Opening a Tea Room/Cafe

davidjwest

Hello, I'd appreciate any advice regards setting up a tea shop/cafe.

I found out recently that I am at risk of redundacy, if it does happen then I will get around £35k and I am considering my options.

I don't really want to work for anyone else again and have always thought about starting my own business but have never really had the opportunity, I don't like the idea of borrowing from the bank to start a business for example.

Is £35k going to be enough to open a tea shop with - I've done some rough costings below, are these anywhere near realistic?

I would expect to generate turnover of around £2k a week, opening 7 days, possibly slightly optimistic, I realise this is very hard to predict.

Outgoings, guesstimates:

Weekly Rent: £250
Other Staff Wages: 80 hours x £6 - £480 (could reduce the hours possibly)
Ingredients: £400 (20% of sales)
Bills, Electric/Gas/Rates etc: £200
Breakages, consumables etc: £100
Advertising/Printing etc: £100

Total - £1,530

Net Profit - £470 (my wages to come out of this)

I think I've missed a few items off the list of outgoings, please let me know! I've tried to be on the pessimistic side with most of the costs as I think I could probably trim some of those back by a bit.

What would the start-up costs be - shop fittings and decorations, furniture, stock etc any ideas of a ball-park figure for these? The premises are the biggest cost but I don't have much idea about how expensive fitting out a tea shop would be.

I have retail experience and am prepared to work extremely hard to make it work, I would need to draw a wage of around £400 gross per week for myself to meet my commitments, anything above this would go back into the business.

I have a number of ideas to make myself stand out from my competitors, the target location doesn't have many tea shops, plenty of Costa/Starbucks though.

Obviously I would do a proper business plan nearer the time but this might give me an idea if it's a goer or if I should just forget about it.

Thanks for any advice!

InsideInsurance

Never done catering so dont know the margins but 20% on ingredients feels low when you also consider wastage.

Also need to add in insurance (at a legal minium employers liability but sensibly also public liability and building/ content) at a guestimate should be under £1k a year assuming no building insurance required

Have you factored in Employers National Insurance?

Accountancy/ book keeping services?

davidjwest

Thanks, not really looked into NI at the moment, just wanting some initial ideas.

I know how to do book-keeping myself so I would probably get away with a few hundred quid annually for an accountant to go over the books.

There are a few tea shops for sale online that turn over £200k annually and allege profits of over £100k so I think my figures are not too far out.

Location will be key, got a few months to recce the areas!

Thanks again.

Miss_Scrooge_2

How do you know this is what people want and going to buy? It's all fine and dandy saying you're going to set up a business selling tea, but as you said, there are plenty of big name cafes in your area already. Do you think you can compete with them? Truth is, you probably couldn't UNLESS you were to deliver something very unique and special. I live in an area where people like to set up small local businesses, most of the time being cafes, takeaways, etc and they fail and close within a year because they lack any marketing and business acumen.

davidjwest

I've done some research by asking family and friends their opinions but would of course be doing more market reasearch. I'd offer a lot of unique features and products that my competitors don't.

As I say, I'm at the early stages and the main question is if £35k is enough to setup such a business in the first place.

If it's not then it's a non-starter, I don't have £250k for a Costa franchise even if I were that way inclined.

Thanks.

Pennywise

For a start, what have you done about VAT. On £2,000 per week, you'd need to be registered for VAT, which will lose you £333, meaning your income is only £1,667 per week. OK, you'd be able to reclaim input VAT on some expenses, but not on ingredients nor wages, just repairs, leasing, power, stationery, telephone, etc.

Re margins I think your ingredients costs should be more like a third of sales, rather than a fifth, so that makes £556.

Wages are probably OK at £480.

£200 for premises costs seems low. You'll have business rates, water rates, power, cleaning, insurance, repairs & maintenance, telephone line, maybe an alarm, etc. I have a small cafe client who spend about £400 per week on these things. Power is probably the killer as you've not only got fridges, freezers, cookers, etc., but also you have to light the place. Don't forget food hygiene training, overalls, etc. Don't forget bank charges (potentially high for cash handling and credit cards).

