Opening a cafe in Australia, step by step

Start with a concept, and be specific about who it serves

Every cafe that works is aimed at someone. Before anything else, get clear on who you are opening for and what you are offering them. A specialty coffee bar for a commuter crowd, a brunch venue for weekend locals, and a grab and go counter in an office precinct are three different businesses with different menus, hours, fitouts, and margins.

Walk the area you are considering at different times of day. Count the foot traffic, look at who is already trading, and find the gap you can fill better than the cafe next door. A concept that is clear on paper is easier to price, easier to market, and far easier to fund.

Founders tend to treat this as the enjoyable part to get through before the real work starts. It is actually the input to every figure in this guide. Trading hours set your labour cost. Seat count and turn rate set your revenue ceiling. Whether you run a full kitchen or a sandwich press swings your equipment budget by tens of thousands of dollars. Stay vague here and every number downstream is a guess.

Cost one specific cafe

This is the step first time founders skip, and it is the one that decides whether the cafe survives. Before you sign a lease or buy an espresso machine you need three numbers: what it costs to open, what it costs to run, and how much trade you need to cover both.

Ranges cannot answer any of it. So here is a whole cafe, costed end to end. The assumptions are ours and every one of them is on the page, so you can disagree with any line and rework the figure for your own site.

What it costs to open

Two lines in that table are the ones founders leave out, and they are the two that cause the failures. The contingency covers the fitout surprises that appear once the walls are open, and it is applied only to fitout and equipment because those are the lines that actually blow out. The working capital covers the months when the cafe is trading but not yet trading enough. Neither is optional. A budget that stops at $222,000 has not found a cheaper cafe, it has just left the risk off the page.

Take over a cafe that is already trading and the fitout line can fall to almost nothing, though you pay for goodwill instead and inherit the previous operator's lease. Start from a bare shell with no grease trap or exhaust and the fitout line roughly doubles. For a full breakdown by format and by fitout standard, see our guide on how much it costs to open a cafe in Australia.

What it earns once it is open

Revenue comes out of two numbers: how many people walk in, and what they spend. For this cafe, 130 customers on a weekday, 170 on a weekend day, average spend $13.50.

That is 990 customers a week, or $13,365 a week, which is $57,900 a month and $695,000 a year. Those two inputs are the ones to argue with. Count the foot traffic on your own site, get 100 customers a day instead of 130, and everything below moves. Better to learn that now than in month four.

The cost lines are then set as a share of that revenue, using the ATO cafe benchmarks for the turnover band above $600,000 and the standard industry guideline for labour.

That is $69,480 a year in net profit on $290,100 of capital, a return of roughly 24% once the cafe trades at plan, with the owner's wage already paid inside the labour line. It is a real business. It is also a reminder of the size of the bet: miss the revenue assumption by 15% and the profit is gone, because at a 90% expense ratio almost every dollar you fall short comes straight off the bottom line.

Notice the expense ratios sit mid range against the ATO benchmarks, not at the optimistic end. That is deliberate. A model that only works when every single cost line lands at its best case will not survive its first quiet winter.

Know the number of customers a day that keeps you alive

Net profit at plan is the interesting number. Break even is the important one, because it is the line you have to clear every month whether trade is good or not.

Split the costs into those that move with sales and those that do not. Cost of goods is entirely variable. Rent and other operating expenses are fixed. Labour is mostly fixed, because the core roster and the owner are there whether forty people walk in or four hundred, so treat roughly 70% of it as fixed and the rest as variable.

So the plan is 141 customers a day and the cafe survives at 116. That gap, about 18%, is your entire margin for error on the busiest assumption in the model. If your site count says 120 customers a day rather than 141, this cafe does not fail, but it also does not pay you much, and you would want to cut the fitout or find cheaper rent before signing anything.

Work this out for your own numbers before you fall in love with a site. Our guide to cafe financial modelling walks the calculation in more detail, and HospoSure runs it automatically as you change the inputs.

Choose the site and negotiate the lease against the model

Location makes or breaks a cafe, and the lease that comes with it is the single biggest commitment you will make. Rent that looks affordable on a good month can sink the cafe in a quiet one, so judge the site against the revenue it can realistically produce, not against what you can just about afford.

