Why Coffee Shops Are a Good First Business: High Demand and What to Watch Out For

You're considering buying your first business, and coffee shops keep coming up as an option. You see them everywhere, they seem busy, and the idea of owning a cozy neighborhood spot where people gather appeals to you. But is a coffee shop actually a good first business to buy?

The short answer: yes, coffee shops can be excellent first businesses, but only if you understand what makes them work and what can go wrong. After working with dozens of first time buyers who've purchased coffee shops, I've seen what leads to success and what leads to struggles. The difference often comes down to understanding the business model, choosing the right location, and avoiding common mistakes.

Coffee shops have several advantages for first time buyers: they're relatively simple operations, they have strong demand, they can develop loyal customers, and the business model is straightforward. But they also have challenges: location is everything, competition can be intense, margins require careful management, and the hours can be long.

In this guide, I'll explain why coffee shops are in high demand, what makes them good first businesses, what you need to watch out for, and the critical mistakes to avoid. Whether you're looking at an independent coffee shop or a franchise opportunity, this will help you make an informed decision.

Why Coffee Shops Are in High Demand

Coffee shops aren't just surviving; they're thriving. The demand for coffee shops has been growing for decades, and that trend shows no signs of slowing down. Understanding why demand is high helps you see the opportunity, but it also helps you understand the competition.

Growing Coffee Culture

Coffee has become more than a beverage; it's a cultural experience. People don't just buy coffee for caffeine. They buy it for the experience, the atmosphere, and the sense of community. This cultural shift has created sustained demand that goes beyond basic economic needs.

What this means for you: Coffee shops aren't just competing on price. They're competing on experience, quality, and atmosphere. This creates opportunities for well run shops to charge premium prices and build loyal customers. But it also means you can't just serve average coffee in a basic space and expect to succeed.

The numbers: The specialty coffee market has grown consistently, even during economic downturns. According to the National Coffee Association, coffee consumption has remained stable or grown even during economic recessions. People cut back on many things, but coffee often isn't one of them. This creates a relatively recession resistant business model.

Multiple Revenue Streams

Coffee shops don't just sell coffee. They sell food, pastries, merchandise, and sometimes even alcohol in the evenings. This diversification creates multiple ways to generate revenue, which reduces risk and increases profitability.

Coffee sales: The core product, but often not the most profitable item on the menu. Coffee has good margins, but volume matters.

Food and pastries: Higher margin items that increase average transaction value. A customer who buys just coffee might spend $5. A customer who buys coffee and a pastry might spend $8 or $9.

Merchandise: Coffee beans, mugs, and branded items can add revenue without much additional cost.

Evening offerings: Some coffee shops add wine, beer, or light dinner options to capture evening customers and increase revenue per square foot.

What this means: You're not dependent on one product. If coffee sales dip, food sales might compensate. This diversification makes the business more resilient.

Recurring Customers

Coffee shops excel at building recurring customers. People develop routines. They stop at the same coffee shop on their way to work, meet friends there on weekends, or use it as their remote work location. This creates predictable revenue.

Morning rush: Many coffee shops generate 40% to 60% of their daily revenue during the morning rush (typically 7 AM to 10 AM). These are often the same customers, day after day.

Regular customers: A coffee shop with 200 regular customers who visit three times per week at $6 per visit generates $187,200 per year just from those regulars. That's before any walk in traffic.

Community hub: Coffee shops often become community gathering places. People meet there, work there, and socialize there. This creates emotional connections that drive loyalty.

What this means: Once you establish a customer base, you have predictable revenue. You know roughly how much you'll make each week, which makes planning and management easier.

Low Barrier to Entry (But High Barrier to Success)

Starting a coffee shop doesn't require specialized technical skills or years of industry experience. You can learn the basics relatively quickly. This makes coffee shops accessible to first time buyers.

What you need to learn:

• How to make good coffee (this is learnable)
• How to manage inventory (coffee, milk, pastries, etc.)
• How to manage staff (scheduling, training, etc.)
• How to manage customers (service, atmosphere, etc.)
• Basic business operations (accounting, marketing, etc.)

