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Five things you must know before buying a cafe or coffee shop

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How To Start A Coffee Shop or Cafe: Five things you must know before buying a cafe

1. 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.

2. 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.

3. 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.

4. Work in the business prior to purchasing.

It’s not uncommon for business owners not to declare their full turnover or takings in their business.  This is highly illegal and employed to evade tax.  Analysing profit and loss statements and calculating the percentage of material purchases against turnover will quickly show this.  The business owner may quietly suggest that the business makes more money than what he/she is showing on the financial reports.  This may be the case but you should never take somebody’s word for it when investing.  A simple solution to this is to work in the business for a period of time.  In doing so you can quickly identify if there is money being skimmed from the registers and sales not being recorded.  You can calculate staffing levels and wage estimates, and also calculate daily material costs (that is food and supplies purchased).  Working in the café will also identify if any of the equipment you could be paying for is faulty or in disrepair.  It’s a horrid story hearing of people buying a café only to have to repair and replace most of the plant and equipment.

5. Understand your Café or Coffee shop lease

Make sure you go through your lease very carefully, it’s your responsibility to understand this document.  Having your lawyer go through it may uncover a few things and it’s always recommended that you use a lawyer to identify clauses in your contracts that may not be in your favour, but nobody understands your business and requirements better than you, and certainly nobody cares as much as you do.  Examine the term of the lease and any options.  I would not be paying full valuation on a business if there was little left on the lease and you have no assurance from the landlord that a new one can be drawn up at the sale of the business with a full term and option available.

There are more factors which need to be considered when purchasing a café and I would love for you to share some of your experiences here with everyone.  If you’ve had a bad experience purchasing a café or a great one leave a comment and share the knowledge.

  • To learn the most valuable step in opening a cafe or coffee shop you must read this post on how to start a cafe.

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171 Comments

  • PB
    Posted May 19, 2012 at 6:17 pm

    Very interesting article, im currently looking at buying a cafe and found this very useful especially in terms of valuation. Thanks

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted November 8, 2012 at 9:43 pm

      G’day PB,
      Watch this space, I’ve just gone through the process of valuing a couple of my cafes with multiple business brokers, which has opened my eyes somewhat to how little most brokers understand about the value of certain businesses. My next article will look a little more closely at this.

  • Chris
    Posted April 24, 2013 at 3:14 am

    ..excellent..” the devil is in the detail..” check every piece you can uncover…and offer the lowest price ..always….TRUST NO ONE….not even your lawyer..read and read again..negotiate the lease with tough motives…give away NOTHING……

  • User Avatar
    Post Author
    The Hospitality Coach
    Posted April 24, 2013 at 3:49 am

    Hi Chris,
    You’re absolutely right, the devil is in the detail. The other thing I’ll say about buying a business is that alot of the time the easiest way to make or lose money in a business is at this point in the buying process. If you decide not to buy a lemon which has little chance of recovering you could save yourself thousands. On the flip side of the coin buying a good business at a good price affords you a capital buffer, should the economy turn and the value of the business is affected buy buying confidence.

  • akash
    Posted September 10, 2013 at 3:05 pm

    hi all just asking about 3 question
    1 ) what is the good to buy running business or established a new ?
    2) how to put offer or ask for negotiate ?
    because i do not know how to go for offer i am new buyer!
    thanks i like your article very informative lucky i found it

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted September 12, 2013 at 2:18 am

      Hi Akash,
      I prefer an established business, having established 12 new ones myself I can honestly say it’s much cheaper to buy a pre-established where most of the equipment is being sold well below cost. Just be careful here though, a bargain can be had if the business is being sold because of bad management. But if the business failed because of geographic and traffic problems it may not be the bargain you think.

      An offer is usually given verbally initially, either directly to the owners or the broker. If they like the offer the broker will ask to have you sign a letter of offer.

      Remember often money is made or lost in a small business purchase within the cost of purchasing. Always base your offer on their current net profit figure. If the business makes no money it worthless, then it’s up to you if you just want to buy the scrap equipment.

      Hope this helps. Message me if you need further help on this process.

  • Rose Filidis
    Posted January 24, 2014 at 4:50 am

    Hi,
    Looking for advice please. A small eatery/café has become available and the place is not being operated at the moment. The business is not up for sale and the property owner has offered it to my husband to work it and pay rent as well as the normally associated expenses with running the business. It is a 6 day a week business and closes in the evening at 6pm and located in a popular small suburb. It appears to cater for office workers who liked to ‘home style’ food previously offered. My husband is considering it and he can cook well, but do not wish to invest financially as we are not in a position to do so. Your advice on what to look out for and what is expected by the consumer so the business is profitable as we are in our 50’s and have a mortgage. I cannot help and to begin with he would need 1 or 2 staff members to assist. Your help is most appreciated.

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted April 27, 2014 at 11:39 pm

      Hi Rose,
      My apologies for the delay in getting back to you, the site was recently inundated with spam comments and i almost lost your post. There is no better business than one you don’t have to invest financially in, so this does seem attractive. Firstly make sure the location is a good on. I would then ask for historical sales figures and use KPI estimates which i have spoken about in previous posts to calculate wage and material expenses. Then add your overheads and this will give you a fair idea if the business is sustainable. From there you just need to make sure your service and food offering is remarkable and the rest should fall into place. Keep in touch and let me know where you are in the process now. Good luck. pete

  • the hopeful buyer
    Posted February 26, 2014 at 8:16 pm

    Hey!
    Thanks so much for this article, it’s great!

    I’m looking to buy a cafe (in NZ) and am a first time buyer. What sort of information should I ask for in terms of how the business is run? Is it reasonable to ask for financial statements or are these already available publicly?
    The details are hugely important- what are some contract details to look out for from your experience?

  • Kenny
    Posted April 25, 2014 at 12:35 pm

    Hi, thx for the article, im looking forward to buy a coffee shop now and I just got a few question.
    In QLD state
    1) What kind of licence does it require?
    2) How can I know if the equipment need to repair?
    3) What kind of conract do i need to run a coffee shop?(beside the business contract between me and the seller and the leasse)

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted April 27, 2014 at 11:31 pm

      Hi Kenny,
      Great questions,
      1. To open up a coffee shop, there are no real licenses at all required unless your local council requires for you to register with their food Saftey Authority and register outdoor seating. But the best place to start is by contacting the local council.
      2. It’s difficult to know just by looking at equipment if it will require repairing, but from my personal experience you should assume that it will all require repairing. I’ve caught myself so many times saying “Is there nothing in this place that actually works!!” So if you are offering to purchase equipment don’t hesitate to begin negotiations at 1/4 of the second hand cost. Because you will end up spending money on repairing things, if not immediately in the following months.
      3. Other contracts you may establish are those between yourself and business partners. Company Documents includeing Company and Trust Deeds and business name registrations. Aside from your above mentioned contracts, you might also establish credit contracts/applications with your suppliers.

      Hope this helps, if anyone can think of any other items we can suggest Kenny consider please leave a message below. Keep in touch Kenny and good luck.

  • john
    Posted June 27, 2014 at 9:36 pm

    Hi. can anyone advise me on buying a cafeteria in a hospital. i am a new buyer. I am not sure whether hospital staff will use the cafe or not.
    i would appreciate if any one can guide me on this. tnx

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted August 4, 2014 at 10:55 am

      Hi John,
      A cafe/cafeteria in a hospital is a great business. I would trip over myself for this location. We all pay rent which covers our occupancy 24/7 over the term of the lease. What a business like a hospital does for you is gives you the opportunity to earn a decent turnover almost around the clock, with an endless stream of customers both regulars in the form of researchers and workers and visitors. If the lease, rent and overheads are reasonable I would seriously consider this. Let me know if you want a business partner 🙂
      Good luck John and keep in touch, would love to hear how you’re going.

