Are you a coffee lover who has always dreamed of starting your own coffee roasting business? If so, this guide is for you!
Starting a coffee roasting business is more than just a passion for the perfect cup of joe. It requires an understanding of the coffee industry, business skills, and technical expertise. But don’t worry; we’re here to help guide you through the process.
A coffee roasting business involves sourcing green coffee beans, roasting them to various degrees based on customer preferences, and selling the roasted beans to coffee shops, retail stores, or directly to consumers. Coffee roasting businesses come in all shapes and sizes, from small, locally-owned micro-roasteries to national chains. This business can also operate from a physical location, online, or both.
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One advantage of the coffee industry is that it’s somewhat recession-proof. Coffee is an affordable luxury, and people are always looking for their caffeine fix, regardless of economic conditions.
The coffee roasting industry is expected to generate $9.1 billion in 2023 and is expected to grow as consumers are increasingly seeking freshly roasted, artisan coffee products. The industry is highly competitive, with many established players in the market.
Keeping an eye on industry trends can set your business apart from the rest. A few to be aware of include:
- Sustainability: More and more, people care about where their coffee comes from. Sourcing beans that are grown in an environmentally friendly and socially responsible manner can appeal to a growing market segment.
- Specialty roasts: People are looking for unique flavor experiences. Offering artisan roasts and blends can help to attract discerning customers.
- Direct trade: This involves sourcing your coffee beans directly from the farmers. Not only can this ensure a fair price for the farmers, but it also allows you to have a more direct relationship with the people who grow your coffee.
- Online sales: Selling your coffee online can help reach a wider audience and offer a convenient way to increase sales.
Steps To Start A Coffee Roasting Business
Step 1: Write a Business Plan
Contrary to what many first-time business owners believe, crafting a business plan is neither a waste of time nor is it only a requirement for funding. It is, in fact, natural to feel excited about starting your business and getting to work buying equipment, sourcing coffee beans, and so on. Working on the business plan first will help you make better informed decisions and avoid costly mistakes. A few reasons include:
For starters, a business plan will have you research and understand who your customers are. Are they college students who need a caffeine boost, working professionals looking for high-quality artisanal coffee, or perhaps health-conscious individuals interested in organic blends? Understanding these details helps you tailor your products and marketing strategies directly to the people most likely to buy from you.
Another reason is working through the process of your business operation. How and where will you sell your coffee? You might consider an online store, selling directly to consumers, supplying local cafes and stores, or a combination of both. This section outlines how you’ll reach your customers, how you’ll handle production and logistics, and how you’ll scale up operations as your business grows.
Last, starting a business costs money, and you need to know how much. A business plan helps you work out what these costs are. It’s not just about the big stuff like roasters and beans, as you’ll also have the little costs that add up, like bags, labels, and even your website to consider. Plus, you’ll use the plan to calculate the feasibility of the business to make sure you will make a profit.
Though you may be excited to start roasting, taking the time to plan out your business can save you a lot of headaches down the line. Putting in some patience now can go a long way in ensuring the success of your coffee business in the future.
Related: How to write a business plan
Step 2: Secure Funding
Starting a business involves a lot of planning and preparation, and the next step is to secure funding. It can be challenging to find the money to start a business, especially if you are new to the world of entrepreneurship, but we will break down the different funding sources available for coffee roasting businesses.
The first source of funding to assess is your personal investment. Before reaching out to outside funding sources, look at how much personal savings you have available to finance the business. If you have a significant amount saved up, you may be able to fund the business entirely on your own, but if not, you’ll need to explore additional funding sources.
A common outside funding source is applying for a bank loan. Banks typically require a borrower to invest at least 15% of their personal funds towards the total cost of the project, have a good credit score, and have sufficient collateral. If the bank feels the loan is too risky, they can use a Small Business Administration (SBA) loan guarantee. This is a government-backed loan that helps small businesses secure funding.
