Running a café business can be challenging and expensive. There's a lot of planning, development, strategy, and money involved. This is why every owner should know the costs that go into running a café business.
While you can have a list of the possible expenses, there are many hidden costs that you should also be aware of. Here's a list of the most overlooked aspects of a café business that may affect the financial position of your shop.
Having the right technology is an essential part of running an efficient café business.
For instance, a point of sale (POS) system helps you speed up customer orders and simplify payment. You can also use it to collect data to help you review your sales history. Using software for inventory, accounting, payroll, bookkeeping, and bill payments is also essential to help you track and manage finances.
These tech tools are handy; unfortunately, they don't come without a price. If you want to invest in technology, prioritise the most important ones and assess how beneficial they are to your coffee shop.
Permits and licenses
We all know that before you can operate a café, you must secure permits and licenses first. It varies by state, local laws, and industry. The requirements you'll need also depends on your business type, activities, and location. These are rarely one-time expenses, yet the costs of obtaining these permits and licenses are often overlooked.
Some licences and permits you should consider are:
- Council permits for business signage and footpath trading
- Food Handling Certificate
- Responsible Service of Alcohol (RSA)
- Certificate insurance - public liability, professional indemnity, building, contents, income, WorkSafe, etc.
- Licence to play music in restaurants and cafés
Before getting all the permits you need, research how much they’ll cost you and make sure it's included in your budget. Know how often they need to be renewed and how much it will cost. To learn more about permits and licences, visit the Australian Business Licence and Information Service (ABLIS).
Marketing your café is a crucial part of growing your business. However, some café owners tend to go over their budget when advertising their products or their brand.
Your marketing strategies may vary, but always be cautious of how you're using your marketing budget. A general rule is to spend only about 3%- 6% of your sales for your marketing campaigns. Spending too much on massive campaigns that are not proven to increase revenue will negatively impact your bottom line.
The good news is we're now living in the digital age. Social media marketing is here to help you reach potential customers easily at a relatively low cost if done right. Aside from social media, email marketing is also a great way to nurture your relationship with your current customers. You can keep them updated by sending out monthly newsletters about your new products or special discounts.
The equipment you need in your café may differ depending on your business needs. But one thing is for sure - these machines are different from what you're using at home. Commercial coffee brewing and filtration equipment are a lot more expensive and can be energy-greedy, too.
If you want to produce high-quality coffee and save money simultaneously, invest in excellent equipment that's also energy-efficient. Energy-efficient café equipment is designed to use less energy without compromising the quality of their output.
You'll also need to consider repairs, replacements, and maintenance. Maintenance and upgrade costs to keep your café equipment in good condition should be included in your ongoing expenses.
Did you know that food waste costs the Australian economy $20 billion each year? Some café and restaurant owners fail to understand that waste is one of the most overlooked costs in their business.
Some mistakes owners tend to make are buying items while they still have stock, perishable ingredients getting stale, and not having an idea of the number of ingredients for dish preparations. All of these may lead to increased food waste.
To avoid food wastage, consider proper recipe management and costing for all the products you offer. By having a food waste prevention strategy, you can save more money, improve sustainability, and reduce your café's carbon footprint.
When starting up a coffee shop, you'll need to have an insurance policy. However, as time goes by and as your business grows, the need for insurance policies also increases.
Some types of compulsory insurance for Australian businesses are workers' compensation insurance, public liability insurance, property insurance, and third-party personal injury insurance.
Find the right insurance provider with the best rates and don't be afraid to negotiate with them. It's also essential to review your coverage annually to see if it still meets your business needs. If something needs to be changed, talk to your provider or other insurers to get the best coverage.
Ingredients and other food supplies
Ingredients and other cafe supplies are some of the highest costs of running a coffee shop. This is where calculating food cost percentage comes in handy. When calculating food cost percentage, you need to consider the costs of your inventory and the revenue they generate when food items are sold. It will allow you to stay on track with your budget and reduce food wastage.
Once you know how much food your café uses, you can work with your suppliers to lower your food costs. Some business owners who’ve been in the industry for years also tend to stick to their usual suppliers. Even if you prefer one food supplier over another, it's worth checking other offerings and food vendors so you can get the best value for a reasonable price. Don't limit yourself by sticking to what you're used to and don't be afraid to shop around.
Finally, explore and partner with other businesses who can help you provide high-quality products and services to your consumers. Always remember that while you may be looking for ways to be cost-efficient, the quality of your coffee beans, milk, condiments, and even cutlery is still your top priority.
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