  • Michael Cleaver
    Posted July 21, 2014 at 9:08 pm

    I’m looking to buy a coffee shop that I have a good relationship with the owner. Have you ever negotiated a sale where the owner finances the transaction? For example I would make a downpayment and then monthly payments for the coffee shop.
    This would seem to reduce my risk and capital needs up front. The difficult part would be working out an equitable agreement because the relationship would last for years as opposed to agreeing on a single selling price. Thanks again for the great article.

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted August 4, 2014 at 10:44 am

      Hi Michael,
      Thanks for surfing by,
      I’ve actually sold a few of my cafes in the past with ‘vendor finance’. I did this to help people I really wanted to make an opportunity for. There really is nothing strange about vendor financing a cafe sale, but as you mentioned you will have a longer lasting relationship with the person selling you the business. If you have a good relationship with them… go for it. I would suggest an initial lump sum amount and then manageable repayments that won’t be a burden on the business. Vendor financing does show to an extent (and this isn’t a rule) that the person selling you the business believes that the business can generate enough to pay itself back so that’s somewhat comforting as long as the seller isn’t setting you up to fail. Good luck with the new business, and keep in touch if i can offer any assistance. pete

  • Sharron
    Posted July 29, 2014 at 4:15 am

    Hi.
    Your article is so far on top of all those i have read on the internet.

    I have a query. I have put down a deposit on a café in a very popular shopping centre in Sydney.

    I just want to know from a buyer’s perspective, how to calculate how much a cafe’s worth. Does it solely depend on net turnover? and in the long term, how to run the café as i am a first time buyer.

    Thanks in anticipation

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted July 30, 2014 at 10:22 pm

      Hi Sharron,
      Thank you for the kind words. Well there are many ways to calculate what a cafe is worth, and at times it can be argued that depending on what the economy is doing these techniques can either be reasonable or ridiculous.

      What I’ll share with you is how i simplify the process to justify an offer or cost of new business in my own head. I never work on turnover… With great turn over can come great expenses… so what you should always look at is the net profit.

      I take the average net profit over the last 2-3 years and i multiply it by 3-4 years. That is if there is a 5 year lease on offer… so the lease will play a part here also.
      I use the above as a starting point and benchmark because it says to me that if i run the business the way they did for 2-3 years of the lease, i’ll get my investment back. Then I’ll have 2-3 years left on the lease to make a profit without repaying my investment.

      This really is an over simplified explanation and there can be many factors that can affect this, so I hope at least this gets you thinking.

      But please remember be cautious about buying a business that isn’t making money. A business not making money is a liability, these are not uncommon in the current economy.

  • Vic
    Posted August 14, 2014 at 6:44 am

    Hi coach!

    I live in Brissy, a small shop sits around 10, beautiful well taken care of coffee shop.

    Owners are selling after operating for 9 months only as they are moving overseas and they are running at a loss, owner explained it is because they have purchased everything, meaning they own it, nothing is leased or rented.

    Location is good but its a suburb about 6 ks from the city.

    Please ANY advice at all would be greatly appreciated, this is aimed to be a family business and my future lifestyle and I have 3 children so Im trying to be super careful with this one.

    Warm regards,

    Vic

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted August 14, 2014 at 11:03 am

      Hi Vic,
      The business shouldn’t be running at a loss because they purchased everything rather than lease it. The purchase of deppreciable assets would not even show up on a profit and loss but on an Balance Sheet. So i dare say their profit and loss reports are showing a loss most likely due to high rent, miss management or insufficient turnover. Without seeing the financials and only having the info you’re presenting me with, i would approach this with caution, especially if you haven’t run a business like this before.
      If they’re running at a loss, they’re essentially trying to sell you a liability. You should only take this kind of scenario on if you take the view that you’re only paying for equipment at about 1/4-1/2 the retail cost and even then expect it to need repairing. And even then you need to be positive that your ability will be enough to turn it around. If the business is making a loss you should definitely not buy the business, but if you’re confident you can buy the equipment for a steal and take on the lease. Again without seeing the location or seeing the financials this is the best advice I can give… and this advice only comes from my own personal experience and is my own take on the scenario… Hope this helps, if you’ve got any other questions please write back.
      pete

  • Marissa
    Posted August 16, 2014 at 6:19 am

    I’m looking to buy a cafe and have been reading articles on cafe valuations. One article discusses how the business brokers value a cafe for sale. The formula goes as follows:
    5 days in a week = Net Profit x 2
    6 days in a week = Net Profit x 1.5
    7 days in a week = Net Profit x 1
    I’ve been in the market for a while searching for the right one to buy and found a lot of 7 days cafes that are asking more than 3 times of net profit. As you said in the article that 3-4 times NP is kind of norm in the industry. Since this article was written a few years ago so I’d like to know if 3 times NP is still reasonable in today’s market.
    Thanks!

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted August 16, 2014 at 10:51 am

      Hi Marissa,
      The formula you listed is an interesting one. I like it and it makes sense in the regard that a 5 day a week business is more valuable to buyers if it’s making money. But i suggest as a buyer you put in offers with what you feel comfortable as a return on investment relative to how long a lease you have available to pay off your investment. So lets say you have a business with a 5 year lease but there’s only 2 years left on the lease you would want your investment paid off in one year so the second year you’re making money… Ideally you’d want to speak with the landlord before buying the business and get a new lease drawn up, but this isn’t always possible in some circumstances ie franchises. Variables you need to consider is the profitability of the business, the length of the lease available, the stability of the lease (will you get another term?) and also your ability to build goodwill.

      I say multiply the net profit by the amount of years you would like this business paid off by. Especially now in our current economy there are some real bargains to be had even amongst profitable businesses.

      Keep in touch if you need some more specific advice.
      Pete

  • Vic
    Posted August 26, 2014 at 5:54 am

    Hi Marissa and Pete,

    First of all to thank you for your help Pete!

    Also Marissa, could you explain a bit further you valuation method? I am also looking to buy a cafe as well and thinking on maybe doing one from scratch, there is government free advice as well, maybe have a look at it as its been useful to me.

    I have been searching for a few months and have found that most businesses out there are selling at prices much higher than what they should be, I guess relying too much on emotional buyers.

    I should keep you posted for anything new happening in beautiful Brissy.

    All the best and thank you for your help again Pete.

    Warm regards.

  • Marissa
    Posted August 26, 2014 at 7:24 am

    Hi there,

    The article that discusses business brokers’ valuation formula can be found via this link:

    http://www.thecafeninja.com/2013/03/how-to-calculate-what-a-cafe-is-worth-what-the-business-broker-doesnt-want-you-to-know.html

    Good luck!

    Kind regards,

    Marissa

  • Rebecca
    Posted August 27, 2014 at 5:29 am

    Here’s a link to an article by somebody who bought their first café significantly cheaper than what they originally intended:

    http://selfavenue.com/how-to-buy-a-cafe/

  • Lachlan Skinner
    Posted October 22, 2014 at 11:53 pm

    Morning Hospitality coach!

    I am looking at purchasing a small cafe that has been running in town since 1992. I have seen the last two years figures and the net income at the bottom looks ok. Around 150k net income for the last two years, However his wages were only 27,000 so i’m presuming his personal income comes out of his net income generated by the business?
    He also lists plant and equipment at 80k but I believe its the original equipment from when he opened it back in 92, so it wouldn’t be worth paying anything for.

