Yaneek Page | Setting up a café: Managing risk is critical

QUESTION: I recently came across your advisory column in the Sunday Gleaner referring to starting a hot dog business. I have a small business idea that I would like to pursue and I have no idea how to start or where to begin. I have been thinking about opening a small café serving coffee, shakes, pastry, donuts, waffles, etc, and I would like to know if you have written articles pertaining to starting a business like this. If so, can you please send me the link to such an article or, if not, consider writing a piece on starting these types of business?

Thanks in advance for your help.

– R.

BUSINESSWISE: I have not written a step-by-step guide on starting a café that specialises in coffee, shakes, and pastry before, but I have previously written several articles on opening a restaurant or eatery, generally, which may be useful in your consideration and planning.

Practically speaking, for someone who has never operated a business before, with no experience or training in the food industry and no idea where to start, here are my suggestions:

• Buy an existing café that’s a going concern;

• Buy a franchise;

• Partner with someone who has experience in operating a restaurant, bakery, café, or eatery;

• Get experience by working in a food business then start;

• Don’t start; or

• Start from scratch as a solo entrepreneur.

These suggestions are ranked from best to worst, and you will notice that I ranked starting from scratch as a solo entrepreneur as the worst idea. In fact, in my view, it would be better not to start at this time.

Restaurants and eateries have one of the highest rates of failure in many economies, and there was a time when some local financial institutions did not lend to those businesses as a policy due to the high rate of business failure. Even today, there is great caution among lenders. This is because there are so many moving parts to starting a restaurant business, especially the number of business areas that need to be managed with expertise, that by the time the entrepreneur has recognised the extent of operations, they are underfunded in key areas, and they have not paid enough attention to their differentiator which allows them to compete.

Therefore, buying a ready-made business or a business in a box will relieve you of some critical complexities that often increase the likelihood of failure. Remember, risk is not a bad thing. It requires management to overcome the possibility of loss.

The start-up costs can range anywhere from $5 million to $50 million or more, depending on your business model, the positioning in the market, and your vision for the business.

Outfitting your location, the purchase of equipment and supplies, and your marketing and staff recruitment and training costs are some of the big-ticket items in your start-up budget. Here is an idea of what your cost schedule may look like:

Location costs:

• Rent

• Designers and buildout

• Bathroom renovations

• Parking facilities

• Store branding

• Liability insurance and maintenance

Equipment:

• Espresso machine

• Coffee grinder

• Commercial ovens

• Refrigerators

• Display cases

• POS system and software

Furniture and fixtures:

• Tables and chairs

• Counters and shelving

• Fire safety

• Lighting and décor

Inventory:

• Coffee beans

• Tea

• Condiments

• Baking ingredients

• Syrups and flavourings

• Packaging and disposables (for example, cups and napkins)

Marketing:

• Marketing specialist

• Website development

• Marketing materials (logo, brochures, in-store marketing materials)

• Social media advertising

Human resources:

• HR specialist to help build out talent acquisition and retention strategy

• Talent recruitment

• Salaries

• Training costs

• Payroll taxes and benefits

• Insurance

Utilities:

• Electricity

• Water

• Cooking gas

• Internet and phone.

Just by looking at the schedule you will see that there is a lot that you have to plan for. However, the most important dynamic that many business owners have struggled to unlock is how to compete in the current market and to differentiate the business and offerings to attract and retain enough customers to ensure profitability and growth.

Understanding the market dynamics, consistently delivering value, keeping costs low, especially when utility costs and raw materials fluctuate significantly, are among your critical success factors. There are some other basics such as business registration, statutory obligations, food handlers permit, and other regulations relating to matters such as fire safety.

Inventory management is critical because high food costs will erode profits. Cost containment, reliable suppliers, organising inventory, and reducing spoilage are a few key considerations. Standardising and documenting the food handling and production processes will support consistent taste and quality, contain food costs, reduce waste and improve food safety, which are essential for profitability and to reduce liability.

As I have reiterated in previous columns, food businesses appear very attractive to the entrepreneurial ‘newbie’ because people have to eat, and they believe food and beverages must sell, but in reality, this is not an easy business.

Therefore, plan carefully for your success, which necessitates a robust risk-management strategy. That way, you may not be prevented from realising your business dreams.

Good luck and one love!

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Yaneek Page is the programme lead for Market Entry USA, and a certified trainer in entrepreneurship.

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yaneek.page@gmail.com