Borrowing from friends and family is another funding source. Put everything in writing to avoid misunderstandings and maintain your relationships by clearly outlining the terms of the loan or investment, including repayment schedules and any interest.
For smaller funding requirements or when traditional lending options are unavailable, microloans can be an alternative source. Microloans are smaller loans, typically ranging from $500 to $50,000. Funds can be used for a variety of business needs, such as purchasing equipment, supplies, or inventory, and are usually provided by community organizations.
Step 3: Register the Business
Starting a coffee roasting business involves several key legal steps to ensure it’s registered correctly and compliant with various regulations. Every state has different requirements, but here are some suggestions of things to research:
Choose a business structure: There are four main types you can pick from:
- Sole proprietorship: This is the easiest, most affordable business structure to set up, but the owner is personally liable for any debts and obligations of the business.
- General partnership: Similar to a sole proprietorship, but for businesses owned by more than one person. It’s easy to establish but involves shared liability among partners.
- Corporation: This is more complex and expensive but offers liability protection.
- Limited Liability Company (LLC): Combines the simplicity of a sole proprietorship or partnership with the liability protection of a corporation. It’s a popular choice for small businesses due to its flexibility.
Related: Comparison of business structures
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:
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Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.
During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.
Obtain business licenses and permits: Depending on the location of your business, you may need to obtain general state and local permits or licenses. This could include a local business license, seller’s permit, and Employer Identification Number (EIN).
Health and safety regulations: Coffee roasting involves specific health and safety concerns and is usually regulated by the local fire and/or health department. Research local food safety standards and ensure your facility has proper ventilation to handle the smoke and odors from roasting. Fire safety is also crucial due to the high temperatures used in roasting.
Step 4: Acquire a Facility & Set Up Operations
With the funding and registration taken care of, the next step is to acquire a facility and start setting up operations. This means finding a good spot for your business, buying the equipment you need, and making connections with quality coffee bean suppliers.
The first task in setting up your coffee roasting business is finding the right location. The size and scope of the facility can vary depending on your business model. A small-scale operation might only require a basic setup with a coffee roaster and storage space, while a larger operation may include a café area, packaging section, and a larger roasting area. For those planning to incorporate a café or tasting room, factors like foot traffic and visibility become more important. The location should also have enough space to house your roasting equipment, storage, and potentially a customer-facing area.
Next, you’ll need to invest in the right equipment. Roasting coffee is an art, but it’s also a science, and you’ll need tools that allow you to control every aspect of the process. This means purchasing high-quality roasters and grinders, as well as packaging machines to keep your beans fresh and aromatic. You’ll also need software to help you manage your inventory, track sales, and handle other administrative tasks.
Finally, you’ll need to source your coffee beans. This is one of the most important parts of your business, as the quality of your beans will directly impact the taste of your coffee. You’ll want to establish relationships with reliable suppliers who can provide you with high-quality green coffee beans. In addition, you’ll need to understand the logistics of sourcing, shipping, and storing your beans to ensure they arrive fresh and stay that way until they’re roasted.
Step 5: Create a Marketing & Sales Strategy
Starting a coffee roasting business can be exciting, but marketing your new venture is the real challenge. The coffee industry is highly competitive, making it difficult for new businesses to stand out from the crowd. That’s why a strategic marketing plan is needed, so you can create a unique identity for your coffee brand and let new customers know you are open for business.
First, you need to create a unique brand identity. To start, focus on developing a unique logo, website, packaging, and social media profiles. Your brand should capture the essence of your coffee roasting business and what makes it unique. This process will make you stand out and get noticed more easily.
Next, think about where you want to sell your coffee. Will you open your own retail cafe, sell wholesale to local cafes, or focus on direct-to-consumer e-commerce? Each approach requires a different marketing strategy. For example, if you decide to open your own cafe, you can focus on location-based marketing to attract nearby customers. If you opt for wholesale, reach out to other businesses in the industry and offer samples to build relationships with potential buyers.