    I’m trying to work out what would be a reasonable offer to make without insulting him. I do need to check the lease expiration also, I have been out of the industry for 4 years but spent the first 9 years of my career managing a restaurant and i’m interested in getting back into it. I just don’t want to make a first offer over what he wanted and maybe pay too much!

    thanks in advance!

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted November 2, 2014 at 10:57 pm

      G’day Lachlan,
      When you say 150K net for the last two years is that to say the business turned over 75k per year? If this is the case i dare say he hasn’t included his own wage in these numbers. You should include an allowance for his wages including super, workcover, and leaveloading. Once you’ve included this amount you’ll have a better idea what the business leaves by way of profit and you can decide it it’s a liability or an asset. If it looks like it’s leaving a profit, you can offer an amount that would allow you to pay off your investment in an agreeable amount of years. My benchmark is usually 3 years.
      As for the equipment it’s a worthwhile exercise going through his plant and equipment list and seeing what the cost of the items are listed at and if that’s a fair current market price for second hand equipment that will likely need maintenance. If the equipment has been fully depreciated and is old you’re essentially paying for the convenience of not having to buy and install it all. At this point you want to reach an amicable price that you’re both happy with.

  • Han Pham
    Posted November 2, 2014 at 8:28 pm

    Hi Hospitality Coach,

    So glad we have found your site. We are a new buyer and recently we are consider of buying a cafe shop in Brisbane cbd however some of our friends think its a failed industry and we shouldn’t get into it. What is your thoughts on this?? Thank you for your time. Han

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted November 2, 2014 at 10:25 pm

      Cafe’s are definitely not a failed industry, but failed cafes are not uncommon. Why do most cafe’s fail? Well in my opinion it’s because many people buy a cafe to ‘buy themselves a job’. For the most part this is ok, as long as you don’t bring along an employee mentality. When i say employee mentality, i mean the mentality that you have a stable job and you will always be looked after. This is a serious mistakes for employees and an even more serious mistake for business owners. You won’t ‘just be ok’. When you own your own business or cafe, you are responsible for it’s success. You can’t just come to work and make coffee or breakfasts. You need to choose to make the best coffee in town and a breakfast people will take photos of for instagram.
      If you know in yourself you can make the choice to work towards being the best at what you’ll do you’ll succeed. If you you buy a cafe and just do what they were doing before you … well you’ll have it on the market as they currently do in no time.

      This reply wasn’t meant to be a downer… but moreso an affirmation that if you choose to be the best at what you are wanting to do; you’ll succeed.

  • Ben
    Posted November 6, 2014 at 1:10 pm

    Hi

    I am looking at purchasing a small cafe shop which is currently operated by the landlord. According to the agent he has been in the shop for over 12 years and he and his wife own a beauty shop next to it as well. This means I will have to negotiate the store price and lease rent and terms from my will be neighbour. Should I negotiate the selling price or the lease first or both at the same time.

    Thanks and regards

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted November 12, 2014 at 10:40 am

      Hi Ben,
      I suggest you negotiate both together. Although the value you place on the business will be directly linked with the terms on the lease. So here I am contradicting myself… establish terms to be offered on lease then… you can establish the value of the business.
      Best of luck and keep in touch.

  • Surfer
    Posted November 25, 2014 at 8:13 pm

    Good day.

    I have always wanted to open a café. I Love serving people great food and excellent coffee.

    Unfortunately there is one question that I am hesitant to ask.

    I have realized that it is considered good business practice to build a business up until it reaches its plateau stage and then to sell it, thus making your money. This idea is not for me. I would like to make a comfortable living by owning a café. Is it possible to get “wealthy” by owing a successful cafe? Not that I want to be rich, I just want assurance that I will be able to live my life to the fullest without warring to much about finances. In my area (Swakopmund, Namibia) most people have cafés to supplement another business. For example a B&B or curios shop.
    I have done most of the calculations already and it seems more that plausible but I am still not certain. And if you feel like giving any great recipes, it will be highly appreciated. :-p

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted December 22, 2014 at 9:49 am

      Hi Surfer,
      Great to hear from you, you’re definitely starting at the right place. Surprisingly many people getting into the hospitality business do not have ‘serving people great food and coffee’ as a high priority. If you deliver on this you will not have trouble getting people through your doors.
      It is possible to get wealthy by running a business, and building and selling is only one business strategy. It’s difficult for me to comment on the market conditions in Namibia as I’ve never been, but i can say that great service and great food brings people, and when people come and are happy with what you offer success happens. The key to your success really is choosing to offer something remarkable.
      I would like to offer you some recipes but even the recipes should align themselves what you want your business to be, so wouldn’t know where to start.
      Wishing you all the best
      pete.

      • Surfer
        Posted January 15, 2015 at 2:43 pm

        Hey Pete.

        I would like to thank you for your motivation. I am now strong on my way to opening my Cafe. If all the papperwork gets cleared and i am happy with the building i am currently looking at, i will be in business at the end of next year.

        So, in the event that you find yourself in Namibia in the future, please find the Offshore Cafe. There will be a drink and a beautifull meal waiting for you.

        Regards Surfer!

        • User Avatar
          Post Author
          The Hospitality Coach
          Posted January 22, 2015 at 11:08 am

          Hi Surfer,
          Thank you for your kind words, it really is my pleasure helping in anyway i can. Would be my pleasure to visit and say hello if I’m ever in Namibia. I’ve got a good feeling about your new venture and would like to wish you the greatest success.

  • Gloria
    Posted December 22, 2014 at 1:50 am

    Looking at buying an Established Cafe Owner’s started 7 years ago and Husband is very ill causing them to sell.
    they have only given 1 years takings.
    Although I like the figures, It is not unreasonable to ask for the 3 years takings,
    the net income is $64,000 and they are asking $195,000
    That is Pricey Yes/No
    Thank you for your time love reading all the Posts

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted December 22, 2014 at 10:06 am

      Hi Gloria,
      I would suggest that you ask if you can work in the business for at least one week to ensure you’re happy with the figures provided to you. If you’re to make an offer 3 times this make sure that the Net Profit of $64,000 includes managerial costs and double check your fixed overheads will not increase significantly into the new year or under a new lease. Is it pricey? Well… not really if you can see longevity and business growth.

      Hope this helps,
      Keep in touch and best of luck
      pete

  • J
    Posted December 30, 2014 at 10:02 pm

    Hey Pete , Hope you’re doing well. I have been planning to set up a place to serve fantastic coffee + atmosphere for a long time and the timing is now for me. I see an opportunity in buying an existing franchise which has been in business for about 4 years. A new outlet from the franchisor would be around $300K. I would love to go the independent route but feel this is the safer route for now with an independent as a next step. The owner is retiring and is simply trying to recoup as much as he can.

    Pros: Owner hands off , place poorly run and great location so I see much potential in turning this around.

    Cons: Place just about breaking even! so makes almost nothing in net profit but pays the owner about $36K. Also ignoring the ridiculous asking price by the owner we are hovering around a $120K offer.

    What are your thoughts on the cost? Total sales are around $200K pa I have seen unofficial p&L for 3 years and will see audited financial as we progress. Too much for very little? Would love to hear your thoughts on this.

