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How to Start a Coffee Roasting Business

How to Start a Coffee Roasting Business

Most people love coffee, and you’re probably one of them.   Demand for coffee is always high but opening a coffee shop is expensive.  Starting a coffee roasting business has relatively low startup costs and could be a great way to turn your love of coffee into a profitable business.

Business Overview

A coffee roasting business roasts green coffee beans to mild, medium, or dark for different flavors.  They sell the roasted coffee beans online to individuals at places like farmer’s markets, online, local coffee shops, grocery stores, or retailers that sell specialty coffee.

Industry Summary

According to Statista, the market size of the roasted coffee industry by revenue is $66,623.7 million in 2021 and is expected to grow 5.88% per year through 2025.  Revenue generated per person averages $200.12 per year.

Industry Trends

According to IBIS World, the rising elderly population will increase the demand for coffee in the future.  The price of coffee beans is expected to increase, but that price is very volatile and changes due to climate changes and the volatility of the U.S. dollar.  Trends in what coffee drinkers are demanding in roasted coffee in terms of flavor are always changing as well, so it’s important to keep up with what’s happening in the market.

Target Market

Your target market will be people who love coffee and coffee shops and cafes. In addition to targeting individuals, you can also consider private labeling coffee to local coffee shops.

Skills, Experience, and Education Useful in Running a Coffee Roasting Business

There are several specific skills that you will need to open a coffee roasting business.

  • Experience.  Experience roasting coffee in any setting will be invaluable.
  • Creativity. You will need to make your product stand out, so you need to be creative in both your roasting and your marketing.
  • Business knowledge and experience.  You will need to have some basic knowledge of marketing, finance/accounting, and human resources.
  • People skills. You’ll need to build rapport with your customers so that you retain them as customers and keep them coming back.  You’ll also need to develop relationships with coffee shop and café owners.

Checklist for Starting a Coffee Roasting Business

If you’re thinking about starting your own coffee roasting business, there are a few things you should keep in mind. Here is a checklist of the essentials to get started.

Step 1: Write a Business Plan

After coming up with the idea, the next step in starting your coffee roasting business should be to write a business plan.  The business plan will make you focus on some important aspects of the business, such as who your customers are, how you plan to reach them, projecting sales and expenses, your value proposition to use for marketing, and more. You’ll also need to do some research to calculate exactly what your startup expenses will be and what your ongoing expenses will be.

Not only is a business plan essential to take to a bank for financing, but multiple studies have also shown that having a good business plan increases the odds of starting a successful business. Writing the plan helps you think through all the aspects of the business and then serves as a guide as you begin.

Related: How to write a business plan

Step 2: Name the Business

Finding the perfect coffee roasting business name can be challenging. Not only does the name have to reflect what you do and be appealing to customers, but it also has to be available to use. You can check your state’s website to see if the name is available and register your name.  Your name should make you stand out, reflect your brand, and tell potential customers exactly what you do.

Step 3: Form a Business Entity

A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

When deciding on which business entity is best for a coffee roasting business, it normally comes down to the sole proprietorship and Limited Liability Company.

A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay. The corporation can be a good choice because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.

That leaves the sole proprietorship and LLC.

The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.

Related: Guide to forming your LLC
 

Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.


Some popular LLC formation services include:


IncFile - $0 plus state fees & free registered agent for 1 year!

IncAuthority - $0 plus state fees & free registered agent the first year!

ZenBusiness - $49 plus state fees & free registered agent for 1 year!

Step 4: Select your Location

The location of your coffee roasting business will probably be your home, and you can also sell your beans online. To have a coffee roasting shop would be cost-prohibitive.

Related: Choosing a business location

Step 5: Apply for Business Licenses and Permits

Since you are handling a food product, a coffee roasting business will likely need the necessary permits and be subjected to regular inspections from their local health department.

Additionally, there will likely be some general local, state, and federal business registrations needed such as a sales tax permit and an Employer Identification Number.

Related: What licenses does a coffee roasting business need?

Step 6: Find Financing

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a coffee roasting business is another.  In order to get a loan, the borrower(s) will need to have good credit and be able to invest 15-25% of their money towards the total start-up costs.

Related: Finding the money to start a business

Step 7: Open a Business Bank Account

Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
 
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.

Step 8: Get your Marketing Plan in Place

People love the aroma of coffee, so be sure to emphasize the aroma, flavors, and freshness of your coffee beans.

Some common marketing techniques for a coffee roasting business include a social media presence on platforms like Facebook, Instagram, or YouTube, online advertising to get traffic to the website, as well as flyers and postcard mailers.  Developing a website can be a significant expense, but it can also give your coffee roasting business greater visibility online.

Many coffee customers are interested in businesses that focus on sustainable farming practices. If this is important to your customers, be sure to look into coffee sourced from farmers that have Fair Trade certification or are Rainforest Allied Certified.

Marketing and acquiring customers will be a continual challenge and an ongoing expense.  Your best bet for consistent (but lower profit) income is to obtain wholesale customers, like coffee shops, grocery stores, or cafe partners. This will require a bit of business networking to get these established.

Related: Low-cost ideas to market a new business

Every business is going to need a logo. Make a professional logo in no time with the free logo makers from BrandCrowd and Canva.

Step 9: Get Business Insurance

There are several types of insurance a coffee shop owner should consider when starting a coffee roasting business. A few of these include:
– General liability insurance can help protect you from third-party claims of bodily injury and property damage.
– Professional liability insurance protects you from claims of professional errors or negligence that result in a financial loss.
– Worker’s compensation insurance covers expenses like medical bills and legal fees that a business might face if an employee were ever hurt while working.

The cost to insure a coffee roasting business will vary depending on a number of factors. To get the most accurate idea of what to budget for insurance, request quotes from multiple providers. When comparing the quotes, consider not only the premiums but also how the plan exclusions, coverage limitations, and deductibles compare.

Related: Common types of insurance a business may need

Step 10: Hire Employees

You may need to hire employees to help you run your coffee roasting company if you grow a large customer base.

In addition to salary costs, your budget will also need to include other employee-related expenses. Workman’s comp insurance, unemployment insurance, and paid time off are common expenses that a small business will need to cover when hiring staff.

Related: Hiring your first employee

Step 11: Set up an Accounting System

Setting up an accounting system for your coffee roasting business is critical to the long-term success of your business.

Staying on top of taxes not only keeps the business out of trouble with the government but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

Related: Setting up the accounting for your business

The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:

- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.

Find bookkeepers in your local area or use a service like 800Accountant.

How much does it cost to start a coffee roasting business?

Here are some of the typical costs you will face when you open a coffee roasting business.

– Coffee roaster $1,000 – $25,000 (purchasing used roasting equipment may help reduce your startup budget, however, a new coffee roaster will typically come with training)
– Equipment (coffee grinder, heat sealer, etc.) $500+
– Initial supply of coffee beans 110 lb. bag $350 – $450
– Supplies (bags, labels, etc.) $500 +
– Initial liability insurance, worker’s comp, property-casualty insurance $600 – $1,000

How profitable is a coffee roasting business?

If you sell a pound of coffee for an average of $15, and you sell 50 pounds per week, you would make $39,000 in revenue per year before expenses.

If you can build relationships with coffee farmers, you may be able to get better pricing and be able to cultivate unique blends that your customers love.

Are there grants to start a coffee roasting business?

It’s extremely rare to find a grant to start a coffee roasting business. If you search for small business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.

Legitimate federal grants can be found at Grants.gov and you can check on your state’s economic development office to see if they have any grants available.

What is the NAICS code for a coffee roasting business?

The NAICS code for a coffee roasting business is 311920, which is classified as Coffee and Tea Manufacturing.

The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.

Related: What is a NAICS code and how to find yours

Resources:
Specialty Coffee Association