Step 6: Prepare to Launch
With core operational steps addressed, there will be finishing touches that remain in order for you to be ready for opening day. These final business formalities instill back-end integrity to support scaling the budding coffee roastery.
Business insurance: Different types of insurance may be needed, such as general liability insurance, property insurance, and product liability insurance. to safeguard against potential risks like property damage and liability claims.
Setting up bookkeeping: Set up an accounting system to handle daily transactions, taxes, and financial statements. Options include hiring a bookkeeper or using software solutions like Wave Accounting (FREE) or Quickbooks. Regular financial tracking helps in making informed business decisions and is essential for tax purposes.
Hiring: Depending on the size of your operation, you may need to hire staff for roasting, packaging, sales, and possibly managing a retail space. Every state has specific requirements, so be sure to review these before hiring.
Opening a business bank account: Establish a business bank account to manage your finances separately from personal accounts. This aids in tracking business expenses, revenues, and simplifies tax reporting.
Common Questions When Starting A Coffee Roasting Business
How much does it cost to start a coffee roasting business?
The total cost to launch such a coffee roasting business can vary widely depending on factors like location, scale, and equipment quality. Typically, the initial investment can range from $30,000 to over $100,000. Here’s a breakdown of the estimated costs involved:
Roasting equipment: The most significant expense in starting a coffee roasting business is usually the roasting equipment. Commercial coffee roasters can range from $5,000 for a small roaster to $50,000 or more for larger, more advanced models.
Additional equipment: Other items like grinders, scales, and packaging equipment can add another $1,000 to $5,000 to your startup costs.
Location: The cost for a location, including initial deposits for rent or purchase, can also be considerable. Rent for a small to medium-sized space can range from $1,500 to $5,000 per month, depending on the location, with initial deposits often equalling one to two months of rent. For purchasing, the price can vary significantly based on size and location.
Renovations and setup: Setting up your space for roasting, storage, and potential retail operations might require renovations. This can cost anywhere from $5,000 to $20,000, including the cost of electrical upgrades, ventilation systems, signage, and decor.
Business registration: Registering your business, including permits and licenses, can cost between $50 and $500. This varies based on local regulations and the type of business structure you choose.
Insurance: Initial insurance costs, including general liability and property insurance, can range from $1,000 to $3,000.
Marketing: Initial marketing expenses, including website development, branding (like logo design), and initial promotional activities, can range from $1,000 to $5,000.
Inventory: Initial inventory of coffee beans and packaging materials can cost between $1,000 and $5,000, depending on the volume and quality of coffee you plan to start with.
Point of sale system: A basic POS system and industry-specific software for managing roasting profiles and inventory can cost between $500 and $2,000.
How profitable is a coffee roasting business?
Estimating the potential profitability of a coffee roasting business requires analyzing both revenue and expenses and can vary significantly based on factors such as the scale of the operation, location, and cost of raw materials. To look at the potential, let’s look at some hypothetical numbers for a small-to-medium-sized coffee roasting operation.
Revenue: The revenue will largely depend on the volume of coffee sold and the price point. For instance, if a business sells an average of 1,000 pounds of coffee per month at $15 per pound (a typical price for specialty coffee), the monthly revenue would be around $15,000. This translates to $180,000 annually.
Expenses: Key expenses include the cost of green coffee beans, packaging, labor, rent, utilities, insurance, and marketing.
Assuming the cost of green beans and packaging is about $5 per pound, the cost for these goods for 1,000 pounds monthly would be $5,000, or $60,000 annually. Labor costs can vary, but let’s estimate $2,000 per month ($24,000 annually) for part-time assistance. Monthly rent and utilities might cost around $1,500 ($18,000 annually). Annual insurance and marketing could be approximately $1,000 and $3,000, respectively. Additional miscellaneous expenses could add up to $2,000 annually. This brings the total annual expenses to roughly $108,000.
Profit: Subtracting the expenses from the revenue, $180,000 – $108,000, the business would generate a profit of $72,000 in this scenario.
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.