    Jay

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted January 4, 2015 at 11:41 pm

      Hi Jay,
      If you have faith in your ability to add to this business and you know the franchise brand is good and will assist the business to grow 120K might not be a bad investment. $120K isnt a bad price. But you do need to undertake in your own due diligence.
      I’d recommend working in the business to confirm turnover and outgoings. Most business owners won’t object to this. What does strike me as noteworthy here is the net profit as a percentage of turnover:
      $36K (profit)/200K (Net turnover) = 18% This is very good. Almost too good, especially in a franchised business. I would expect this to be closter to 10% in this kind of business.
      Just make sure all overheads and other expenses are accounted for.
      Check your total wages as a percentage of turnover (i’d expect around 30-35%)
      Check your material costs as a percentage of turnover (i’d expect around 30-35%)
      This should give you some good clues as to the accuracy of your information or at least identify some current problems that need to be corrected.
      Hope this helps, its at least a starting point.
      Keep in touch – pete

  • Al
    Posted January 15, 2015 at 10:56 pm

    Hey thanks for posting, great info. I’m currently looking at buying a very well established Cafe however in recent years it’s lost clientele due to management and relies mainly on overflow from neighbouring cafes. I’m going to make an offer however I’ll be discounting it to reflect the work needed to bring the place back to where it used to be.

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      Post Author
      The Hospitality Coach
      Posted January 22, 2015 at 11:15 am

      G’day Andrew,
      Glad you like the blog, watch out for my next article where i discuss the irrefutable elements that need to be present in any successful hospitality venue. Sounds like you’ll soon be ready for that post 🙂 Discounting is reasonable in those circumstances, but make sure the offer remains reasonable. For any healthy business transaction it really needs to be win win.
      Best Luck, and keep in touch… pete

  • Han Pham
    Posted January 22, 2015 at 12:46 am

    Hi Pete,
    We have just recently found this cafe that has been around for almost 10 years. It’s doing very well and has won the Australian Cafe of the Year. The owner is going oversea and would love to sell the business to us. The owner has been there for so long and he’s also one of the best barista, he knows all his customers by name.
    Our concern is if we take over this business do you think we would still be able to maintain the good services and profits that it currently made? All his staffs also have been well trained.
    Thank you for your time Pete, much appreciated. Han.

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted January 22, 2015 at 11:36 am

      Hi Han,
      I think the real key to continuity for you will be to try and work in the cafe before the current owner goes overseas. This will allow you to see and experience the service and product and also management style of the current operator. Replicating this may be challenging but it will be much easier once you’ve worked closely with the management style. Keeping as many of the preexisting staff will also be pivotal to the transition and your ongoing training, so do the best you can compel the staff to stay with you. Staff by nature do not like change so the assurance of pay rates and roles will go a long way to keep them.
      If your position is good, the service remains the same or becomes better, and the food remains the same in the immediate, you shouldn’t experience too much of a drop off. You may even find that new eyes on the business in the longer term may actually increase sales, service and quality… and well turnover and profit.
      If you find yourself stuck with takeover processes or decisions, get in touch as I’ve sold various cafes and other businesses and experienced good handovers as well as bad ones. Perhaps that would be an idea for a new blog post.
      Keep in touch – pete

  • Han
    Posted January 23, 2015 at 2:26 am

    Hi Pete,
    Thank you for your time. Just wondering what is the procedure on doing a trial? How long is reasonable for a trial period? Would you do a trial first then do the training/handover? Or do both at the same time?
    Thank you, Han

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted January 26, 2015 at 10:46 am

      Hi Han,
      The trial is ideal when done before before making an offer. It allows you the ability to verify the numbers that have been given to you. It also allows you to learn the dynamics of the business, things like how the staff work together, how are the customers are treated, it also allows you to identify or verify your thoughts on the unrealised potential of a business. Most business owners shouldn’t have any reservations in allowing you to do a trial in order to sell their business.
      This is different from training. Training should be sought or requested at the time of making an offer.
      Hope this helps.
      pete

  • Han
    Posted January 23, 2015 at 6:06 am

    Hi Pete,
    Thank you for your time. Just wondering what is the procedure on doing a trial? Should you do a trial first then the training/handover? or should you do both at the same time?
    Thank you, Han

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted August 5, 2015 at 10:39 pm

      Hi Han,
      The Seller will want to know that you are sincere about the purchase, once they have this confidence they should have no reservations in allowing you to work in the business for a small period of time. At this stage you likely haven’t signed anything. After making your intention clear that you would like to purchase the business i would insist on a training period where the current operator will be present together with the pre existing staff, showing you the ropes.
      There’s no clear cut rule for training or trial periods, but I’ve found that if you ask nicely people will generally want to help you.

  • Han
    Posted March 21, 2015 at 2:29 am

    Hi Pete,
    Hope you are well. We are currently employing 16 casual staff for two of our busy cafe in brisbane cbd (both cafe are right next to each other). We are thinking of appointed 2 of these staff to be our Supervisors, one for each Cafe. Do you think it would be better off for us to employ these Supervisors on Casuals or Full-time basis? Thank you for your time Pete.

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted March 23, 2015 at 10:47 pm

      Hi Han,
      That’s a great question, If you go to the extend to training and also entrusting your new supervisors you begin to wonder if job security, by way of part time or full time classification will be enough to keep them working with you. I don’t think this will entice them to stay if staying isn’t something that they want to do. I put my managers on a full time classification but I almost had to due to seasonality and my need to hang onto these people especially through the quiet times.
      My advice to you:
      If your staff have proven themselves reliable and ‘drama free’ and are dynamic enough to be productive when you can’t afford to have any other staff rostered but them… well yes, offer them a permanent position.

      If your staff are yet to prove the above perhaps offer them a trial period for which they can prove to you that they can meet the above requirements.

      Often staff will ask for permanent positions because they are wanting finance for a car or house, and banks are requesting evidence of permanent employment. This is a pretty good thing for an employer as it suggests the employee has financial commitments and is more apt to hang around.

      Trust your gut. You’ll know if these supervisors will give to you as much as you give to them, and if you think they will… look after them.
      pete

  • John
    Posted April 13, 2015 at 1:06 am

    Hi

    I’m currently looking at an established Cafe and the selling price according to your calculations is a steal…that is if the net profit figues are to believed. How can I be sure that they are being “honest”.
    I have the finacials but as you are well aware they can be painted all types of wonderful. Should I be asking for invoice statements of outgoings?????

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted July 4, 2015 at 1:09 pm

      John,
      You’re definitely thinking the way you should be. I recommend working in the business. This allows you to note what kind of stock is being delivered (you can probably even record invoices with the deliveries) you can note labour required so you can then calculate daily labour costs, and you can also observe daily revenue. If you get the opportunity to do this for a couple of weeks you’ll have a good idea if the profit and losses provided are a fair representation. Careful to consider seasonality also. If this is not something that can be made available you should be visiting daily and sitting in the establishment observing customer count and purchases as well as staffing levels.
      Should you ask for invoices absolutely. They can only say no. Many sales documents actually have a fair amount of invoices attached anyway, it’s common for coffee invoices to be provided with sales documents to prove how much coffee is being sold.
      You can always get a good idea of how a business is going. Don’t just settle for what has been said or what the p&ls suggest.
      Keep in touch. pete

  • Mary
    Posted April 28, 2015 at 5:30 am

    Hi, I have been reading your posts so far they are really informative. I have a question to ask about owning a cafe business. I am confused on the rent part. If I am buying a cafe business why is there a lease every week? Is this lease to pay for the water and council or is it to the previous owner? I am new at all this I would appreciate it if I could be informed about this matter. Thank you. 🙂

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      Post Author
      The Hospitality Coach
      Posted July 4, 2015 at 12:45 pm

      Hi Mary,
      When you hear people using the term “lease” it generally refers to the contract you sign with the landlord before renting a premises. Rent is generally payable to the landlord monthly, and depending on the terms of the lease, may or may not include utilities like power water and gas. When buying a business it is a very good idea to ask the seller for invoices for all the utilities. This will give you a relatively good idea of what these expenses will amount to, roughly.
      I hope I’ve helped and not further complicated. keep in touch… pete

  • Layla
    Posted May 8, 2015 at 1:34 am

    Hi Pete,
    What a great wealth of information you have here. Not everyday that unselfish people come along to help just anyone who needs it so if your mamma didnt tell you, I will.. Your Awesome!

