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How To Start A Boba Business

How To Start A Boba Business

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How To Start A Boba Business

How To Start A Boba Business

Boba tea has become an increasingly popular drink in recent years. With its sweetened tea, chewy tapioca balls, and endless customization options, boba shops have popped up in cities across the country.

If you’re an aspiring entrepreneur looking for a fun business opportunity, starting your own boba tea shop could be a great idea. But as you probably suspect, there’s more to running a successful boba shop than knowing how to whip up a tasty cup of milk tea. In this guide, we’re going to walk you through the essentials of starting your own boba business.

Business Overview

Bubble tea, also called boba or pearl milk tea, is highly popular in Taiwan and has since become a go-to drink in Europe and the United States. The basic bubble tea is made of black tea, milk, ice, and tapioca pearls, but some teas include chewy jelly, fruits, seeds, and more. These teas are served in clear cups to take advantage of their visual appeal, and they offer a healthy alternative to coffee and other fast food drinks.

As bubble tea has gained popularity in the United States, entire stores dedicated to the drink have opened. These stores offer a variety of flavors, mix-ins, and toppings and provide custom-made drinks while the customer waits.

Product innovation is an essential part of running a successful bubble tea business. Identifying the toppings and ingredients that are currently in demand can help your store appeal to a broad audience, but getting creative and trying some new, exciting, non-traditional ingredients can also set your store apart from others and bring in customers.

Industry Summary

The boba tea industry has seen remarkable growth in recent years. Originating from Taiwan, this delightful beverage has conquered taste buds across the globe. In the United States alone, the market size for boba tea is expected to reach new highs. The global bubble tea market generated $2.29 billion in revenue during 2022 and is expected to grow 7.51% annually through 2030 to reach $4 billion.

Some trends shaping today’s boba tea market include premium ingredients, unusual flavors, health-conscious options, and tech-enabled ordering. Boba shops today focus on quality tea leaves, real fruit purées, house-made syrups, and gourmet toppings to stand out. Unique flavor combos like matcha-mango or brown sugar-oregano are popular. Low sugar and low-calorie options are on the rise to attract health-focused consumers.

Steps To Start A Boba Business

Step 1: Assess the Market

So you’ve got this fantastic idea to open a boba business. Your mind races with thoughts of delicious tapioca pearls and Instagram-worthy drinks. But before signing a lease, we need to look deeper into whether starting a new boba shop is a good idea.

First things first. You’ll want to zero in on who’s most likely to walk through your doors. It turns out that boba is a big hit among younger people, especially millennials and Gen Zers. You might want to look for areas teeming with this age group. Urban spots and college towns? Those are usually goldmines. Boba shops located there tend to see higher sales. Why? Because younger folks are not just looking for a drink; they’re seeking a trendy experience and a cool new post for their social media. The Census Bureau and local economic development agencies have access to demographic information that will help in this stage.

Once determining a sizeable market exists, it is time to analyze the market landscape. Are there already numerous boba shops in your target area? If so, what are their offerings, prices, and customer traffic like? By researching these factors, you can identify the current demand and find opportunities to differentiate your business. Perhaps there’s a gap in the market for more unique flavors, healthier options, or a more inviting ambiance.

Last but not least, why not get some pointers from people who have done this before? Try reaching out to boba shop owners in other cities or regions. Many are open to sharing what they’ve learned about picking the right location and attracting the ideal customer base. You might even get a few tips that help you sidestep mistakes they wish they’d avoided.

Step 2: Write a Business Plan

So you’ve done your market research, and everything still looks positive. What’s next? Writing a business plan. This isn’t a mere formality or hoop to jump through. Think of it as your reality check, a thorough exam that puts your concept to the test. It also serves as your roadmap for the journey ahead, providing a detailed outline of your business vision, goals, and the nuts and bolts of how you’ll get there.

A business plan also makes you pause and think about your income and expenses, offering a snapshot of your financial health. You’re not just daydreaming about a cool boba shop anymore; you’re projecting real numbers that help you gauge whether the business is actually feasible. If the numbers don’t add up, it’s better to know now than halfway through your journey.