I get the net profit figure to be more like £200-£250 per week.

As for equipment, you could easily be looking at £20-£30k for fitting it out - perhaps a lot more. Your kitchen needs hygienic floor and work coverings, you need industrial strength ovens, fridges, etc as domestic ones just won't cut it. Then you need decent quality tables & chairs, signage, tills, credit card machine. You need upgraded plumbing and electrics to cope with the extra power and water demands.

Have you checked out whether £2k per week is achievable given the number of covers and menu. How many punters can you have in at busy times? How many punters per table? How long will they stay hogging the table? How much will they spend? Then estimate the occupancy percentages at each time of day. It sounds too basic, but you'd be surprised how many people don't do it and find to their cost that they could never have achieved their sales targets! I find it works best to work upwards when doing sales targets rather than guessing a total and working downwards. If you create a simple business model, you can do so sensitivity analysis to see what happens if you, say, amend the average spend, average time to eat, average number of customers at each time of day, etc. It's these numbers that will be the make or break of your business so you really need to know them at the planning stage and then can be far more responsive once you're up and running as you can compare reality against your plans and make adjustments quickly.

davidjwest

Thanks, very good information, I'll have a look in more detail once I identify a possible premises as that's going to be key to a lot of the things you mentioned.

Appreciate your help!

calamity-j

I haven't got a clue about the 35k, I like the idea and I hope it works out for you, my only suggestion would be to not guestimate but go and do some actual costings so that you know where you stand.

Good luck

PS mabe you should also put your pinnie on get some actual experience to find out if it really is for you.

davidjwest

http://www.howtostartacoffeeshop.co.uk/index.html

£20-£30k apparantly, I'm in business

Although I may me better off buying an existing business, would need to find extra funding for that probably.

Savvy_Sue

Have you done a quick search of this board for 'coffee shop'? It's not long since we had a similar thread, and while we're not universally optimistic about these things there's some cracking advice on offer!

I'll take a look for threads later if you can't find them.

s_b

Pennywise wrote: »

For a start, what have you done about VAT. On £2,000 per week, you'd need to be registered for VAT, which will lose you £333, meaning your income is only £1,667 per week. OK, you'd be able to reclaim input VAT on some expenses, but not on ingredients nor wages, just repairs, leasing, power, stationery, telephone, etc.

Re margins I think your ingredients costs should be more like a third of sales, rather than a fifth, so that makes £556.

Wages are probably OK at £480.

£200 for premises costs seems low. You'll have business rates, water rates, power, cleaning, insurance, repairs & maintenance, telephone line, maybe an alarm, etc. I have a small cafe client who spend about £400 per week on these things. Power is probably the killer as you've not only got fridges, freezers, cookers, etc., but also you have to light the place. Don't forget food hygiene training, overalls, etc. Don't forget bank charges (potentially high for cash handling and credit cards).

I get the net profit figure to be more like £200-£250 per week.

As for equipment, you could easily be looking at £20-£30k for fitting it out - perhaps a lot more. Your kitchen needs hygienic floor and work coverings, you need industrial strength ovens, fridges, etc as domestic ones just won't cut it. Then you need decent quality tables & chairs, signage, tills, credit card machine. You need upgraded plumbing and electrics to cope with the extra power and water demands.

Have you checked out whether £2k per week is achievable given the number of covers and menu. How many punters can you have in at busy times? How many punters per table? How long will they stay hogging the table? How much will they spend? Then estimate the occupancy percentages at each time of day. It sounds too basic, but you'd be surprised how many people don't do it and find to their cost that they could never have achieved their sales targets! I find it works best to work upwards when doing sales targets rather than guessing a total and working downwards. If you create a simple business model, you can do so sensitivity analysis to see what happens if you, say, amend the average spend, average time to eat, average number of customers at each time of day, etc. It's these numbers that will be the make or break of your business so you really need to know them at the planning stage and then can be far more responsive once you're up and running as you can compare reality against your plans and make adjustments quickly.

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