Starting my own roastery...

Talk about your favorite cafes, local barista events, or plan your own get-together.
youss1988

#1: Post by youss1988 »

So my goal is by the end of the year, start my own small roastery.
Now trying to figure everything out, planning stuff and working on a website.

You guys maybe have advice for a new starter? Also like where to look for the green beans

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Almico
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#2: Post by Almico »

Step1 - Write a business plan...

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Peppersass
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#3: Post by Peppersass »

What's in a business plan:

- Executive summary - If you can't briefly describe the opportunity and how you will capture it, you have a problem.)

- Market - Products to be offered (types of coffee, coffee equipment, coffee accessories, coffee bling), one or more cafes?, territory (local, regional, national, etc.), customer profile, number of prospective customers, addressable subset of same, communications strategy (advertising, search engines, social media, word-of-mouth, etc.)

- Competition - List of who in your territory is doing what you plan to do. What are their markets, products and business model? Are they succeeding? If yes, how will you beat them? If no, how will you avoid a similar fate?

- Product - What goes into making/obtaining your product(s)? What will make your products better than other similar products? What are the physical space requirements? Sources of raw material and equipment? What expertise is required? Other labor and training requirements? Steps and time needed to get to production?

- Business Model - New customers over time, % that repeat, CAC (customer acquisition cost) vs LTV (long term value of avg customer), order size/frequency, avg quantity, product mix, pricing per unit volume, costs per unit volume, overhead, capital expenditures, etc.

- Financial Projections - All the business model assumptions sorted into a 3-5 year projected P&L and cash flow statement. Should yield time to profitability and capital required to get there.

This is off the top of my head, not a business textbook, so it could be missing some things. Some items may apply to your business more than others. Addressing the ones that do will be crucial for success. The plan should be updated at least annually or when material (critical) changes occur or new information is obtained.

One thing I tell entrepreneurs to do before they write a business plan: Remember that it's really all about you and your goals. It's easy to get lost in the plan details and forget about that. Before you write the plan, decide what you want your business and your life to look like 5-10 years from now. Are you making money and having fun? (I had a business mentor who told me it all boils down to those two things.) Which is most important to you -- i.e., what's the balance between money and fun for you? Your business needs to deliver these in the proportion that's right for you. Will this be your life-long endeavor, or will you cash out when it succeeds and move on to other things? (Or if you're really lucky, spend the rest of your life on the beach sipping pina coladas.) In almost all cases, you need an exit strategy, even if it's "do this until you die." Once you understand what it is you really want and what the endgame looks like, you can work backwards from there all the way to the beginning to define the steps required to get where you want go in the long run.

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Almico
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#4: Post by Almico »

Most excellent, Dick. I'm opening a new coffee bar soon, which has the same business model as my current one, but I'm also considering moving my roaster to a 1300sqft warehouse space and upping my game by going either supermarket retail and/or wholesale. That endeavor needs a new business plan.

There are lots of questions that need answering when starting a business. It's better to have good answers instead of bad answers. You want clear futures instead of mutual mystification. Phrases like, "and we'll go from there" or " we'll cross that bridge when we come to it" have no place in starting a business. A thorough business plan is the proper tool to suss out the best answers to all the questions.

MntnMan62

#5: Post by MntnMan62 »

I have to ask a question of the OP. There are lots of people who roast their own beans for their own use. They have experimented and understand how to roast, the process involved and how to end up with a quality batch of roasted beans of all different types from a light roast to dark roasts and espresso roasts. And in the process of roasting your own beans you try lots of different sources of green beans. So, I guess the question to the OP is have you ever roasted your own beans and if so, where did you get your beans?

And the recommendations to have a good business plan are essential if you need to arrange financing. Actually, a business plan would be pretty darn helpful even if you aren't seeking financing.

false1001
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#6: Post by false1001 »

Almico wrote:Most excellent, Dick. I'm opening a new coffee bar soon, which has the same business model as my current one, but I'm also considering moving my roaster to a 1300sqft warehouse space and upping my game by going either supermarket retail and/or wholesale. That endeavor needs a new business plan.

There are lots of questions that need answering when starting a business. It's better to have good answers instead of bad answers. You want clear futures instead of mutual mystification. Phrases like, "and we'll go from there" or " we'll cross that bridge when we come to it" have no place in starting a business. A thorough business plan is the proper tool to suss out the best answers to all the questions.
I'd also add that your business plan shouldn't include assume you have customers from day one, and shouldn't assume customer growth without an actual plan to acquire them. When doing profitability models don't forget that it's common to see food based businesses with profit margins as low as 3%, and design your business so growth adds to profits not costs. These constraints will help you toughen your business plan so you're not caught flat footed at the first bump in the road.

Coffee will be the easiest part of your business. Managing your time, cash flow, inventory, employees, and customers is what will make or break you.

