What to Look for When Buying a Cafe or Coffee Shop
Establish if the café is being run efficiently.
When purchasing a café or coffee shop ensure you collect profit and loss statements and balance sheets prepared by the vendor’s accountant. These will tell you the story behind the café or coffee shop you’re looking to purchase. Using Benchmarking, the same tool that the Australian Taxation Office utilizes to establish if a business owner is being fraudulent in the declaration of profits, you can establish whether or not a business is in fact the prospect it has been painted as.
Increase your return on investment by reducing your purchase cost.
More often than not the buying and selling of a business is not an equitable win win scenario. Usually it is either an inexperienced business purchaser overpaying for a business or an exhausted and frustrated flailing business owner cutting their losses and selling for what they can. The key to buying business is to ensure you are not driven by emotion and purchasing the café or coffee shop on the ‘look and feel’ of the shop or the taste of their coffee. The new business must tick all of your boxes not just some. Purchasing low will give you a greater return on investment, and a greater probability of selling your business down the track for more than you purchased it. This is one of the easiest ways to make money in your new business.
Calculate the value or selling price of a café or coffee shop.
Never make an offer on the business relative to the asking price. Many business owners have a selling price in mind based on no reasonable calculation. The annual net profit of the business multiplied by 3 – 4 is a good place to start. This will allow you to pay off your business in 3 to 4 years and begin making money within the term of your lease. Obviously a good place for you to open negotiations is their net profit multiplied by 3. This is not a clear cut rule, but my market observation and what has become common practice in the industry in Australia. There are factors that can influence this formula which I’ll discuss in a later post.