April 24, 2014

Coffee Franchise – What You Need To Know

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Buying a coffee franchise can be a very fun and fulfilling experience, but before you put your John Hancock anywhere and start serving hot cups of 'joe', there's a few critical things you need to consider so you can make the right decision. You could end up making a big mistake by buying a coffee franchise blindly.

The first thing you really need to do is get a reality check. It's important that you understand your strengths and weaknesses of running a franchise. You need to be very honest with yourself about how much time you're really going to put into running your business. You also need to know your financial situation to understand how much money you really have to put towards the purchase of your franchise. Don't be too eager to get started. Take your time, seek out the advice of franchising experts and do your due diligence.

The really attractive part about owning a coffee franchise is the cash flow and profit margins. More and more people are drinking coffee everyday and they are happily paying $3+ for their favorite cup of 'joe'. The actual cost of the coffee is really less than $.25. That's a HUGE profit margin well over 1000%. Those are numbers that business owners like. However, owning a coffee franchise means you are in a volume business. Only making a few bucks profit per sale won't mean much if you're not cranking out thousands of cups of coffee. Coffee franchises with drive-thrus tend to do very well as some shops claim that 70% of their business comes from the drive-thru.

The real secret of a coffee franchise is the atmosphere.  People come to coffee shops to hang out, relax, surf the web on their laptops, maybe do some business or meet with some clients.  People do all sorts of things but the important point is that they come to a place for social gathering.  That's important and that's why you see so many places with a comfortable and relaxing atmosphere.

On the flip side, owning a coffee franchise is not all fun and games, especially from the start.  You have the high initial franchise fee, you then have to get a retail location and pay those costs, you have to lease or buy equipment to run the shop, you have to get inventory that does have a shelf life and so on.  Then you have your fixed costs, your variable costs, employee wages, insurances, yada yada yada.  On top of all that, don't forget about the royalty fees you have to pay that are calculated on gross revenues, not net profits.

Another consideration is that even if you have all the money to open the doors with all the costs, that still doesn't guarantee that you'll own a coffee franchise.  You're going to have to have a considerable net worth, good credit history but what trumps all of that is you have to get approval from the company to buy a franchise from them.  If they feel you're not a good fit, you won't get the franchise.

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