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Peppersass
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#7: Post by Peppersass »

The business plan flaws I see most often from MBA candidates at one of the best business schools in the USA are:

- Inaccurate or no market size/demand/pricing analysis. This is probably the hardest part of creating a business plan. For example, let's say you're opening a coffee bar in a particular section of town. You need to know the population of that section and/or how many people visit from outside the section (e.g., for shopping, work, etc.), how many are coffee drinkers, how many are likely to visit a cafe and how often, how many are likely to order the coffee products you expect to serve, what their tolerance is for drink pricing, etc. Some data is available online (research studies, federal and state department of commerce websites, etc.) A good bit can be gleaned from observing traffic, products and pricing at existing cafes. You can also try asking cafe owners in geographic areas that don't compete with yours. This type of networking is one of the reasons chamber of commerce, industry groups and trade shows exist.

- Poor or no plan for marketing communications. How will you make your potential customer base aware of your existence and how will you entice them to visit the cafe? Word of mouth is very effective in the long run, but it takes time to get that going. How will you get the early adopters in the door and survive in the meantime?

- Flawed or poorly thought out business model. Often new entrepreneurs will make rosy projections on things like equipment costs, shipping/installation costs for same, unit costs (most often because initial volumes are overestimated), labor costs, marketing costs, shrinkage, utilities, taxes, regulatory requirements, etc.

- Unrealistic expectations about how long it takes to 1) build the product (cafe), recruit staff, train staff, and effectively get the word out. For just about every new business, it's the case that the product takes longer than expected to develop (or in the case of a cafe, to build, recruit, train) and sales take longer than expected to close (or in the case of a cafe, for people to notice you and visit.) The result of these unreasonable expectations is that the capital (cash) will run out before sales cover costs.

- Underestimate of capital required. This is the end result of the flawed business model and unrealistic expectations described above. While it's theoretically possible, I have yet to see a new business that has too much capital.

- Unexpected high cost of capital. Banks don't like loaning money to new businesses and they charge high interest rates when they do. If you have a good credit rating they might partially finance equipment, but not operating deficits (and it's a bad idea to finance those with debt.) In any case, you'll have to co-sign any loans, which puts your personal/family assets at risk. Once you get going and prove the business is profitable you may be able to secure a line of credit, but since cafes only have inventory for collateral and no accounts receivable, the line will be pretty small. Many entrepreneurs use credit cards to finance startup costs, but you all know the costs and dangers of doing that. You may be able to get one or more investors to put in capital, either in the form of a low-interest unsecured loan (not very likely) or equity. If your business turns out to be successful, however, that equity can cost a lot more than you thought initially. Best and lowest cost of funds: your savings. Just don't leave yourself without a safety net.

- No exit plan. This one depends a lot on what your goals are, as explained in my previous post. Are you building a lifestyle business or do you want to get rich? Are you planning on just one cafe, or do you have a plan to create a chain of cafes? Will cafe sales be the big profit maker or will your side roasting business be the real gem? If you're primary goal is money, then the plan needs to show how the cash flow will provide it or how much you will realize from selling the business. And some serious thought should be given to how long you want to run this business and plans for succession (e.g., move from manager to passive owner, pass down to the next generation, sell the business, etc.) It may seem early to be thinking about these things, but doing so will better inform your early decisions.

All this may sound very discouraging, but if you have the motivation and skill to address these issues the resulting rewards will be well worth the effort. There are few things in professional life as satisfying as building a successful business.

franklycr8tive

#8: Post by franklycr8tive »

Peppersass wrote:The business plan flaws I see most often from MBA candidates at one of the best business schools in the USA are:

- Poor or no plan for marketing communications. How will you make your potential customer base aware of your existence and how will you entice them to visit the cafe? Word of mouth is very effective in the long run, but it takes time to get that going. How will you get the early adopters in the door and survive in the meantime?

- Flawed or poorly thought out business model. Often new entrepreneurs will make rosy projections on things like equipment costs, shipping/installation costs for same, unit costs (most often because initial volumes are overestimated), labor costs, marketing costs, shrinkage, utilities, taxes, regulatory requirements, etc.

- Unrealistic expectations about how long it takes to 1) build the product (cafe), recruit staff, train staff, and effectively get the word out. For just about every new business, it's the case that the product takes longer than expected to develop (or in the case of a cafe, to build, recruit, train) and sales take longer than expected to close (or in the case of a cafe, for people to notice you and visit.) The result of these unreasonable expectations is that the capital (cash) will run out before sales cover costs.

- Underestimate of capital required. This is the end result of the flawed business model and unrealistic expectations described above. While it's theoretically possible, I have yet to see a new business that has too much capital.

