How much money is needed to open a small cafe in Australia?
Starting your own business is a great way to take control of your finances and your future. Unfortunately, it's also often a case of needing money to make money.
Every business venture has startup costs, some more than others. In this post, we look at how much money you need to open a small cafe in Australia.
Coffee culture is growing significantly, with $5bn spent in coffee shops across the country last year. Many Aussies see opening their own cafe as a profitable venture, but it can also be an expensive one.
According to the Australian government, when you're setting up any new business, it's a good idea to be able to cover six months' worth of running costs. If you don't have the capital to get going, applying for a business loan can make up the shortfall.
Buying an existing cafe
While you'll still have ongoing expenses, you could save yourself a lot of time by buying an existing cafe rather than setting one up from scratch.
This means you'll have the goodwill of the brand and may already have the equipment and stock in place, as well as staff, rental contracts and suppliers. You'll be able to make changes as you see fit, but the starting blocks will be in place.
How much a cafe costs varies considerably. On Commercial Real Estate in March 2020, there existing businesses were up for grabs from between $200,000 (Lane Cove, Sydney) to $4,500,000 (Melbourne or Sydney CBD).
One of the biggest expenses you'll have in your new business is rent. There's no fixed number for this, and it largely depends on location – rent in Sydney is going to be a lot more than rent in Newcastle, for example. Even in Sydney, there's going to be big differences between cafe rental prices in Circular Quay, Newtown and Chatsfield.
For example, in Melbourne, a 100sq m cafe space in St Kilda is currently available for $19,000 per year, while a 65sq m space in Northcote is listed at $57,500 per year.
If you were to pick either of these options, the government's suggestion of having six months' rent set aside would be $8,500 or $28,750. It's also recommended that rent should be no more than 15% of your income, so with these properties you would be hoping to make at least $125,000 or $380,000 per year.
Machinery and equipment
Commercial coffee machines are a lot more expensive than home-use ones. The current range on the Segafredo website goes from $2,500 to $12,595 per machine.
Commercial machines may also require specialist electrical work to get them going at their full capacity. You'll also need to make sure you have enough grinders, fridges and other appliances to serve your customers.
One of your biggest expenses for a coffee shop will be coffee beans, which you'll need in large numbers. How much depends on how many coffees you'll be making, of course, which varies from cafe to cafe.
You'll also need to consider the cost of milks (dairy and alternatives), sugar, coffee cups (takeaway and sit in) and other incidentals like napkins.
According to job site Indeed, the average hourly rate for a barista in Australia is $25.14.
Using this figure, you can work out how much you're likely to spend in staff expenses. You'll also need to consider how much of the work you'll be doing yourself, how many people you'll need to hire and how many hours they'll be working a day.
As you can see, total costs will vary dramatically. But with rent starting at $19k a year in a major city, and the purchase of an existing business likely to be $200,000 or more, opening a cafe definitely isn't a cheap venture.
Once you have a figure worked out, you can start to plan. How much will you need to save? Would a business loan help meet some of the costs? Should you get a partner? And how much profit will your cafe need to make to survive?
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We write these articles for you, our Harmoney borrowers, to be, what we hope, are helpful tools. The information, including rates, is current at the time of posting and is designed to be a general guide only. Any advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances.