How to Start a Tea Business
Are you a tea lover, even going so far as to make your own blends? A tea business could be a great opportunity for you to do what you love and make a living, or just some extra money if you choose to do it part time.
Business Overview
Tea has been around for thousands of years and owes its beginnings to the tea plant, Camellia Sinensis. Millions of people steep the dried leaves of the tea plant in boiled water to enjoy this popular beverage.
There are several ways to get started in the tea business, from creating creative tea blends and selling them in a retail tea shop or tea room, selling a private label (meaning you sell someone else’s product with your branding), dropshipping a wide variety of existing products from wholesalers, ready-to-drink beverage, or manufacturing custom varieties of teas, tea bag, and/or loose leaf tea products.
Industry Summary
According to Statista, the global tea market size is over $318 billion. According to the Tea Association of the U.S.A. Inc., Americans consumed over 84 billion servings of the popular beverage in 2019. More than half of Americans drink tea daily. In the U.S. alone, the tea market grew from $1.84 billion in 1990 to about $13.12 billion in 2020.
Related Industries
Bubble Tea Shop
Coffee Shop
Soft Drink Business
Smoothie Business
Industry Trends
Specialty teas are increasing in popularity, driving the growth in the market. Other market drivers are the fact that tea is all natural and has health benefits as well. As the health consciousness of consumers increases, the size of the industry will continue to grow.
Target Market
Your target market will be tea lovers and health conscious individuals.
Skills, Experience, and Education Useful in Running a Tea Business
There are several specific skills that you will need to open a tea business.
- Experience. Experience working in a tea business is valuable, or at least experience making your own tea blends.
- Education. You can take courses and get a tea blending certificate.
- Business knowledge and experience. You will need to have at least some basic knowledge of marketing, finance/accounting, and human resources.
- People skills. You’ll need to be able to build rapport with your customers so that you retain them as customers and keep them coming back.
Checklist for Starting a Tea Business
Starting a tea business can be an incredibly rewarding experience, but it’s important to make sure you’re prepared for the challenges ahead. Use this checklist to help get your business off on the right foot.
Step 1: Write your Business Plan
After coming up with the idea, the next step in starting your tea 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, what makes your type of teas better than competitors, projecting sales and expenses, 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 will a bank require you to have a business plan if you need financing, but multiple studies have shown that having a good business plan increases the odds of starting a successful business. Writing the plan helps you to 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 tea business name can be challenging. Not only does the name have to reflect what you do and be appealing to customers, 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 tea 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: 3 steps 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.
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Step 4: Select your Location
If you are manufacturing your own tea, the facility may need to be certified and inspected by the local health department.
Additionally, most tea businesses sell their tea online or sell wholesale to craft retailers. if planning to set up a tea store as a small shop or kiosk, be sure to find an area with high foot traffic or choose to display at specialty events.
Related: Choosing a business location
Step 5: Apply for Business Licenses and Permits
If you are manufacturing tea, you will need licensing and approval from your local Health Department. State and Food and Drug Administration (FDA) regulation may also be required as well, depending on your location and teas that you sell.
In addition, there are some general business registrations needed such as a sales tax permit and an Employer Identification Number.
Related: Common business licenses, permits, and registrations by state
Step 6: Find Suppliers
You can purchase tea ingredients from wholesalers and experiment with creating the best tea flavors. If possible, select a tea manufacturer that’s located near you to make sourcing and purchasing your product easier. If that isn’t an option, be sure to choose a company whose products you’ve sampled and found to be of acceptable quality.
Often many tea blends start with a green tea, black tea, or white tea and then include dried fruits, flowers, spices, or herbs for flavor.
Step 7: Find Financing
While many tea businesses start as home-based businesses and not much funding is needed, others will invest heavily in building a national tea brand. 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.
Step 8: Open a Business Bank Account
Keeping your business and personal finances in separate business bank and credit card accounts makes it easier to track the income and expenses of the business.
Step 9: Get your Marketing Plan in Place
Initially, doing some market research is critical to know if there is a market for your tea and the types of tea blends to create. Common marketing techniques for a tea company include sampling at local events, online marketing, and on social media platforms like Instagram and Facebook. Developing a website can give your tea business greater visibility online.
Before launching, consider doing market research to get feedback from potential customers about the types of teas you plan to sell.
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 10: Get Business Insurance
A tea business needs several types of insurance to fully protect the company. A few common types of coverage 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 of insurance for a tea business will vary on several 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.
Step 11: Hire Employees
You may need employees to help you run your tea business. Make sure that you select people with appropriate experience and training.
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 business will need to cover when hiring staff.
Related: Hiring your first employee
Step 12: Set up an Accounting System
Setting up an accounting system for your tea 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.
StartingYourBusiness.comHow much does it cost to start a tea business?
Here are the typical costs you will face when you open a tea business.
– Shop lease if you choose to have a shop rather than an online store $500 – $5,000 per month
– Tea making and kitchen equipment $2,000 – $5,000
– Initial inventory $500 – $1,0000
– Initial packaging supplies $1,000 – $2,500
– Initial marketing such as Facebook ads or search engine optimization for your website $500 -$1,000
How profitable is a tea business?
Your revenue will vary based on how you sell, whether online or in a shop. If your average sale is $15 and you make 20 sales per day, you would make $109,500 in revenue per year.
In addition to selling teas, tea accessories such as mugs, pots, presses, and kettles can boost profits even more to your existing audience.
Are there grants to start a tea business?
It’s extremely rare to find a grant to start a tea business. If you search for 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 tea business?
The NAICS code for a tea business is 311920, which also includes coffee roasting.
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.
2 Responses
Hello, thank you so much for this very informative article. I have an online tea business (private label tea) which I purchase packaged and sell online. Do I need to have a seller’s permit, a business license, and a permit to collect taxes on my products? Most of the information I’m researching is very confusing.
It does get confusing and some states make it easier than others. Here are a few thoughts on your question that I think will help.
The licenses that you need will vary a bit depending on where your business is located, but for a business like you mentioned, there are a few common ones.
– Business structure – Before getting into licenses, I just want to make sure you have registered your business structure, as the licenses will be tied to the business entity – https://startingyourbusiness.com/comparison-of-business-entities/
– Seller’s permit – This allows you to sell your product and collect state sales tax. – https://startingyourbusiness.com/how-to-register-for-a-sales-tax-permit. You will initially have to register for a sales tax permit in the state where you will be operating. It’s not an issue yet, but as the business grows, every state has a requirement to register once you exceed a number of transactions or sales amount.
In addition to the seller’s permit, you will want to get a reseller’s permit/wholesale license (often a separate form)
– https://startingyourbusiness.com/how-to-get-a-resale-certificate/. This lets you buy the products to resell and not pay sales tax (since you will be collecting from the final customer later).
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– Business license – Most states don’t have a business license, however, many cities do (even for home-based businesses). You will want to check with city hall, economic development agency or Chamber of Commerce for rules in your area.