When seeking funding for your boba business, certain sections of your business plan are particularly important. The ones I recommend focusing on include:

Market analysis: In this section, demonstrate why your business has a strong chance of success. Since you’ve already done your market research, you’re not starting from scratch. Paint a picture of the demand you’ve identified, how your offerings differ from competitors, and how you plan to capture market share.

Management team: The management team, which includes the business owners, plays a significant role in the success of a business. Lenders and investors often judge the viability of a business based on the competence and experience of its team. Therefore, it’s important to highlight the skills, qualifications, and relevant industry experience of your team members.

Location: The location of your boba shop can significantly impact its success. In this section, discuss why your chosen location is ideal for your business. Factors to consider include population demographics, proximity to high-traffic areas like universities or malls, competition, and rent costs. Lenders want to know that your chosen location maximizes visibility and customer access.

Financial projections: Perhaps the most important section when seeking funding, the financial projections section details the projected income and expenses of your shop. Banks want to see that you’ve thought about money in a detailed way. But don’t just throw in numbers; be prepared to explain how you arrived at them. Lenders want to see realistic projections that show profitability down the line.

Before You Go to the Lender

Before you take your plan to a bank, have someone with business experience, like another business owner or an accountant, look it over. They might spot issues or gaps you didn’t see, helping you refine the plan further.

Related: How to write a business plan

Step 3: Source Funding

Starting a boba business requires capital to cover various costs such as equipment, rent, supplies, marketing, and operating expenses. Here are some options for finding the money to start your boba business:

Personal savings: One of the most straightforward ways to fund your boba business is through your personal savings. This method eliminates the need for loan repayments and interest charges, leaving you with more cash flow for your business operations.

Loans from family and friends: If your personal savings aren’t enough, consider borrowing from family and friends. They may be willing to provide loans at favorable terms, often with lower interest rates than traditional lenders. Mixing business and personal relationships can be tricky. Always be transparent about the terms and put everything in writing to avoid misunderstandings.

Bank loans: Traditional bank loans are another option. Lenders generally require a borrower to invest at least 15% of their personal funds towards the total cost of the project, have a good credit score, and provide sufficient collateral. If a bank deems the loan too risky, they may use an SBA (Small Business Administration) loan guarantee to back up the loan. This can make it easier for you to secure the loan.

Microloans: If your funding needs are relatively low or you’re unable to get credit from traditional lenders, microloans are an excellent option. These are smaller loans typically provided by economic development organizations. Some even offer business training in addition to funding, helping you build the skills necessary to run a successful boba business.

Angel investors: If your boba business brings something new and exciting to the table, angel investors might be interested. These individuals are looking to invest in high-growth businesses and often bring valuable experience and networks along with their financial investment. But there’s a trade-off: angel investors typically want equity, making them partial owners of your business.

Related: Finding the money to start a business

Step 4: Register the Business

You’ve got the vision, market demand, and maybe even the funding. But there’s something equally important to take care of: making your business legal. Each state has its own rules, so let’s go through some of the key things you’ll need to consider.

Choosing the right business structure: First off, you’ll need to decide what type of business structure best suits your boba venture. The four main types are:

  • Sole proprietorship: This is the simplest and most cost-effective structure. It’s easy to set up but doesn’t offer personal liability protection. You’re personally responsible for any business debts or legal issues.
  • General partnership: Here, you and your business partner share responsibility. Like a sole proprietorship, it’s relatively simple but also leaves you personally liable for debts and legal matters.
  • Corporation: This is a more complex structure that provides personal liability protection. However, it’s costly and requires following some administrative rules.
  • Limited Liability Company (LLC): This offers a balance between ease of management and liability protection. An LLC protects your personal assets but is easier to manage than a corporation.

For many small businesses, including boba shops, LLCs are a popular choice because they offer liability protection without the more cumbersome requirements of a corporation.

Related: Comparison of business structures

Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.

Some popular LLC formation services include:

IncFile - $0 plus state fees & free registered agent for 1 year!

