Coffee Shop Co.

A close friend approaches you for advice: she is considering opening a coffee shop and wants to know whether the venture is a sound investment. Your task is to evaluate the financial viability of the business, estimate realistic market demand, understand the cost structure, and arrive at a clear recommendation on whether she should proceed.

Your friend has identified a retail unit in a busy urban neighbourhood. She has saved $50,000 in personal capital and is prepared to invest this as seed funding. She has no prior experience running a food-and-beverage business but has researched the specialty coffee market extensively. The target location sits adjacent to a commuter transit hub, generating high morning footfall. Nearby competitors include two national-chain coffee shops and one independent artisan cafe. Lease terms available are a three-year contract at $4,000 per month. - Potential seed capital: $50,000 (personal savings) - Proposed location: urban transit hub neighbourhood - Competition: 2 chain coffee shops, 1 artisan independent - Lease: 3-year term at $4,000/month (non-negotiable) - Owner has no prior F&B management experience

The client needs a structured assessment of whether opening the coffee shop is a financially viable and strategically sound decision. Specifically, the analysis must answer: - Is the addressable market large enough to support a new entrant? - What level of daily transactions is required to break even? - Can the business generate a positive return within the 3-year lease period? - What are the key operational risks and how can they be mitigated? - Should the client invest her $50,000, and if so, under what conditions?

A strong candidate will frame this as a three-part assessment: market sizing, unit economics, and risk evaluation. The recommended approach is: Step 1: Clarify objectives and constraints — confirm the client's financial goals, timeline, and risk appetite before diving into analysis. Step 2: Size the market — estimate footfall at the transit hub, derive a realistic conversion rate, and benchmark against comparable locations. Step 3: Build the unit economics — model revenue (customers × avg ticket), subtract COGS and fixed costs to arrive at operating profit and break-even thresholds. Step 4: Stress-test assumptions — vary key drivers (customer volume, ticket size, COGS) to understand downside scenarios. Step 5: Assess strategic positioning — identify how the shop can differentiate and sustain competitive advantage over the lease term. Step 6: Synthesise and recommend — deliver a clear go / no-go recommendation with defined conditions (e.g., minimum pre-opening commitments, milestones for Year 1). A recommended answer should conclude with a structured "if / then" recommendation: the venture is viable if daily customers exceed ~130, the owner manages costs tightly in Year 1, and she pursues a clear differentiation strategy (e.g., speciality roasts, loyalty programme). If these conditions cannot be met, the $50,000 capital may be better deployed elsewhere.