How Does Business Debt Impact the Resilience of Your Coffee Shop?
We live in a time where many of our neighborhoods are dominated by big brand coffee companies.
Yet, the heartbeat of local communities are our specialty coffee shops and roasters.
I know that almost no one opens a coffee shop without taking on some debt—it’s pretty much a given when you’re covering startup costs like equipment, inventory, and rent.
As we’re quickly approaching the end of the year, I want to talk a bit about financial resilience and how business debt impacts the overall resilience of your coffee shop. I know, not the most fun topic, but your coffee shop depends on it.
You already know that running a coffee shop takes a lot of hard work, passion, and a good amount of hustle especially when you’re in the Start-Up phase. You’re not just brewing great coffee, you’re also juggling inventory, managing staff, and keeping track of finances. One of the trickiest parts is dealing with debt. Whether it’s SBA loans, credit lines, or vendor balances, debt can play a big role in how your coffee shop survives—and even thrives—when things get tough.
But what exactly does business debt mean for your shop’s resilience? Can debt help you grow, or is it something that could hold you back? I know most of this is not going to be brand new information for you, but I feel it’s important to visit the issue of financial resilience at least once or twice a year.
Let’s break it down.
Debt Can Hurt Your Cash Flow
Cash flow is everything for your coffee shop. You need it to pay employees, cover inventory costs, and keep the lights on. If you’ve got a lot of debt, though, a chunk of your revenue is likely going toward paying off those loans, credit lines, or outstanding balances. This can put a serious strain on your cash flow, especially during slow months or when unexpected expenses pop up (like when a water heater breaks down).
The issue with a tight cash flow is that it doesn’t leave you with much room to breathe. If something goes wrong—like a key piece of equipment breaks or you face a sudden increase in supply costs—having debt to manage on top of those expenses makes it harder to adapt. In other words, you might find yourself scrambling to keep things running instead of being able to pivot or respond to the problem calmly.
Debit Increases Your Financial Risk
When you have a lot of debt, you’re adding extra financial risk to your business. Think about it—running a coffee shop already comes with its own set of challenges, like fluctuating customer traffic, changes in ingredient prices, and seasonal dips. But when your debt load is high, those challenges become even harder to manage.
For example, if you’re in a tourist area and it’s a slow time of the year, you already know you’re going to have less foot traffic coming in. If you’re already stretching to cover debt payments, a decline in revenue can quickly turn into a major problem. High debt means high pressure. If you can’t make the required payments or refinance your debt, you could find yourself in a tight spot—one that’s harder to get out of when cash flow is already limited.
While Debt Can Absolutely Help You Grow, Too Much Debt Can Hold Back Your Growth
It Can Impact Your Credit and Access to Future Funding
When your coffee shop is weighed down by debt, it’s not just your current finances that are affected—it can also hurt your future options. If your shop’s credit score takes a hit because you’re not able to keep up with debt payments, it could be much harder to secure loans or lines of credit in the future. And if you need extra funding to cover an emergency, being in a bad financial position could limit your options.
Additionally, suppliers and vendors might be less willing to work with you if they see you’re struggling with debt. They might even start requiring upfront payments or tighter terms, which could hurt your ability to keep inventory stocked and operations running smoothly.
I don’t mean to sound like a downer, but I really want to emphasize how important it is to be cautious about taking on too much debt.
The Mental and Emotional Toll on You and Your Team
Debt isn’t just a financial issue—it can take a serious mental toll, too. As a coffee shop owner, you’re already balancing a lot—staff, customers, inventory, the list goes on. Add the stress of managing debt, and it can quickly start to feel overwhelming.
That stress doesn’t just affect you. It can also impact your staff and your customer service. If you’re distracted by financial worries, it’s harder to keep your focus on what’s important—like creating a great customer experience and building a positive team culture. Everyone feels the pressure, and it can lead to burnout, lower morale, and even some missteps in decision-making.
Side note: I personally struggled with financial PTSD for a long time after having been in a 23-year financially destructive marriage. While it wasn’t business debt, I can tell you that the stress from all that definitely still sometimes has an impact on my personal AND business financial decisions I make today.
Long-Term Sustainability Is at Risk
Being able to grow your coffee shop is important, but you also need to make sure you’re building a sustainable business. If you’re constantly relying on debt to fund your operations or growth, you’re risking falling into a cycle where you’re borrowing just to keep the business afloat. This will eventually take a toll on your long-term sustainability.
If your debt payments keep growing and your profits aren’t keeping pace, it’s going to be difficult to maintain positive cash flow, let alone make the kinds of investments needed for growth. Without a solid plan to reduce debt over time, your coffee shop will struggle to maintain resilience for future challenges.
There Won’t Be Room in the Budget to Design and Implement a Contingency Plan
When your coffee shop is weighed down by debt, it can feel like there’s just no wiggle room in the budget. With so much of your revenue going toward loan payments and interest, things like contingency plans and emergency readiness often get pushed to the back burner.
But here’s the thing—a contingency plan for disruptions is the backbone that holds up your business plan, financial plan and marketing plan.
Without setting aside money for designing a contingency plan, or training your team for unexpected situations, you're leaving your shop exposed to great risk when those disruptions walk through your door. And when something goes wrong, you’ll be scrambling to fix it instead of having a plan in place to handle things smoothly.
What Are Some Things You Can Do?
While debt may seem like a never-ending cycle of paying it down and then watching it increase, there are some things you can do to manage debt without sacrificing your coffee shop’s future.
I know there are differing views on how to pay off debt: For example, do you focus on the higher interest rates first or the lowest balance first?
The Snowball: I am personally a fan of the debt snowball. (And I’m pretty sure it’s been around a lot longer than Dave Ramsey). This is where you tackle the loans with the smallest balance first and then move up the chain depending on how many loans you have out there.
Negotiate Terms: Absolutely reach out to your lenders or vendors. Sometimes, they’ll offer you better payment terms or lower interest rates if you ask.
Keep Track of Your Cash Flow: Stay on top of the day-to-day finances of your coffee shop so you know exactly where your money is going.
Will Your Coffee Shop Ever Be Debt-Free?
If your shop is currently in a lot of debt, I know it can feel like a huge weight on your shoulders. While the ultimate dream is to have a debt-free, strong cash-flowing coffee shop, every situation is different. However, I do believe it is absolutely possible to have a debt-free shop.
One of the best resources I have found for small business finances is the Profit First Method created by Mike Michalowicz. It is such a simple system, yet so very powerful.
I’ll go into more detail next time, so in the meantime, head over to his website to grab a few of his free Profit First Method tools.
P.S. Before you head out, let me ask you: How resilient is your coffee shop? If you’re not quite sure, why not schedule a complimentary Resilience Assessment today? You’ll get your Resilience Score along with a detailed report that shows any gaps and how you’d hold up during a disruption. Plus, we’ll share our thoughts on next steps to boost your business’s resilience, no matter if we end up working together.
