Steps to start a business?

January 3, 2007 8:41 AM

Questions about how to start a business (brick & mortar).

I have never started a business before, but I am considering starting a coffeeshop. I have some questions about the steps to take and what order to take them in.

I have a pretty detailed vision of what I think I'd like to create, including menu, target clientele & type of location. I've started to work on some pro forma financial projections, including startup expenses, funds needed, income and cash flow. I want to get a couple small business owners to look at these with me, and perhaps a loan officer at my bank.

Then I assume I need a business plan to use for loan applications, to show to investors, etc.

But at what point do I try to secure funding and a location? If I see a great location for rent in 30 days, I can't imagine securing it without funding. Do I have to wait until I have all the funding in place and THEN look for a location?

Won't investors want to know where the coffeeshop is going to be located? The location would be a critical element in this type of business, which would rely heavily on walk-by traffic for new customers. Don't I need to describe the location in the business plan (including local competition, number of people passing by, etc.)?

So which do I do first?

Also - is there anything else I should do other than a business plan before trying to get funding?

Also - what do you think about asking family and friends to invest? What happens to their investment (and your relationship) if the business is not successful?

Thanks in advance.

posted by kdern to work & money (8 comments total)

Start with your local chamber of commerce and also with the small business loan officer of a local bank. They will have many resources to help you get started and those resources are typically tailored to your locale.
posted by caddis at 9:03 AM on January 3, 2007

As someone who has started (and run) a successful business my first suggestion would be - if you haven't already - take a job working at a coffee shop. Make sure you really understand what its like to work behind the counter, manage inventory, etc. As an owner, especially early on, you end up carrying a lot of the work on your shoulders.

Once you're absolutely positive a coffee shop is something you'll enjoy (even with all of the administrative and not-so-sexy stuff) then I you'll need to write a business plan. This is useful for three reasons. First, it will force you to really think through all facets of your operation. Second, any bank or investor will want to see it to make sure you're not flying by the seat of your pants (both operationally and financially). Third, its a good working document for you to refer back to once you coffee shop is up and running. Good to have a road map, so to speak.

Also, I would suggest you look at S.C.O.R.E. (http://www.score.org/). This organization was extremely helpful when I started my business. Great guidance. Good luck!
posted by tundro at 9:16 AM on January 3, 2007

It's kind of a chicken or egg thing -- funding will depend on the location. If you find a place that's got all the infrastructure you need (bathrooms, kitchen, water, etc) you will need significantly less than you would if you find a great place that needs all those things installed.

You mentioned food -- check with your health dept for local regs. You may need seperate refrigeration for meats, for example. That will determine how much space you'll need for your kitchen and/or prep area. You might also be able to get away with spending far less on equipment if it's okay in your area to use a home refrigerator as opposed to a commercial one for food storage. Depends on the city.

If you're outsourcing your food (most coffee shops get their baked goods from a distributor or local bakery, for example) that might save you some room for production and storage.

In the meantime, go to as many auctions as possible to get your equipment. You'd be surprised at how cheap that stuff can be at an auction if you're the only one looking for a cash register/light fixture/freezer. If you have to buy your own equipment, buy used but don't go cheap on refrigeration.

As far as investors go, be careful, choose wisely and be explicit in what you want from them and what they want from you. Put all that in writing from the start. Otherwise they might think they can offer suggestions (offer wi-fi, serve this kind of tea, only serve organic muffins, etc) and/or feel entitled to swing in with their friends and offer everyone free coffee since they're 'owners.' If you're not careful you could wind up losing your vision and/or business. Personally, I'd avoid the family thing.
posted by Atom12 at 9:20 AM on January 3, 2007

I'm at the same point you are with a restaurant plan. I think you can get all the groundwork laid without having a location. People wouldn't actually need to give you money now, but once a location is found, you'll be ready to act on it because you'll have everything in place for funding.

As far as describing your location in a business plan, go ahead and list the statistics for your dream location, i.e mall, downtown or part of an office building. Ideally, you won't move ahead with the business if you can't find a location that meets those needs. You have to patient with the location. Don't think that because you're ready to go, you should jump on the first halfway decent spot that becomes available.

Go to your state's sba sight for more funding options. They may have money and tax incentives for certain types of businesses and areas. (minority or women-owned for example).

These look good for Missouri
http://www.umsl.edu/~smallbus/
http://www.sba.gov/mo/
posted by saffry at 9:36 AM on January 3, 2007

I would establish a legal entity in which your backers would invest. Set up an LLC or Inc. Know the terms of the deal offered. Put it in writing. In more than a few of the investments I have not made, it was the legal documents that stopped me, not the idea or the person with the idea. The terms of the deal are important. It would suck for you to do all the leg work, pitch the idea, then at the last minute have the awyers scuttle the deal because the legal docs could not be agreed to.
posted by JohnnyGunn at 9:43 AM on January 3, 2007

You mention loans, and then you mention investors. Which do you want? Loans are when people give you money expecting more money (interest) back later. Investors give you money and then own part of your business. Be aware what you are getting into up front. Each has pros and cons, depending on your situation.

As for incorporating, The Company Corporation can help you with that. I've been happy with them, and they want to help you stay out of trouble (from a reporting standpoint anyways). You will need to have this taken care of before a bank will allow you to open an account.

Do not waste your time with the SBA, as any money they facilitate for you will be little more than a fancy second mortgage with extra paperwork on the side. You'd be better off calling Di-Tech.

Be very very very careful that you know all the rules/laws that apply to your business at the federal, state, and local level. In your case this probably includes health regs and employment regs.

Good luck, and be aware that it might be a couple years until you see a paycheck.
posted by ilsa at 10:14 AM on January 3, 2007

Personally, I think the first thing you should do is read this article written by someone who did what you're planning to do.
posted by CrayDrygu at 10:22 AM on January 3, 2007

I have worked in three different restaurants from the concept phase to the actual opening and daily operation. All three restaurants are still operating and profitable. My best advice is that if you have this many questions about basic business practices you are not even close to having the ability to open a successful coffee shop. The S.C.O.R.E. suggestion by tundro is good advice. Check at local colleges for entrepreneur classes. My local university offers a three month class just for people who want to open a business. Restaurant are a high risk business with a failure rate that is higher than most other small businesses. Give yourself a decent chance of success by knowing as much as you can about running a restaurant before you commit a large part of your life to something that sounded like a good idea.
posted by calumet43 at 11:48 AM on January 3, 2007