ZenBusiness - Best for beginners. $0 plus state fees & free registered agent for 1 year!

Northwest - Best privacy protection. $39 plus state fees & free registered agent for 1 year!

Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.

During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.

Related: Finding a domain name for your business

Food and beverage licensing: Because a boba shop involves handling food, you will also need to go through food safety & certificate sanitization training and earn proper licensure or certification, typically referred to as a Food and Beverage License, as required by your state.  Your shop will be subject to regular inspections, typically from the health department, to ensure proper rules and regulations are followed.

Business licenses and permits: Depending on your location, there will likely be a variety of general licenses or permits needed before opening. This could include a business license, seller’s permit, Occupancy Permit, and Employer Identification Number (EIN).

Related: What licenses do boba shops need?

Step 5: Acquire and Set Up Your Shop

The next step, and one that most people are looking forward to, is getting the keys to the shop and setting it up.

The best location can give your boba shop the exposure it needs to succeed. High foot traffic areas are your friends; think near colleges, offices, malls, and cafes. When it comes to the size of your boba shop, aim for a spot that’s around 1,000 to 1,500 square feet to accommodate seating for customers, a production area for making the boba drinks, and storage for ingredients and supplies. Also don’t overlook factors like visibility from the street, ease of access, and parking. These elements not only make your shop more appealing to potential customers but also can affect your sales significantly.

Before you sign anything, make sure you understand the lease terms, and you didn’t skip the step on securing funding, as funding can take longer than expected or be denied altogether. This is also the time to negotiate the length of your lease, the rent price, any annual increases, and any tenant improvement allowances that might be available. Remember, every term is up for discussion, and a favorable lease can set you up for long-term success.

Once the lease is signed, the real work begins. You’ll need to design a layout that enables efficient beverage preparation while providing a comfortable space for customers. Whether you hire professionals or take a DIY approach, planning the flow of the shop is crucial. Be sure to obtain all required permits before starting work.

You’ll also start purchasing equipment, such as fridges, freezers, brewing machines, and sinks. You’ll also need a point-of-sale (POS) system to handle transactions. You can either buy these outright or lease them, depending on your budget and needs. Don’t forget to furnish the place. Tables, chairs, and decor elements should align with the ambiance you want to create for your boba shop.

Related: Choosing a business location

Step 6: Select Suppliers & Test Recipes

Now that you’ve tackled some of the big-ticket items like location and funding, it’s time to focus on sourcing the supplies and testing the recipes you’ll need to make your boba shop a hit. Finding reliable suppliers is important for consistent quality and seamless operations.

In addition to searching online, your first stop for finding boba suppliers could be industry trade shows and conferences. These events offer valuable resources, including supplier lists and networking opportunities. Don’t hesitate to strike up a conversation with other boba shop owners; they can provide valuable referrals based on their own experiences.

Before committing to a supplier, it’s a good idea to test the quality of their products. Most suppliers in the boba business offer samples. Request samples and evaluate the quality of the tea, syrups, and other ingredients. Remember, the taste of your bubble tea hinges on the caliber of your supplies. Keep in mind that most suppliers won’t disclose pricing or set up an account until your business is officially registered, so go back to that step if you skipped it.

Another option is to scout local Asian grocery stores and markets for essential boba ingredients like tapioca pearls, fruit juices, taro, and coconut milk. While prices may be higher, these stores can be lifesavers if you run out of something and need a quick replacement.

Last, the look of your product can be as important as the taste when it comes to attracting and retaining customers. Research suppliers who offer custom-printed cups, straws, and packaging. Having your brand and logo on these items adds a professional touch and helps solidify your brand identity.

Step 7: Develop the Menu and Set Prices

With the recipes perfected and accounts with suppliers set up, the next step is to create a menu and set prices. A few tips at this stage:

Print menus and signage: Physical menus in your shop and a large menu board can serve dual purposes. They not only inform customers about what’s available but also drive orders. Clear and attractive signage can lure in passersby and convert them into paying customers.