The model above gives you a specific figure to negotiate with. At 9% of $695,000, this cafe can carry $62,500 a year, or about $5,200 a month, in rent and outgoings combined. Walk into the agent's office holding it. If the site is $7,500 a month, the revenue assumption has to rise by 44% to justify it. Usually that means the site is wrong. Founders who negotiate without that figure end up talking themselves into the rent instead of the other way around.

Look hard at foot traffic, visibility, parking, nearby anchors that pull people past your door, and what the space needs before it can trade. A cheap site that needs a full kitchen fitout is rarely cheap once the builder is done.

• Rent as a share of turnover: keep rent and outgoings within a sustainable band, commonly 8 to 12% of expected revenue.
• Outgoings on top of base rent: ask for the actual figure, not an estimate. Council rates, water, insurance, and centre charges can add 15 to 25% to the headline rent.
• Lease length and options: understand the term, renewal options, and how rent reviews are calculated. A fixed 4% annual increase compounds to a 22% higher rent by year five, which your model needs to survive.
• Make good: know what you are liable to restore at the end of the lease. It is a real cost that lands years later.
• Permitted use and fitout approvals: confirm the premises can legally trade as a cafe before you commit, not after.

A commercial lease is a long commitment, so have it reviewed by a professional before you sign, and see our guide on how to negotiate a cafe lease in Australia for the terms worth pushing on. Model the rent into your numbers first, so you go into the negotiation knowing the figure the cafe can actually carry.

Register the business and get the approvals in place

A cafe is a food business, so it carries registrations and approvals beyond a standard company setup. Getting these sorted early keeps them off your critical path near opening day, when everything else is competing for your attention.

The usual list for a first cafe:

1. Business structure, ABN, and registration, plus GST registration where your turnover requires it. At $695,000 a year this cafe is well past the threshold, so plan for quarterly BAS from the start.
2. Food business notification or registration with your local council, which regulates food premises.
3. A food safety supervisor and appropriate food handler training for staff.
4. Council approvals for the premises, fitout, and extras such as outdoor seating or signage.
5. Insurance: public liability, contents and equipment, workers compensation, and business interruption cover.
6. Additional licences where relevant: a liquor licence to serve alcohol, or a licence to play music.

The $12,000 approvals and professional fees line in the budget above covers this step plus lease review and accounting setup. Requirements vary by state and by council, so confirm the specifics with your local council early rather than assuming. The business.gov.au site is a useful starting point for registrations and licences.

Build a costed menu, because it sets your largest cost line

Your menu is where your margin lives. Cost of goods is $20,265 a month in the model above, the single largest expense the cafe carries. A menu priced by eye against the cafe down the road is the quiet reason many cafes work hard and still make no money.

It is easy to underestimate how far this one line moves. On $695,000 of turnover, moving food cost from 35% to 32% is worth $20,850 a year, which is roughly a third of this cafe's entire annual profit, achieved without serving one extra customer. That is why costing every dish before it goes on the board matters more than almost anything else you do in the first year.

Work to a food cost target, commonly 28 to 35% depending on the dish, and price to that target rather than to a guess. Starting from a pre costed recipe library gives you expert dishes with the costing already done, and our guides on how to cost a cafe menu and how to price a cafe menu cover the method.

Alongside the menu, line up reliable suppliers for coffee, food, and consumables, and understand their terms and minimums. Supplier terms are one of the levers that keeps your cost of goods where you planned it, and payment terms in particular affect how much working capital you need. Our guide on selecting cafe suppliers covers what to look for.

Fit out the space and set up your point of sale

With the lease signed and the concept clear, the fitout turns an empty shell into a working cafe. At $91,000 plus $63,000 of equipment it is 69% of the build budget above, so plan it against your budget rather than letting it run. This is also the line the 15% contingency exists for, because it is where the surprises live: old wiring that fails inspection, a floor that needs levelling, exhaust that does not meet current code.