What you don't need:

• Years of culinary training
• Complex technical knowledge
• Specialized certifications (beyond basic food service permits)
• Industry specific experience

The catch: While the barrier to entry is low, the barrier to success is high. Many coffee shops fail because owners underestimate the work, choose poor locations, or don't manage operations well. Low barrier to entry means more competition, which means you need to execute well to succeed.

What Makes Coffee Shops Good First Businesses

Beyond the high demand, coffee shops have specific characteristics that make them attractive for first time buyers.

Relatively Simple Operations

Coffee shop operations are straightforward compared to many other businesses. You're making coffee, serving customers, managing inventory, and handling basic food service. The processes are repeatable and learnable.

Daily operations:

• Open the shop (unlock, turn on equipment, prepare for customers)
• Make coffee and serve customers
• Manage inventory (order supplies, track usage, manage waste)
• Handle staff (scheduling, training, supervision)
• Close the shop (clean, secure, prepare for next day)

Weekly operations:

• Order supplies
• Review financials
• Plan marketing or promotions
• Staff management tasks
• Equipment maintenance

Monthly operations:

• Financial review and planning
• Inventory analysis
• Staff performance reviews
• Marketing planning
• Vendor management

This simplicity means you can learn the business without years of experience. You're not managing complex manufacturing processes or technical services. You're running a retail food service business with established processes.

Established Business Model

The coffee shop business model is well established. You don't need to figure out how to make money; the model is proven. You buy coffee and supplies, mark them up, and sell them to customers. The margins are known, the processes are documented, and the challenges are understood.

Revenue model: Sell coffee, food, and beverages at prices that cover costs and generate profit.

Cost structure:

• Cost of goods sold (coffee, milk, pastries, etc.): typically 25% to 35% of revenue
• Labor: typically 25% to 35% of revenue
• Rent and utilities: typically 10% to 15% of revenue
• Other expenses: typically 10% to 15% of revenue
• Profit margin: typically 10% to 20% of revenue (when well managed)

What this means: You're not experimenting with an unproven business model. You're executing a model that works, which reduces risk. But it also means you need to execute well, because the model is known and competition is based on execution.

Scalable Business

Once you understand how to run one coffee shop, you can often scale by opening additional locations. This creates growth potential beyond just improving one location.

Single location growth:

• Increase customer count (marketing, better service, etc.)
• Increase average transaction value (upselling, food offerings, etc.)
• Improve efficiency (reduce waste, optimize labor, etc.)

Multi location growth:

• Open second location using knowledge from first
• Leverage systems and processes across locations
• Share marketing and branding costs
• Negotiate better supplier terms with higher volume

What this means: A coffee shop isn't just a job replacement; it can be a real business that grows. This makes it attractive for buyers who want to build something, not just buy themselves a job.

Community Connection

Coffee shops create strong connections with their communities. Customers become regulars, employees become part of the community, and the shop becomes a neighborhood gathering place. This connection creates loyalty and makes the business more enjoyable to run.

Customer relationships: You get to know your customers. You learn their names, their orders, and their stories. This personal connection is rewarding and creates loyalty.

Community involvement: Coffee shops often become involved in local events, support local causes, and become part of the neighborhood fabric. This creates goodwill and marketing opportunities.

Employee relationships: You're not managing faceless employees. You're working with people, building relationships, and creating a team. This makes management more personal and often more effective.

What this means: Running a coffee shop can be personally rewarding, not just financially rewarding. This makes the long hours and hard work more sustainable.

What to Watch Out For

Coffee shops have advantages, but they also have challenges. Understanding these challenges helps you prepare and avoid problems.

Location Is Everything

The most important factor in a coffee shop's success is location. A great coffee shop in a poor location will struggle. An average coffee shop in a great location can thrive. This makes location evaluation critical.