Start simple: Overcomplicating your menu can do more harm than good. Begin with a handful of core offerings and consider adding more options as you gauge customer preferences and sales data. Too many options can overwhelm customers and make decision-making harder for them. This leads to longer waits for customers in line, which reduces customer satisfaction.

Categorize your items: Your menu should be as easy to read as it is to order from. Group related items together to guide the customer smoothly through the options. For a boba business, this means separating the menu into clear categories like milk tea, fresh tea, and smoothies. This logical layout speeds up the ordering process and improves the customer experience.

Costing out recipes: Knowing exactly how much each drink costs you to make is fundamental to setting your prices. Good suppliers often offer help in this area. They can provide detailed cost breakdowns for your recipes, which allows you to price your drinks in a way that covers costs and leaves room for profit.

Step 8: Hire Staff

Starting a boba business involves hiring and training employees for both the front and back of the house. As a new employer, you have several responsibilities, including ensuring your staff is well-trained, maintaining a safe and healthy work environment, complying with labor laws, and managing payroll and benefits.

Before you can hire employees, there are legal requirements that need to be met. Firstly, you must obtain an Employer Identification Number (EIN) from the IRS, which is used to identify a business entity and to track your business’s transactions. Secondly, you need to verify the employment eligibility of your hires to ensure they are legally allowed to work in the U.S. This is typically done through the I-9 form.

Additionally, you’re required to report all new hires to your state’s directory within a certain period after the date of hire; the specifics of this requirement vary by state. Most states also require businesses to carry worker’s compensation insurance to cover workplace injuries or illnesses.

Finally, as an employer, you need to comply with federal and state labor laws. These laws cover various aspects of employment, including minimum wage, overtime, meal and rest breaks, and safety regulations. Failure to comply with these laws can result in penalties and legal issues.

Related: State guides for hiring your first employee

Step 9: Create a Marketing Strategy

Starting a new boba business is exciting, but success doesn’t happen overnight. It requires a well-planned and executed marketing strategy to reach your target audience effectively.

To begin with, it’s essential to establish your brand identity. This includes defining your unique selling proposition, understanding your target audience, and developing a brand personality that resonates with your customers. Whether it’s unique flavors, a cozy atmosphere, or lightning-fast service, understanding your unique selling proposition and target audience forms the backbone of your marketing efforts.

An inviting website acts as your business’s online storefront. Here, customers can explore your menu, find out where you’re located, and get a taste of your brand personality. Think of your website as more than just a digital brochure; it’s a platform that can feature blog posts about the boba world, integrate with your social media feeds, and even handle online orders. Don’t overlook good Search Engine Optimization (SEO). When someone in your area Googles “best boba near me,” you want to be the shop that shows up first.

Social media is another powerful tool for marketing your boba business. Establish a presence on major social media platforms like Instagram, Facebook, and Twitter and post regularly to engage your audience. Sharing high-quality photos and videos of your products, creating engaging content, and running promotions and contests can effectively attract and retain customers.

Finally, when it comes to your grand opening, consider special promotions to lure people in the door. Discounted drinks or a free topping can make a customer’s first visit memorable, encouraging them to return and spread the word.

Related: Low-cost ideas to market a new business

Step 10: Prepare to Open!

You’re almost there. Before you can welcome customers through your door, there are still some remaining steps to take care of. While every business will have different needs, these are some of the most common tasks to consider.

Business insurance: Acquiring business insurance is important to protect your business from potential risks or losses. This could include general liability insurance, property insurance, workers’ compensation, or spoilage insurance to cover perishable items like fresh fruit and milk in case of a power outage.

Setting up bookkeeping: Accurate and timely financial records are essential for any business. You might use software like Wave Accounting (FREE) or Quickbooks, or hire a part-time bookkeeper. Make sure to track expenses, revenue, and inventory.

Opening a business bank account: Opening a separate business bank account helps keep business finances separate from personal ones, simplifying bookkeeping and tax preparation.

Purchasing management software: Streamline operations with point-of-sale and management software. Systems like Square for Restaurants, TouchBistro, or Clover offer various features tailored to food and beverage businesses.