Prioritise the equipment that earns money: a reliable espresso machine and grinder, refrigeration, and the kitchen gear your menu actually needs. Buy for the volume you expect, not the volume you dream of. A good used machine will often do the job, and it frees cash for working capital, which you will need more than you think. Note the equipment list above has no fryer. The assumed menu does not need one, and adding a fryer means adding exhaust capacity too, which together can move the fitout by $20,000.

Your point of sale ties the front counter to your menu and your numbers. Setting it up cleanly is worth doing properly: a menu you have already costed can export straight into Square POS rather than being retyped by hand, so the prices you costed to are the prices on the till from day one. Retyping is where costed margins quietly disappear.

Hire and roster staff to actual demand

Labour is the second largest cost the cafe carries at $17,949 a month, and it is the one most within your control day to day. The goal is enough hands to serve well through the rush without paying wages during the lulls.

Understand your obligations under the relevant hospitality award, including penalty rates on weekends and public holidays, because those shape both your rostering and your prices. This cafe trades seven days, so weekend penalty rates are built into that 31%. A model that rosters weekends at weekday rates understates labour by thousands a month.

Roster to your expected trade rather than to a fixed template, and keep total labour, including superannuation and on costs, within a sustainable share of turnover, commonly 26 to 33%. Remember that the owner's own wage belongs in that line. A cafe that only clears a profit because the founder works sixty unpaid hours cannot be sold, because whoever buys it would have to work them too.

Fund the ramp, because you do not open at plan volume

This is the step that sinks cafes that did everything else right. A new cafe does not open at 141 customers a day. It builds to it, and every month below break even burns cash you must already have in the bank.

So do not guess the working capital figure, derive it. Take a deliberately slow ramp, at 40, 50, 60, 70, 80 and 90% of plan revenue across the first six months, and run each month against the fixed costs and variable rate from step 03.

That is where the $45,000 working capital line comes from: $35,550 of trading losses on a slow ramp, plus a buffer for GST timing and the fact that wages and stock are paid before the takings clear. On a faster ramp the cafe reaches break even by month three and burns under $10,000, and the difference stays in your pocket. Budget for the slow one anyway.

This is also the clearest argument for costing the menu before opening rather than after. A cafe running 32% food cost instead of 38% reaches break even at a materially lower customer count, which shortens the ramp and cuts the working capital it needs to survive.

Get ready to open and let people know you exist

Great coffee will not save a cafe nobody can find, and the ramp in step 09 gets shorter the more people know you are opening. In the weeks before opening, make sure the people you built the concept for actually know you are there.

Set up and verify your Google Business Profile so you appear in local search and on maps, claim your social handles, and get a simple, clear website up. A soft opening before the full launch lets you test the menu, the flow, and the till under real conditions while the stakes are low, so you fix the wrinkles before the crowd arrives.

Then keep measuring against the model. You now have a plan that says 141 customers a day at $13.50. From week one your POS tells you the actual figures, and the gap between the two is the most useful management information you will ever have. Our cafe marketing strategy guide covers building trade in the early months.

Opening a cafe in Australia, in order

The order matters more than any single step in it. Roughly:

1. Concept first, aimed at someone specific, because every number in the plan is derived from it.
2. Cost one cafe properly. Not a range. Write the assumptions down where you can argue with them later.
3. Work out break even in customers per day, then check the gap to your plan is wide enough to be wrong in.
4. Take the rent figure your model can carry into the lease negotiation, and treat it as a ceiling.
5. Council approvals and registrations early, well clear of opening week.
6. Cost every dish before it goes on the board. This is the largest cost line you control.
7. Fit out to budget, with a real contingency, and set the POS up from the costed menu.
8. Roster to actual demand, with your own wage inside the labour line.
9. Fund the ramp from a slow start, not the one you are hoping for.
10. Open where people can find you, then check real trade against the model every week.

The cafe in this guide needs $290,100, survives at 116 customers a day, and returns about $69,500 a year once it trades at plan. Yours will come out different on every line. Work the numbers early enough and you can still change them, which is the only real advantage a first time founder gets. If you want a structure for the whole plan, start with our cafe business plan template for Australia.