    Anyway Pete, I am in Surfers Paradise and a real people person. I dont want to “buy a job” but I want to work and a cafe/coffee shop ticks all the boxes for me. I have some money to invest and indecisive as to buy a franchise or freehold? Your opinion on this would be greatly appreciated. Positives/Negatives.

    I have recently relocated here and noticed that there are many struggling businesses, an abundance of cafes and very seasonal. However, coffee shops still seem to be thriving everywhere you look.

    Not sure if I should stay away from the “touristy areas”? I know it all comes down to the turnover but geographicaly what do you think?

    Also, do you need a business partner? lol

    Take Care, Layla

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted May 10, 2015 at 11:49 am

      Hi Layla,
      Thank you so much for the kind words. It’s feedback like yours which motivates me to continue the blog.
      You asked about franchises, well… I’m not a fan. Almost everywhere you look there are franchises operating. I’d encourage you to speak to anyone operating a franchise. I dare say my own opinion will be given to you from others also. Franchises are great if you know absolutely nothing about the business. In which case you’re entering a business ill prepared. Franchises will not teach you how run a profitable business but they will teach you how deliver products and services well. Perhaps the hardest thing to deal with when it comes to franchises is the inevitable truth that you will outgrow the franchise. You will be more dynamic, you will be more skilled and you will be more innovative. When this happens paying franchise fees will hurt. You’ll wonder where your fees go, and what you get back from them as a franchisee. It’s really a hard pill to swallow.
      This being said, i think it’s wiser to do that learning with a business that you hope to emulate. Learn how they do things both front of house and back. You can do this by gaining paid employment with the company or offering your services for free. Either way you’ll be gaining invaluable experience. You’d be amazed how much you will learn in a business when you’re actually there to learn and observe, and not just work.
      My thoughts on ‘touristy’ areas? well what i can tell you about these areas is that the rent is always ridiculously high in these areas. If the turnover and trading hours can balance the rent well… they’re awesome, as long as seasonality isn’t too much of an issue.
      but areas of more reasonable rent with good exposure may be a better option if you can’t ensure your turnover will justify the high rent.

      A business partner at this stage? we’d have to meet 🙂
      I’m happy to guide you through any other questions you may have though.
      Keep in touch. pete

  • Layla
    Posted May 8, 2015 at 2:18 am

    Hi Pete,

    Just read through your whole website..Like I said before, Awesome! You seem like a really down to earth devoted family man (another great human quality).

    I forgot to ask something. I wanted to know what is your reccomendations for making great coffee? Should I attend some sort of Barista course before buying a cafe? If so, any recommendations?

    Thanks Again, Layla

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted May 10, 2015 at 12:12 pm

      Hey Miss Layla,
      I recon you couldn’t have asked a better person about barista training. I own cafes, judge coffee, and own a coffee school, i hope those credentials add weight to this response, and they may need to, because i give this advice often and i don’t think many people take it too seriously.
      If you’re wanting to open a cafe and you haven’t worked behind a coffee machine for at least a couple of years, the best thing you could do is to interview baristas and don’t settle till you’ve found one that can handle high speed production and presents instagram worthy coffees even at an interview on a coffee machine they’re not familiar with.

      From there I strongly suggest you undertake in a barista course or two. At my coffee school i recommend new cafe owners undertake in a Barista Level 1, Advanced Barista, and then 2 one on one sessions of at least 2 hours each.
      This will ensure you understand what your barista is doing and weather or not they’re extracting good coffee. It will also set the standard that you should be expecting so that your staff don’t ever dictate to you what can and can’t be done.
      After employing a ‘gun’ barista you’ll now also have a full time trainer for yourself.

      Learning to make coffee is a little like learning how to drive a car.
      You won’t be a race car driver after a few lessons but you will learn to drive. Only hours behind the steering wheel will ensure you’re a good driver and only driving with race car drivers will elevate you to that standard.

      How do you choose a decent barista course. Well first find out who your trainer is. If all they’ve done for the last 5 years is teach how to make coffee… well they’re going to teach you how coffee was made more than 5 years ago. The lesson here, ensure the school and the trainer is still connected with the industry. Does the trainer still make coffees in a cafe on weekends or during the week? that kind of thing.

      Gees i can talk… or is that type,
      hope this helps.
      pete

      • Layla
        Posted May 12, 2015 at 10:17 am

        Hi Pete,
        Thanks for your quick response and as expected a perfectly executed answer. Ok, so now I am in the midst of negotiations for a coffe shop in a major shopping centre (not a franchise) just a ma -n- pop sort of deal with breaky and light lunch options. Sat there on a couple of occasions and quite impressed with the customer service, coffee and position.
        They are asking $180K (through a broker), I decided to approach owner discretly and obtained her phone number. What was revealed to me was that they are happy to proceed without a broker. Their before tax net profit is approx $2500 per week with one owner working 5 days per week.
        When I used your formula, it seems that this is a good buy even before negotiations as if these numbers are correct, I could pay off business initial investment in 2 yaers and then begin to profit.
        However, they only have 2 years remaining on their lease and the rent is $2000 per week. I have contacted the lease manager and asked about the possibility of re-negotiating a lease prior to locking myself in. (no response yet)
        Obviously, I would not buy this business unless they are willing to offer me a longer lease. This leads me to my questions:
        What is a standard lease in a shopping centre?
        Should I be weary of big centres such as this?
        If I can negotiate a new lease, what do you think is a good and reasonable offer for this business given that I have reveiwed all the financials and the numbers add up to be what they claim?
        Would very much appreciate your advice on this matter and thanks for the advice on Barista courses. I have found a place that ticks all the boxes.
        Peace and prosperity, Layla

  • matt
    Posted May 8, 2015 at 10:59 am

    Hi pete great article im currently in the process of purchasing a cafe in wollongong current owners are happy for a vendors loan with down payment plus trial and full trainning period this may sound like a silly question but am i able to change the buisness name i currentky operate a birthday cake baking service from home and wish to use the name of that buisness in my new venture

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      Post Author
      The Hospitality Coach
      Posted May 10, 2015 at 11:23 am

      Hi Matt,
      Not a silly question at all.
      You can most definitely change the name of the business. This isn’t uncommon when people buy business essentially for the location fixtures and fittings.
      This in mind be aware that changing the name of the business can affect goodwill. When i say goodwill, i mean the customers that the business previously had. If this isn’t too much of a consideration i would change the signage and your trading name as soon as you take over. Hope this helps Matt.
      Best of luck. pete

  • Gloria
    Posted May 12, 2015 at 9:17 am

    Hi Pete,
    Am in the stage of the contract going back n forth and my question is why the present owner won’t allow me to start in cafe the week before I take over. The broker said this is the norm. I personally think it would make great sense to work with the current owners n watch what they do n how they operate than going in blind is this a reasonable ask starting in the cafe on their last week thanks for the awesome blog appreciate your generosity
    Thank you
    Gloria

