, there will still be difficulties. With a limited budget, you need to be willing to bootstrap your way through the lean years. It may be tempting to buy that $30,000 3-group espresso machine, but often used machines go for much less. Or you could, like in my own shop, start with a manual brew bar instead of purchasing expensive automatic filter coffee makers. Either way, purchase the equipment you need and save for the equipment you want.

Finding funding may sound difficult, but be persistent. Create a strong business plan, practice your pitch, and approach investors with a proactive attitude. Save as much money as you can. Do all this, and you’ll eventually get the funds you need to open your very own coffee house.

Written by E. Squires of Three Crowns Coffee and edited by T. Newton.

Perfect Daily Grind

Print Friendly, PDF & Email