- Unexpected high cost of capital. Banks don't like loaning money to new businesses and they charge high interest rates when they do. If you have a good credit rating they might partially finance equipment, but not operating deficits (and it's a bad idea to finance those with debt.) In any case, you'll have to co-sign any loans, which puts your personal/family assets at risk. Once you get going and prove the business is profitable you may be able to secure a line of credit, but since cafes only have inventory for collateral and no accounts receivable, the line will be pretty small. Many entrepreneurs use credit cards to finance startup costs, but you all know the costs and dangers of doing that. You may be able to get one or more investors to put in capital, either in the form of a low-interest unsecured loan (not very likely) or equity. If your business turns out to be successful, however, that equity can cost a lot more than you thought initially. Best and lowest cost of funds: your savings. Just don't leave yourself without a safety net.

- No exit plan. This one depends a lot on what your goals are, as explained in my previous post. Are you building a lifestyle business or do you want to get rich? Are you planning on just one cafe, or do you have a plan to create a chain of cafes? Will cafe sales be the big profit maker or will your side roasting business be the real gem? If you're primary goal is money, then the plan needs to show how the cash flow will provide it or how much you will realize from selling the business. And some serious thought should be given to how long you want to run this business and plans for succession (e.g., move from manager to passive owner, pass down to the next generation, sell the business, etc.) It may seem early to be thinking about these things, but doing so will better inform your early decisions.

All this may sound very discouraging, but if you have the motivation and skill to address these issues the resulting rewards will be well worth the effort. There are few things in professional life as satisfying as building a successful business.
This surely confirms the reason why we decided to take a step back and re-evaluate our plans before opening our door. As much as it seems like we've planned and learnt enough to start our coffee cart, we get slammed in the face with reality and realise we're not there yet.

You observed in your comment that your savings is by far your low cost option to funding your coffee shop which totally makes sense if you're in position of doing so. But coming from a uni undergrad who's knee-deep broke but yet is determined to pursue a vision for a good cause and run a profitable business, what would you advice is best funding option would be for a coffee startup?

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Peppersass
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#9: Post by Peppersass »

FFF: Friends, family and fools.

A low-interest loan from people who love you is preferable, perhaps a note with payments deferred until the business has positive cash flow and/or interest until there's enough for you to make a modest living with enough left over to start repaying the principle. Or a large balloon-payment deferred for several years. The IRS requires a minimum interest rate to avoid paying taxes on imputed interest, but it's a very low rate -- especially now.

I wouldn't sell FFFs equity in this business. Very unlikely they'd ever get a return.

Strongly advise you to offer full disclosure: You are embarking on a high-risk enterprise and depending on the size of the loan, the odds are that they will lose some or all their money unless the business does very well indeed. Even if the business does well, it might take a long time to start getting a return and a lot longer to get all their money back. Be aware that raising capital from family can lead to awkward conversations around the dinner table.

There may be other options:

-- Banks are unlikely to fund operating costs for a startup business, but once you get going they may be open to funding large equipment purchases (e.g. roasters.), where the equipment serves as collateral. Obviously the terms won't be as good as you can get from FFF.

-- There are public and semi-public community lending organizations that use federal Community Development Block Grants (CDBG) to fund low-cost unsecured loans for businesses that will create a certain number of jobs. As you repay the loan, they get to keep the federal money to create a self-sustaining revolving loan fund. Back when I chaired the board of one of these entities, the going rate required by the feds was one job per $20,000 loaned. That number is probably different now. If you are seeking a secured equipment loan with a bank, they love these unsecured loans because it lowers their risk. They're first in line to collect, ahead of the unsecured lender.

Banks always require the owners of businesses under $10 million (or more) in revenue to co-sign (guarantee) loans, even when they're secured. That means your personal assets are on the line if you default, and you may have to declare personal bankruptcy. It's been so long since I was involved with community lender that I can't remember if we required personal guarantees, too, but I think we did.

A mix of FFF, CDBG and bank debt might be just the ticket (FFF will be last in line in case of default.)

franklycr8tive

#10: Post by franklycr8tive » replying to Peppersass »

I really appreciate you taking time to answer my questions and offering your candid advice. I found them eye opening and I'm sure others will too.

However, I'm in a pretty different situation due to the fact that I'm from a different country where predominantly, we're instant coffee drinkers dominated by Nestle and as such we almost don't have any loan programs to businesses like mine. Cases where a bank would be willing to lend you money, there are specified business categories they support like tech, agro etc with substantial collateral which I don't have given the money I'm trying to raise. Also I must add again with shame that we're a low-income earning class which somehow rules the option out of ever getting loans from family.

I know with everything I've said, it seems to scream give up already. But I'm banking on a long-term gameplay and culture and consumption shift which would eventually favour my idea on the if it materialises. Who knows, just maybe the world would be a tiny bit better if it does.

On a second thought, do you think crowdfunding might work for me? I've seen coffee roastery and shops get funded using crowdfunding but there's no doubt my situation and environment is a bit different.

Thanks once again and please pardon my doggedness.