  • Mike
    Posted May 30, 2015 at 3:42 pm

    Hi Pete,
    I am in the UK looking at a cafe in a tourist spot, the cafe has been running for many years approx 80.
    The building is part of the sale and no passing business as its at the end of a viewing point.
    The business runs from April to October with a turnover of 100k the problem is the how to value the business, its main serving is cream teas and light snacks to holiday makers.
    What are your thoughts on this sort of business, my involvement would largely be financing the purchase and my daughter would run it.
    Thanks Mike

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted July 4, 2015 at 3:26 am

      Hi Mike,
      I suppose there are pros and cons about running a business that only operates for half the year. If i were to be expected to pay rent for 12 months i would want to earn income for the full 12 months, That’s my first alarm bell in this scenario. Valuing this business should solely be done through profit and loss statements and working in the business to validate the P&L numbers. If it’s making a good profit only trading 5 months or so, i would say it must be a great business and at that point you can offer an amount that would repay your investment in a period you would be happy with, ie annual profit x 3-4 years for example.
      Let me know if you need any more guidance.
      pete

  • Citlali
    Posted July 8, 2015 at 8:52 pm

    Hi Pete – thank you for this informative article. My partner and I are looking into buying a very small cafe, that can be run by one person. While it is an established cafe that has created a clientele base, I feel the ambiance or decor is quite outdated and needs some sprucing. When would be a good time to commence the remodeling? I fear that doing it all at once would be too much of a shocker for existing customers. However the quicker we beautify the place, the more interested passerby’s and locals would be. This is just in my opinion.

    Thanks in advance!

    Citlali

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      Post Author
      The Hospitality Coach
      Posted July 9, 2015 at 10:13 am

      Hi Citlali,
      This is a great question, I was actually discussing this exact question with a client today. If you find the ambiance and decor outdated then so do others, and it’s not so much the customers you already have that you need to worry about, it’s moreso the customers that you don’t have that you need to address. Change at a business is always hard decision, but i’ve rarely seen negative results from required change, what I do see on a regular basis is negative results from not making changes. Changes can be done slowly but you miss the opportunity for ‘wow’.
      WOW is one of the most beautiful moments in hospitality.
      Look forward to hearing how your business progresses.
      pete

  • Daniel
    Posted July 30, 2015 at 12:14 am

    Hi Pete, I have no experience but want to buy a cafe.
    Can a ask the owner not to hire existed employees
    for a certain period to provide smooth operation?

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted July 30, 2015 at 10:07 pm

      Hi Daniel,
      You can and you should. This really isn’t uncommon and most people selling their business expect to either have to work in it for a handover period to teach you much of the ins and outs of the business and or allow their staff to stay with the new operator which most staff are happy to do in most instances.

  • jan
    Posted September 17, 2015 at 6:32 pm

    hi Pete,
    great sites and articles. thank you for them.
    I am Czech living in Manchester (sorry English is my third language:)) and thinking stand on my own feet. I have got lots of experience as a manager of a high street cafe.
    I would like to know your opinion about a cafe located in business centre with 300-400 people inside and other business outside. the vendor’s asking price is £18,500. turnover £64,406 (proved), cost of sales £22,638, administrative expenses £28,776…from which wages and salaries only £8,356!!!(looks like one part time only but running with two staff) …then profit is 12,161 !!! but I think there is actually no profit at all.. if you pay a managers salary (still very low).
    I am pretty confident to raise sales, bring better economy and improve service but do not know how much to offer for the cafe. probably only the price of equipment.
    what do you think Pete? your opinion is really worthy to me. thank you very much
    jan

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      Post Author
      The Hospitality Coach
      Posted September 29, 2015 at 11:58 am

      Hi Jan,
      It sounds like you’re ready for this, with your management knowledge and experience in the industry you’ll do well. From the way you describe this business i think you would be right to offer market value for the plant and equipment. If you really think this is the ideal location you may need to consider how keen the current operator is to sell, whether or not you can renegotiate a new lease and how long the business has been on the market also. This will help you assess how far above or below the plant and equipment valuation you would be happy to offer.
      Good luck and keep in touch. pete

  • rick
    Posted October 15, 2015 at 9:50 pm

    Hey Pete,

    Looking too get out of the retail business industry and into the hospitality one.
    Looking at purchasing an up and running independent cafe or a franchise that will be opened in a ‘new site’

    Having virtually no experience in the industry except for a few management and book keeping courses which type of cafe would you recommend investing into?

    Regards

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted October 16, 2015 at 4:26 am

      Hi Rick,
      If i’m honest I’m not a huge fan of franchises, It’s a model that most people outgrow very quickly. The merits of a franchise are that you can walk into them with no knowledge and someone will be there to hold your hand through the learning process, but this can also be a downside, as you will be taught a system that may already be dated and in relying on this system it can make you very complaisant. I honestly believe in getting some work experience before entering into this industry, this will give you a great idea about what kind of cafe you will be happy developing. You may find after working in the industry a little that there are no franchises in the market that you would be happy being a part of.
      If you do decide on a franchise I would go out of my way to speak to as many franchisees as possible (without the franchisor knowing) and ask the business owners if they’re happy with the franchise and the support they get from the franchisor.
      hope this helps, i honestly don’t mean to sound negative towards franchises, and not all franchises are created equal, but defintely speak to other business owners (franchisees) about any particular franchise you are looking at.

      Keep in touch – pete

  • Luz Delugar
    Posted November 10, 2015 at 4:05 am

    Hi Pete,

    Thank you for the article found it very interesting! As what I can gather from it, it looks like is better to buy an existing precinct. Although where do you search?
    I’m a new buyer as well, I’m Colombian and english is my second languague. We are a team of three people thinking of opening a coffee shop in GC. We have no much experience in terms of legal and licenses rights, but we are passionate about coffee. We want to bring the latin vibe into the GC but not sure of where to start in terms of location, as I mentioned before where do you start your search? How do you think is the best way to search for a location ? through a real state agent or just by driving through locals communities , or searching on gum tree?

    Muchas gracias 🙂
    Many thanks in advance
    Luz

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted November 11, 2015 at 12:29 am

      Hi Luz,
      Purchasing a cafe in an established area can be both good and bad. It can be good because people already come to that area for food and coffee, but it can also be bad because you’re sharing your customers with other businesses. I would strongly recommend you read my recent blog post on ‘how to start a coffee shop‘ read carefully the section relating to location. This blog post suggest an exercise you absolutely must do! Please start here. I can’t stress how important doing this will be for you before you set up a business. Read the article download the free template (and other free surprise I give away with the download 😉 )
      Hope this helps, please keep in touch.

