7th April, 2021
Figuring out how to start a café business is tricky. It’s a business with as many hard luck stories as culinary pioneers – but there are things you can do to improve your odds.
Opening a café is something people dream about when they’re stuck in their cubicle at work, but often the reality of running a café doesn’t match the reality of it.
The bug is something which bit serial café owner turned industry consultant Ken Burgin.
He told The Pulse recently that although the business is tough, it’s one of the best things you can be involved in.
“In terms of being a people person, it’s one of the best businesses to get satisfaction from,” said Burgin.
“It was a little thing beating in my heart and so I went and did it, and was successful at it – but there are things I wish I did differently.”
Opening a café doesn’t come cheap. But with coffee culture going from strength to strength in cities – and showing no signs of stopping – it’s a business venture you might decide is worth the cost.
Here are the costs you’ll need to account for in advance:
According to the Australian government, when you’re setting up any new business, have six months’ worth of running costs saved up to get you going.
While gross profit margins of cafés in Australia average at 65-70 percent (according to ATO industry benchmarks), the net profit for a café is only around 10 percent.
The additional 55-60 percent margin is all but wiped out when you pay things like rent, wages and the cost of the assets you need to operate.
So if you run $450,000 through your register each year, you’re likely to only be left with only around $45,000 to pay loans, do repairs and consider paying yourself something.
READ: Boost your café profit margin
Here’s how to best plan your new café venture.
“In this industry, people aren’t necessarily numerate,” said Burgin. “They’re people-people. They’re good at making things or talking to people, but if they would crunch the numbers at the start a few may be in a better position.
“There’s so much about hospitality on TV that’s romanticised with cooking shows, so people love the idea of it.”
Unfortunately, spreadsheets don’t make for compelling TV.
He also says doing mock pay runs and figuring out your overheads early on is something that the cafes that go out of business often forget about.
Burgin also said one of the common pitfalls new café owners fall into is not having adequate storage.
“Sometimes people can set it up too cheaply and find that there’s no room to actually store anything,” said Burgin.
The ability to store as much as possible has the potential to dramatically reduce wastage, which in turn improves running costs.
Of course, having a great accountant, bookkeeper or business adviser on your side from the start can really help you avoid common financial pitfalls.
Just doing great coffee isn’t good enough anymore. Burgin says good coffee is just the price of admission into the game.
“Doing good coffee isn’t hard if you just follow the steps,” said Burgin.
The café industry is incredibly crowded at the moment, so you need to think about what you offer that nobody else can.
READ: Standing out in a crowded marketplace
It’s a principle that’s important in any business, but even more so in a competitive industry.
Burgin says food is one area where cafes can try and separate themselves from the pack.
“You’ve got to have something better – and often the food side is where cafes can find their point of difference,” he said.
People may love to have extensive choice when it comes to a café menu, but this shouldn’t equate to an extensive list of ingredients.
“A clever chef knows how to take ten ingredients and turn them into 20 menu items,” said Burgin.
If you offer too many things though, your storeroom is going to be filling up with too many ingredients and there’s going to be a lot of wastage.
He said Thai Beef Salad has been held up in the café industry as a particularly wasteful menu item – as it involves a lot of perishable ingredients.
“It’s a symbol of something where people think ‘it’s got to be on [the menu]’, but they haven’t checked how many people were eating it,” said Burgin.
Burgin says one of the more positive developments in the industry in recent times is owners getting their heads into the books – powered by the likes of MYOB.
“Now we’ve got MYOB Online… it makes me happy to see café owners sitting out the back on their laptop with all the bank feeds coming in,” said Burgin.
“They have results coming through to their mobile phone and they have automated reporting.”
READ: Understanding cash flow statements
He said some owners were even able to take a day off because they had cameras installed in their cafes and real-time data coming through their point of sale software.
Like it or loathe it, Starbucks set the bar for diversifying its business by offering retail items such as CDs and bags of take-home coffee beans.
Since then, ‘multiple revenue streams’ has been in vogue.
After all, the margin on a cup of coffee may be good, but it may only a couple of dollars per cup sold.
Burgin says running a catering side-hustle is something to consider.
“There’s a whole other income stream that can develop from the same kitchen, same staff,” said Burgin.
“The orders are coming from people who come into the café and get their coffee, but then think ‘I’ve got a sales staff meeting tomorrow and I need to cater for 20’.
“Businesses that diversify in different ways are really well-positioned.”
The above tips form a great basis for any beginner trying to work out how to run a café for the first time, but it really is only a starting point. Once you’re in the hospitality game, just as in any other business, you’ll want to continue learning and upskilling to stay ahead.