What makes a good location:

• Foot traffic: People walking by, especially during morning rush
• Visibility: Easy to see from the street or in a high traffic area
• Parking: Accessible parking for customers (or walkable from offices/residential)
• Demographics: Population that matches your target customers
• Competition: Not too much direct competition, but enough to prove demand exists
• Accessibility: Easy to get to, not hidden or hard to find

What makes a poor location:

• Low foot traffic: Few people walking by
• Poor visibility: Hard to see or find
• Inadequate parking: Customers can't easily park
• Wrong demographics: Population doesn't match your target market
• Too much competition: Saturated market with established competitors
• Inconvenient access: Hard to get to, confusing directions

How to evaluate location:

• Visit at different times (morning rush, lunch, afternoon, evening)
• Count foot traffic during peak hours
• Observe competitor locations and their traffic
• Check parking availability
• Research area demographics and trends
• Talk to other business owners in the area

Red flags: If the location has high turnover (multiple businesses have failed there), that's a major red flag. If there's no foot traffic during what should be peak hours, that's concerning. If parking is consistently full or unavailable, that will limit your customer base.

Competition Can Be Intense

Coffee is a competitive market. You're competing with other independent coffee shops, chain coffee shops, gas stations, convenience stores, and even office coffee. Understanding the competition is essential.

Types of competitors:

• Independent coffee shops: Similar to you, competing on quality and experience
• Chain coffee shops: Starbucks, Dunkin, etc. Competing on brand recognition and convenience
• Gas stations and convenience stores: Competing on convenience and price
• Office coffee: Many offices provide free coffee, reducing demand
• Home coffee: People making coffee at home, especially with quality home equipment

How to compete:

• Quality: Better coffee than chains and convenience stores
• Experience: Better atmosphere and service than competitors
• Convenience: Location and speed of service
• Price: Competitive pricing (though you might not be the cheapest)
• Community: Local connection that chains can't match

What to watch for: If the area is already saturated with coffee shops, especially successful chains, it might be hard to compete. If there are multiple independent coffee shops that have struggled or closed, that's a red flag about the market.

Margins Require Careful Management

Coffee shops can be profitable, but margins are often thinner than people expect. Small mistakes in cost management can quickly eliminate profitability. You need to manage costs carefully.

Key cost areas:

• Cost of goods sold: Coffee, milk, pastries, food, etc. Need to manage waste and pricing
• Labor: Staff costs can quickly eat into profits if not managed well
• Rent: High rent in prime locations can make profitability difficult
• Utilities: Equipment uses significant electricity
• Equipment maintenance: Coffee equipment requires regular maintenance

Common margin problems:

• Waste: Throwing away unsold pastries or expired milk reduces margins
• Overstaffing: Too many employees during slow periods wastes money
• Underpricing: Not charging enough to cover costs and generate profit
• Poor inventory management: Ordering too much or too little affects costs
• Equipment issues: Broken equipment reduces efficiency and increases costs

What to watch for: Review the business's financials carefully. Look at cost percentages. If labor is above 35% of revenue, that's a problem. If cost of goods sold is above 35%, that's concerning. If rent is above 15% of revenue, that might be too high.

Long Hours and Physical Work

Running a coffee shop requires long hours, especially in the beginning. You'll likely work 50 to 60 hours per week, maybe more. The work is also physical: you're on your feet, moving around, lifting, cleaning.

Typical schedule:

• Opening: Often 6 AM or 7 AM start time
• Closing: Often 6 PM or 7 PM, sometimes later
• Weekends: Coffee shops are often busiest on weekends
• Holidays: Many coffee shops stay open on holidays

Physical demands:

• Standing for long periods
• Lifting bags of coffee, milk, supplies
• Cleaning (floors, equipment, bathrooms, etc.)
• Fast paced work during rushes
• Repetitive motions (making coffee, handling money, etc.)

What this means: This isn't a passive investment. You'll be working, and working hard. If you're not prepared for long hours and physical work, a coffee shop might not be right for you.

Staff Management Challenges

Coffee shops require staff, and managing staff can be challenging. You'll deal with scheduling, training, turnover, and performance issues. This is often one of the hardest parts of running a coffee shop.

