Running a coffee shop would take proper quality equipment, quality food and a beautiful piece of art that would attract customers. Coffee shops can do well when there is vast sale size and disappoint when the investment is much, but the sale size is smaller. Typically, a coffee shop requires proper management and a sizeable startup.
Startup Costs
The location type determines startup costs and whether or not the coffee shop is financed or independent (Igou & Coe, 2016). This is a case of an independent shop in a centralized location in the middle of the town. Because of the centralized area of the shop, the price of the shop is 75,000 dollars, and the price of coffee is 25000 dollars. The cost of equipment is approximately 50,000 dollars. The sum of the amount required for a start of the coffee shop is 150,000 dollars.
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Variable Costs
The variable costs in a coffee shop come from the product and the container that hold the product. The cost may vary based on the type of coffee and the size of the container that contains it. If milk costs 4 dollars per gallon/ or 3.23 cents per ounce, and a drink costs 10 ounces, the milk will be 22.2 cents. However, if the drink has a double shot of espresso and 6.50 dollars pound has 32 double shots, the cost of the coffee is 22.4 cents. 1.25 ounces which come in a 4.50 25.4 ounce bottles costs 22.1 cents. This makes a total food cost of 66.6 cents. The cups, sleeves, lids, as well as any additional cost that would add up to 20 cents, would make the price of a drink to 86.6 cents.
Fixed Costs
Variable costs of food cannot run a coffee shop especially is the sales are small size. The rent should not exceed 15% of the total sales. The staff cost, benefits, payroll accounting services as well as payroll taxes should not exceed 35 percent of the sales (Higdon, 2016). Additional costs include licenses, professional fees, advertising, and equipment maintenance.
Product Mix
Building an optimal product mix is one of the ways of maximizing profits for the coffee shop. Adding more food items to the menu increases the average sale by squeezing more profit out of every customer (Greenberg & Spiller, 2016). Emphasizing the sales of espresso drink over the other drip coffee is another strategy to maximize profits since it has higher profits per cup.
Opportunity Cost
This is a vital concept for small businesses to appreciate especially for those with limited money and time. It is what people have to forgo when one makes one choice over another. The cost, in this case, is defined regarding money. It may also be considered in non-financial terms like time, people, physical output or any other resources. For a small coffee shop, I will have a choice of doing the accounting requirements for myself or to outsource. Since there is only finite time available in a week, the time I spend on accounting when I am doing it myself will take me away from supervision and monitoring of the shop and take note of what should be improved. If I outsource this task at 45 dollars per week or five hours per week of my business time, I may think that I am doing myself a favor by saving money. However, if I spend the same time in doing supervision, looking for customers and generating a profit of 100 dollars the opportunity cost is 55 dollars per week. (100-45). Over the year, the opportunity cost would 3900( 55 x 52 weeks). Additionally, there would be other non-financial benefits such as comfort and peace of mind which comes with the fact that a professional is handling my accounting books.
References
Greenberg, A. E., & Spiller, S. A. (2016). Opportunity cost neglect attenuates the effect of choices on preferences. Psychological science , 27 (1), 103-113.
Higdon, B. (2016). Strategies independent coffee shop owners require to survive beyond five years (Doctoral dissertation, Walden University).
Igou, A., & Coe, M. (2016). Vistabeans coffee shop data analytics teaching case. Journal of Accounting Education , 36 , 75-86.