  • Veer
    Posted February 7, 2017 at 1:44 am

    Hi Pete

    I am keen to purchase a cafe
    5 day (7am to 6pm )
    Value $125k
    Lease pay 10% of turnover p a
    Location : entrence of tafe college

    Need a guide
    What do I need to check ?
    Broker advise the current Owen is not active in the biz and the staff are not pro active as well

    Cheers
    Veer

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted February 8, 2017 at 9:55 am

      Hi Veer,
      I have a cafe of my own in a Tafe so i know this market exceptionally well. Make sure you get a look at the annual numbers and not just the March, April, May, June profit and losses when the students get back in force and turnover looks sensational. The school holidays and waning numbers at the end of the year can really destroy turnover and profitability in this kind of business. You need to ask if the lease will specify that you have to remain open all of November December January and February and also if rent will be adjusted or payable in full over these periods where your trade will be severely limited.
      Never take the brokers word for anything, so make sure you spend some time in the business observing staff and the absence of the owner. While you’re there you can also count customers and calculate average spend. This will help you confirm rough numbers on daily turnover.
      Does this cafe have access to street traffic/customers or are you hidden within the tafe complex and difficult for external customers to find you?
      How much have you got left on the lease? Would the tafe (and i doubt this) be open to issuing a new lease with a full lease period?
      Will the lease be in the sellers name or is it a franchise where the head franchisor has the lease and charges you a franchise fee or licensing fee to occupy?
      What is the condition of the plant and equipment like?
      Is the business currently profitable?
      what is the percentage of wages relative to the reported turnover, in this instance it should be no higher than 35% if it is higher you need to identify why? It may be the layout of the store, over staffing, quiet periods creating difficulty in sustaining staff.

      I hope some of these questions help get you thinking.
      Please don’t hesitate to reach out for further advice.
      pete

  • Kate Ngo
    Posted March 1, 2017 at 2:04 am

    Hi Pete

    I am considering to purchase a cafe
    5.5 day (haft day on Sat)
    The owner business wants to sell it at $60,000. As the advertisement:
    Currently working wife/husband team. Located inside of a big building, inside of the building: Pivate Hospital(plastic surgery,cosmetic,dental,etc), offices, medical suites, residential, woolworths and the cafe.
    Currently 3+3 years lease.
    $35000 PA + outgoing + GST.
    Currently selling menu: Hot/iced Coffee & Berverage, All day breakfast such as bacon&egg Roll, Muesli, Toast, Yougurt&fruit, BLT, etc , Sandwiches, Burgers, Wraps, Salad bowl, Soups, Milkshake, Smoothie, Fresh squeesed Juice, Eggs(Fried, boiled), sweets and more..
    Using Campos coffee (about 10kg per week) and T2 teas,
    approx 30 seats (8 tables + 1 long bench +1 half bench)
    What do I need to check ?
    Need a guide because this is my first business.

    Thank you very much for your time
    Kate

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted March 1, 2017 at 10:55 pm

      Hi Kate,
      I love cafe’s in Hospitals, assuming they’re relatively busy hospitals. They generally allow you a regular flow of new customers as well as the regulars who work in the building and surrounding areas. The first thing i would want to check is their profit and loss statement. Ultimately you are buying an investment, so you need to see if the business is an investment or a liability. If it’s making money I would invest in it. If you haven’t previously had experience working in cafes it is exclusively important that it is making money, because it is highly unlikely that without expertise you can turn around a business that isn’t making money.

      From there you need to check that the profit that is shown on the profit and loss is a true profit. This means that there are no cheeky ‘addbacks’, like the owners wages. For a business to be profitable it needs to produce a profit after ‘all expenses’ have been paid.

      Once you know that a business is making a profit you can then assess the cost of the business. You don’t want to pay an amount of money for a business which will not pay itself off before the term of your lease, so please be careful with this also.

      With regards to your rent you’ll need to assess weather or not it is too high to be sustained by the business, and often this is the single largest problem for cafes. To know if the rent is workable you’ll need to see what the turnover (sales) is for the business and try to restrain rent below an absolute maximum of 12% of your turnover. 12% by the way is not ideal but this suggestion isn’t a rule and there can be exceptions to this.

      10kg of coffee a week isn’t a large amount of coffee and I would suspect from this indicator that you could only afford limited staff at this location and this will likely require that you yourself work actively in this business. Given the limited trade your food menu will be very important, as you want to maximise the average spend on every transaction.

      Before committing to buy this business spend a day there counting customers and calculating the average customer spend. This will identify weather or not the profit and loss reports are a true reflection of sales numbers.

      The other bit of advice i would offer is that given that you would have regulars in this building i would make a point of asking working staff in this building what they think of the cafe. This may give you clues as to what areas require improvement to gain valuable local customers.

      Hope this information helps.
      If you have any other speedbumps or questions I’d be happy to help.
      pete

  • Linda
    Posted March 26, 2017 at 6:43 pm

    Hi Pete
    I am planning to buy a cafe shop from franchise in brand new 120 000 sqf medical surgy center with 5 acres land, it has 1000 parking spot with come in 3 levels parking and all come with the bridge go right in to the clinic. It has 6 operation rooms in second level, 50 doctors and 160 employees from all kind of medical. They will aproximately 15000 patients coming daily. The franchisor ask 400 000 and around 6000 rent/month. You think it is good idea to purchase it and by the number of what they give me how long you think I will pay my shop and start profit. Thanks ver much. I am brand new in this business.

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted April 5, 2017 at 4:15 am

      Linda $400K is not a small amount of money, though the location from what you describe is very good. To assess the true value, there are many factors which need to be considered. Firstly the term of the lease, as this will dictate how long you have to pay off your investment and start making money. What kind of franchise fees are involved, do you have any historical trading numbers or is it a new franchise? What hours will the business be operating? (some hospital cafes do an amazing trade because they trade almost around the clock) 15,000 patients puts this surgery well into the realm of a fully blown hospital, and from my experience hospitals are a great place to run food service businesses, but you will need to ensure you plug in some numbers into a spreadsheet to assess your expenses relative to your anticipated revenue, and that you’re not tied into a franchise model that perhaps makes it difficult for franchisees to make money. (often franchises require that you purchase materials/stock directly from them or ‘preferred suppliers’. This sometimes makes some franchise models difficult. Please make sure you reach out other franchisees and ask them about their experience with this particular franchise. (reach out to more than just the franchisees that have been supplied to you by the franchisor – you want well rounded perceptions of the franchise)
      I hope this helps, though you perhaps were expecting a ‘yes buy this’ or ‘no don’t buy this’ it’s near impossible for me to even begin to judge this business without alot more information.
      keep in touch
      pete

      • Linda
        Posted May 18, 2017 at 9:47 pm

        Hi Pete!

        Thank you for your reply. My mistake of typing. They are 1500 patients come daily. The building have outpatient surgy and eye surgy everyday. They also have urgeant care center. They have cancer care and 6 operating theatres. All patients are appointments for specialists.The bulding is 85% leased and will be ready end of this year. My lease are 10 years x 10 years( later). My franchise system have 78 outlets national and 6 international outlets. I am only the food vendors that sell coffee, breakfast and lunch (wrap, burito, sandwich, panini) soup, salad, smoothie, yogurt, fresh squeeze orange juice and sodas. The shop will be open 5.5 days/week. Thanks for your advice and wait to hear from you soon.

        • Linda
          Posted May 18, 2017 at 9:54 pm

          The franchise fee is 35 000

      • Linda
        Posted June 3, 2017 at 1:55 am

        Hi Pete, this is Linda for the post on May 18. I found your comment ia ver helpful! I already post some information back and waiting for your advise. Tx Pete

  • hana
    Posted April 4, 2017 at 12:45 pm

    Hi pete,

    I am also considering buying my first business. It is a suburban deli. I live in the area and know the suburb well. The deli is selling very cheap at 11000$ (Au) as the previous owners were making a lose due to lack of opening hours. I know this business has potential in terms of location and foot traffic (locals) if open exteneded hours as done previously.

    There is very little risk involved given the cost is based on deli assets and no goodwill included. however, financially i do not want to take out a loan hence will need to sell my car to purchase.

    please let me know if you think this would be a good business decision or not worth risking all my fiance?