Common staff challenges:

• Turnover: Staff turnover can be high, especially for entry level positions
• Scheduling: Creating schedules that cover all hours while controlling labor costs
• Training: Training new staff on coffee making, customer service, and procedures
• Performance: Ensuring staff provide good service and follow procedures
• Reliability: Staff calling in sick or not showing up creates problems

What to watch for: If the business has high staff turnover, that's a red flag. It might indicate management problems, poor working conditions, or other issues. Review staff schedules and labor costs carefully. High labor costs relative to revenue suggest staffing problems.

Seasonal Variations

Coffee shop revenue can vary by season, day of week, and time of day. Understanding these patterns is important for planning and management.

Daily patterns:

• Morning rush: Typically 7 AM to 10 AM, often 40% to 60% of daily revenue
• Lunch: 11 AM to 2 PM, moderate traffic
• Afternoon: 2 PM to 5 PM, slower, often remote workers
• Evening: 5 PM to close, typically slowest period

Weekly patterns:

• Weekdays: Often busier, especially mornings
• Weekends: Can be busier or slower depending on location and customer base

Seasonal patterns:

• Summer: Can be slower if area has seasonal population changes
• Winter: Hot drinks more popular, but weather can reduce foot traffic
• Holidays: Can be very busy or very slow depending on location

What this means: Revenue isn't consistent throughout the day or year. You need to plan for these variations, manage staff accordingly, and ensure you can cover fixed costs during slow periods.

Critical Mistakes to Avoid

I've seen first time buyers make these mistakes repeatedly. Avoid them, and you'll be ahead of most coffee shop buyers.

Mistake 1: Choosing Location Based on Price Alone

Many first time buyers choose locations based on low rent, thinking they'll save money. But a cheap location with no foot traffic will cost you more in lost revenue than you'll save in rent.

The problem: Low rent locations are often low rent for a reason: they don't have foot traffic, visibility, or the right demographics. You might save $2,000 per month in rent, but lose $10,000 per month in revenue.

Better approach: Choose location based on foot traffic, visibility, and customer access. Pay more for a better location if necessary. The revenue difference will more than cover the rent difference.

How to avoid: Visit locations at different times. Count foot traffic. Talk to other business owners. Don't let low rent blind you to location problems.

Mistake 2: Underestimating the Work Required

Many first time buyers think buying a coffee shop means they'll work reasonable hours and have time for other things. That's usually not true, especially in the first year.

The problem: Coffee shops require long hours, especially during the transition period. You'll work 50 to 60 hours per week, maybe more. If you're not prepared for this, you'll burn out or the business will suffer.

Better approach: Expect to work long hours, especially in the first year. Plan your life accordingly. Don't buy a coffee shop thinking it's a part time commitment.

How to avoid: Talk to current coffee shop owners. Ask about their schedules. Be honest with yourself about whether you're willing to work these hours.

Mistake 3: Not Understanding the Financials

Many first time buyers focus on revenue and ignore costs. They see $500,000 in annual revenue and think that means $500,000 in profit. That's not how it works.

The problem: Revenue doesn't equal profit. A coffee shop with $500,000 in revenue might have $400,000 in costs, leaving $100,000 in profit (before owner salary). If you're paying $300,000 for the business and need to take a salary, the numbers might not work.

Better approach: Understand all costs: cost of goods sold, labor, rent, utilities, insurance, marketing, etc. Calculate actual profit after all costs. Make sure the business can support the purchase price and your salary needs.

How to avoid: Review financial statements carefully. Work with an accountant. Understand what the seller's discretionary earnings (SDE) actually means and whether it's realistic for you.

Mistake 4: Ignoring Staff and Management Issues

Many first time buyers focus on the coffee and customers but ignore staff management. But staff problems can kill a coffee shop faster than almost anything else.

The problem: Poor staff management leads to high turnover, poor service, and high labor costs. This destroys profitability and customer satisfaction.

Better approach: Understand the current staff situation. Are there management problems? High turnover? Performance issues? Address these during due diligence, not after you buy.

How to avoid: Review staff schedules, turnover rates, and labor costs. Talk to current staff if possible (with seller's permission). Understand what staff management will require.