Joining industry associations: Associations like the Specialty Tea Institute and the American Beverage Association offer networking and professional development opportunities. These can provide valuable insights and connections in the beverage industry.

Preparing for the grand opening: Last but not least, plan your grand opening. This could be a soft launch with close friends and family to test out systems or a larger event that attracts attention and pulls in customers.

Greg’s Tip: Understanding your costs is important, especially in a business where the average customer is only spending a few dollars at a time. Knowing the price of each ingredient, labor cost per hour, and overhead like rent and utilities helps you set a price that’s not just competitive but also profitable.

Greg's Business Tip

Common Questions When Starting A Boba Business

How much does it cost to start a bubble tea business?

Starting a boba business can range widely in cost, depending on various factors like location, size, and the quality of materials you choose. However, you could be looking at an initial investment between $40,000 to $200,000 to get everything up and running. Let’s break down these costs:

Location deposits: The cost of your location will depend on the size, location, and the local real estate market. Deposits for commercial leases can range widely, but typically equate to one or two months’ rent. In populous areas or significant locations, this cost is likely to be higher.

Shop setup: Any renovations and buildout, including counters, seating, signage, and displays, may cost $5,000 to $20,000.

Equipment: Setting up a boba tea shop requires specialized equipment such as tea brewers, shakers, sealers, and refrigeration for storing ingredients. Equipment costs could be up to $10,000.

Initial inventory: Your start-up supplies including tea leaves, milk, tapioca pearls, sweeteners, and cups, may cost between $2,000 to $5,000.

Business registration: Expect to spend a few hundred dollars to register your business and get the necessary permits.

Insurance: Expect to pay around $1,000 to $2,000 upfront for insurance.

Marketing: Initial marketing costs might include expenses for creating a logo, setting up a website, and launching promotional activities for your grand opening. These costs can vary widely based on the strategies you choose to implement.

While these are some of the key start-up costs, it’s generally recommended to have three to six months’ worth of operating expenses on hand as a buffer. This can cover costs like rent, utilities, employee wages, and inventory replenishment.

How profitable is a boba business?

The profit that a boba business owner can make depends on various factors, including the location, operating costs, and the number of cups sold per day.

Here is an estimated breakdown of the revenue, expenses, and final profit for a boba business, based on some industry averages

Revenue: The average selling price of a cup of bubble tea is between $3.50 and $6.00. Assuming a selling price of $5.00 per cup and 200 cups sold per day, the daily revenue would be $1,000. Multiplying this by 360 days in a year, the annual revenue would be $360,000.

Expenses: On the expense side, consider the cost of goods sold (ingredients, cups, straws), which might be around 30% of your revenue. That’s about $108,000 per year. Add in operating expenses such as rent, labor, utilities, and maintenance, which could be around $15,000 per month. Your total expenses would be $108,000 (cost of goods) + $180,000 (operating expenses) = $288,000.

Subtract this from your revenue of $360,000, and you’d have a profit of $72,000 annually.

What skills are helpful in running a boba business?

While you won’t need a business degree to start your own bubble tea shop, certain skills and experiences are helpful.

Food service experience: Experience working in the food service industry and a knowledge of safe food handling processes is an advantage in this industry.

Awareness of bubble tea and health trends: A business owner aware of current health and bubble tea trends can make well-informed decisions about product offerings and marketing to better appeal to consumers.

Creativity: From identifying new flavors and recipes to finding the perfect marketing campaign, creativity is a valuable skill for a bubble tea business owner.

Management experience: Most bubble tea businesses require multiple employees. A business owner who has previously hired, trained, and managed staff will be well-prepared for this responsibility.

Customer service skills: Creating a positive customer experience is an essential element of building a loyal customer base. A business owner will benefit from previous experience working with customers.

Multitasking abilities: Bubble tea businesses can get busy, and a business owner needs to be able to balance multiple priorities.

What is the NAICS code for a bubble tea business?

The NAICS code for a bubble tea business is 722515.

The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.

Related: What is a NAICS code?

Additional Resources:
National Juice Bar Association

How To Start A Boba Business

How To Start A Boba Business

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