Archive for the ‘Starting A Coffee Shop Funding Sources’ Category
Before staring a coffee shop business, you need to determine what the coffee shop funding sources are. This is part of the business plan so that you will not run out of cash before you see the fruits of your hard labor. Remember that over ninety percent of all start ups fail because of lack of planning and they run out of coffee shop funding sources. We will cover the planning part in the Business Plan session. We will start with the most common type and end with the most unconventional and not well-known.
Coffee shop funding sources
a) Own savings
Most of the entrepreneurs start their business with the hard earned cash from their savings. Remember that you most probably have to deplete your coffee shop funding sources (savings) almost substantially in order for your coffee shop to take off the ground. In some cases, the owner has to first sell their house or get a second mortgage to get coffee shop funding sources. You may want to discuss this decision with your family members first as selling a house is a very emotional thing as you have shared a lot of good memories there.
b) Family members and friends
The second coffee shop funding sources are from family members and friends. Most of them love you dearly and would like to see you succeed. This type of capital is called love capital because they finance your business out of love. The important point to remember is to hire a lawyer to set everything out in writings as this may lead to disputes and breakups.
You may structure their coffee shop funding sources as equity capital or long term loans. There are practical considerations if you rope them in as equity owners. A lot of relationships are broken after a business failure. It is also possible to have a dual class shareholder structure like Warren Buffet’s Bershire Hathaway. There is Class ‘A’ shareholder with full voting rights and Class ‘B’ with no voting rights.
You may also structure the coffee shop funding sources as an interest free long term loan with no fixed term of repayment. Consult a lawyer on the structure you wish to adopt and make sure your family and friends understand what they are getting themselves into.
c) Bank borrowings
You may have a difficult time getting a loan as your coffee shop funding sources for the first year of operation. Bankers like to see that you have some kind of track records before trusting you with their money. Normally, you only approach bankers for expansion plan after you have churn out some profits and it is not in the initial stage. This is where your business plan would come in handy as it shows that you have a well thought out plan.
You may want to get some unsecured loans when you are in employments. This includes using credit cards. Beware that this option is not advisable unless you have done a very realistic cash flow repayments. The interest rate from these coffee shop funding sources are very high, so you only use it as a bridging finance until you have received money from your customers. The upside is when you have spent enough with them; the banks will reward you with redemption points and gifts.
d) Supplier financing
One little known and used coffee shop funding sources are from suppliers. If you have been in the industry before venturing out on your own, you may know some suppliers. Depending on your negotiation skills, you may get some good credit terms or discounts as coffee shop funding sources. Do not limit yourself on coffee supplies only. Anything can be financed like coffee equipments, renovation costs and kitchen utensils. You need every support you can get until your business churns out profits.
e) Investors
Look out for local investors as coffee shop funding sources as they are willing to fork out some money to earn high returns. You need to expand your network or find people with vast networks. This includes people like your pastor, accountants, lawyers, real estate agents and financial planners. The other way is to become very active in your local clubs and charters. Get to know the local leaders and chances are, they know someone with deep pockets who are interested to finance coffee shop startups. Investors can also bring into tables their years of experience and networks besides coffee shop funding sources. You must be prepared to make a good presentation using your business plan so that they do not feel you have wasted their time with half baked ideas.
f) Government grants
You may want to attend some exhibitions on small and medium size enterprise for coffee shop funding sources as most of the time; some government agencies will be there to assist you. These agencies are set up to provide mostly guarantees on the small and medium size businesses in case of default. The loan amount is still disbursed by the banks but at a lower rate. These agencies are set up to encourage entrepreneurship but their requirements of getting loan are also rather high. You need to complete a lot of paperwork and a few interviews.
Which coffee shop funding sources to tap into?
Which coffee shop funding sources you wish to tap on depends on your risks and objectives. You need to network with people who has been there and done that to assess the real situations. Above all, revise your business plan when the stage of your business is no longer reflected in it.
Resources for coffee shop funding sources
Find out how you can start your own coffee shop using less than $25,000 or less and none from your own pocket. Check out this book on starting a coffee shop. It also covers coffee shop funding sources.