Mistake 5: Not Doing Proper Due Diligence

Many first time buyers fall in love with a coffee shop and skip thorough due diligence. They assume everything is as presented. That's a dangerous assumption.

The problem: Sellers sometimes present businesses in the best possible light. Financials might be inflated, problems might be hidden, and assumptions might be unrealistic. Without proper due diligence, you might buy problems you didn't know about.

Better approach: Do thorough due diligence. Verify financials, review leases, check equipment condition, understand competition, verify customer base, and identify any problems.

How to avoid: Work with a business broker and other professionals. Don't skip due diligence steps. Verify everything the seller tells you.

Mistake 6: Overpaying for the Business

Many first time buyers overpay because they fall in love with a coffee shop or don't understand valuation. Overpaying makes it much harder to succeed financially.

The problem: If you pay $400,000 for a business worth $300,000, you've just made success $100,000 harder. You'll need to generate that extra $100,000 in value just to break even on the purchase.

Better approach: Understand how coffee shops are valued (typically 2.0x to 3.5x annual SDE). Compare to similar sales. Don't pay more than the business is worth, no matter how much you like it.

How to avoid: Use our business valuation calculator to understand valuation. Work with a business broker who understands coffee shop valuations. Compare to similar businesses for sale.

Mistake 7: Not Having Enough Capital

Many first time buyers underestimate how much capital they need. They think the purchase price is all they need, but they also need working capital for operations, improvements, and unexpected expenses.

The problem: Coffee shops need working capital for inventory, payroll, and operating expenses. If you don't have enough capital, you might struggle to operate even if the business is profitable.

Better approach: Have enough capital for the purchase price plus 3 to 6 months of operating expenses. This gives you a buffer for the transition period and unexpected expenses.

How to avoid: Calculate all capital needs: purchase price, working capital, improvements, and reserves. Make sure you have enough, or can get financing for enough. Explore business funding options including unsecured loans, SBA loans, and seller financing to bridge any capital gaps.

What To Do Next

If you're considering buying a coffee shop, here's your action plan:

1. Assess your fit. Are you prepared for long hours and physical work? Do you enjoy customer service? Can you manage staff? Be honest about whether a coffee shop fits your skills and lifestyle.

2. Research the market. Understand coffee shop demand in your target area. Research competition, demographics, and trends. Visit existing coffee shops to understand the market.

3. Understand the financials. Learn how coffee shops make money, what costs to expect, and how they're valued. Use our business valuation calculator to get started.

4. Evaluate locations carefully. Don't choose based on price alone. Focus on foot traffic, visibility, and customer access. Visit locations at different times.

5. Do thorough due diligence. Verify financials, review leases, check equipment, understand staff situation, and identify any problems. Don't skip this step.

6. Work with professionals. Use a business broker, lawyer, and accountant. Their expertise is worth the cost and helps you avoid costly mistakes.

7. Plan for the transition. Expect to work long hours in the first year. Plan your life accordingly. Have enough capital for the transition period.

8. Get help if needed. Contact us for a consultation to discuss coffee shop opportunities and get professional guidance.

Conclusion

Coffee shops can be excellent first businesses. They have high demand, relatively simple operations, and the potential to build a loyal customer base and community connection. But they also have challenges: location is critical, competition is intense, margins require careful management, and the work is demanding.

The buyers who succeed with coffee shops are the ones who understand both the opportunities and the challenges. They choose good locations, manage operations well, understand the financials, and are prepared for the work required. They don't fall in love with the idea of owning a coffee shop; they fall in love with a specific business opportunity that makes financial and operational sense.

If you're considering a coffee shop, do your homework. Research the market, understand the financials, evaluate locations carefully, and do thorough due diligence. Work with professionals who can help you avoid common mistakes. And be honest with yourself about whether you're prepared for the work and lifestyle that comes with coffee shop ownership.

A coffee shop can be a great first business, but only if you approach it with eyes wide open, do your homework, and avoid the common mistakes that trip up first time buyers.

Ready to explore coffee shop opportunities? Contact us for a consultation and let's discuss whether a coffee shop might be the right first business for you. Or use our business valuation calculator to start understanding how coffee shops are valued.