    Thanks
    Hana

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted April 5, 2017 at 4:01 am

      Hi Hana,
      AUD11,000 is cheap, but it also depends on the quality of the equipment you are being left with. If it is in disrepair, you may be better off not paying anything fitting out a new business. Some quick calculations on the value of what is being left behind should give you a good idea of what equipment you’re buying. At that point be clear that you are only buying the equipment at this price and not a business. (this may perhaps make the decision easier)
      If you’re living in Adelaide, I’d be happy for you to contact me and I could offer my opinion after seeing the premises. Email me through the contacts page, and I’ll let you know my thoughts after i see the location.
      pete

  • Kim
    Posted April 12, 2017 at 10:32 am

    Hi Pete,

    Awesome blog! Great advice. I bet you have helped a lot of people and don’t even know it!
    I am looking at purchasing an existing cafe down the street from my house. I have a hospitality Management Diploma from the late 90’s and have worked in many hospitality businesses. My husband is earning over 100k doing a job he absolutely hates and is away from home for about 12 – 14 hours per day. He would be working in the business full time.
    Hours of operation 7 days a week 6am to 3pm
    The broker advised that:
    – the business makes around $8000 to $9000 per week and after all expenses including wages takes home approx $1800 per week. The owner works 4 days per week.
    When asking for the financials and I have been told that they do not reflect the true earnings of the business.
    It has several tabled areas inside and out and seats 50.
    I was told by the broker to get a real understanding of the business set time with the owner working in the business. We have set up a meeting for this Saturday. To gain copies of invoices, wages, insurance, rent, lease documents etc.
    ATM they are asking $129,000.
    There is a coffee bean shop opening 2 doors up and a deli soon and a coffee eatery across the road. At the moment to business is a morning and lunch venue with no real theme.
    We hope to turn it into a Burger bar and doing some slow modern hip touches. The nearest similar type of business is McDonald (if that counts) or 20 kms away.
    What do you think and what should i be asking to get a real picture of the actual situation?

    I appreciate your professional opinion and awaiting your response.

    thanks
    Kim

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted April 13, 2017 at 4:18 am

      Hi Kim,
      Glad you enjoy the blog, it can sometimes feel that it goes unread so its always nice to hear some kind words.
      The business you’re talking about doesn’t sound quite right. I’ve calculated a net weekly profit of 22% which is sensational, but i feel it’s also unlikely for this business. (I hope i’m wrong) This would prompt me to look carefully over the provided profit and loss statements. Brokers and business sellers have a tendency to create clever ‘addbacks’ in P&L statements. Things like the owners wage when he’s fully productive in the business. A true profit and loss should reflect all operational costs including owners wages if they’re working in the business.
      If you’re turning this business into a burger shop, these numbers will become completely redundant if it’s currently a cafe, as there is little chance the business will trade in the same way. With this in mind the idea of purchasing ‘goodwill’ won’t be in play either. So essentially if you’re planning on re purposing the business you’re really not buying a business and you should concentrate more on the cost of the furniture fixtures and equipment as what you’re essentially buying.
      Burger shops are currently popular so done well you can expect success, but they do trade differently from cafes, both operationally and with regards to trading hours and clientele.
      The asking price relative to the suggested profit as a cafe is quite favourable, but the paperwork and how you read into the numbers should give you a better idea of what’s really left and if the asking price is manageable relative to your actual net profit and lease terms.
      I know this is perhaps not the difinative ‘buy this business now’ response that that would help in a decision like this, but i moreso hope i’ve left you with some things to look into to help you see if the deal is equitable.
      Please let me know how you go.
      pete 🙂

  • Christopher Bush
    Posted April 21, 2017 at 1:20 am

    Hi Pete,

    I stumbled across your blog and am using it to educate myself before venturing back into the hospitality trade.

    I will come back to you with more specific requests as things mature but I wanted to thank you for being so generous and diligent with your advice.

    Appreciated,
    Chris

  • Sergio
    Posted May 2, 2017 at 11:40 am

    Hi Pete,

    Your blog is great!! Thanks for sharing all this valuable information, it’s been really helpful to us.

    My wife and I have been looking to buy a small cafe. We came across a 12 square meter coffee shop that opens 7 days from 8am to 4pm, it’s located just outside a big retail store and only needs one person to operate. The owner showed us the numbers and the annual net profit is $21k and he is asking for $50k.

    The lease goes up to March 2019 and we were told by the owner that we should hire a solicitor to negotiate the extension of the current lease in case we decide to buy the cafe.

    We are not sure about the lease status/solicitor and also if the price is reasonable, that’s why we would really appreciate your opinion/advice since this is our first time at buying a business.

    Thanks in advance,

    Sergio.

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted May 16, 2017 at 8:41 am

      Hi Sergio,
      The price you buy it for will strongly depend on the duration of the lease you can negotiate. If the annual net profit is 21K and they’re asking 50K it’s going to take you two and a half years to get your money back. If you only have a 3 year lease, this isn’t an ideal purchase price. Make sure the profit they declare includes the owners wages or what their time is worth if they work in the business as this is often left out, and makes many businesses unprofitable.
      So after assessing the accuracy of the profit and loss you should make time to speak with the landlord about the possibility of giving you a new lease if you purchase the business and what the terms of that lease may be.
      Let me know if this helps.
      speak soon. pete

  • Sharee
    Posted May 16, 2017 at 2:01 am

    Hi Pete,

    We are looking at buying a cafe but it seems that all the profits are undeclared cash…. this is a big risk. We have put forward an offer but I think we should work in the business for a few weeks. Also our offer has a vendor finance portion, maybe we should include a clause that says if the cash intake is less than stipulated by them, our payments will be reduced? Do you have any thoughts on this to keep them honest. thanks.

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted May 16, 2017 at 8:31 am

      Honestly Sharee, the best way to authenticate turnover is to sit in the cafe for a whole day at least. While you sit there you can count customers and allocate an average spend to each. It’s really that easy. Ensure you choose the busiest day of the week, so that you have the best case scenario, and they can’t suggest ‘Tuesday’s are normally quiet’ With regards to requiring a clause in the sale document which relates to guaranteed turnover, i would think that very few people would agree to this, as your expertise or lack thereof could see immediate decreases in turnover numbers. Best advice i can honestly offer is always spend time in a business counting customers before buying it.

      I hope this helps Sharee,
      Keep in touch and let me know how you go.
      pete

  • May
    Posted May 17, 2017 at 1:25 am

    Hi Pete, you are amazing. I found your blog last night and kept reading through this topic (almost every comment and your reply). And sure going to read all other topics.
    I and my friend looking for a coffee shop in Melbourne, wish you are here to help with picking one as we are new to this industry. We both dreaming of owning a coffee shop such a long time. We are Asian but yes both love Western coffee, food and desserts. I studied Marketing and cant wait to run tons of promotions for our coffee shop, I love to see happy and satisfied customers, not only come for our coffee, food but our services. People come to people. That’s what I always believe.
    My friend is passionate about food and desserts. We also want to bring some Asian food/drinks to make it bit different to competitors.
    Just started looking for a shop yesterday, so definitely need your wisely advices and experiences to guide us.
    Thank you so much,
    May

  • May
    Posted May 17, 2017 at 5:33 am

    Also if you have time, would be great if I could send you some information of the shops we’re looking at via and listen to your opinions on them.
    Thank you Pete,
    May

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted May 17, 2017 at 10:22 am

      No Problem May,
      Keep in touch and I’d be happy to share my thoughts.

      • beverley mulvanerty
        Posted May 26, 2017 at 9:20 am

        Hi

        Are you in the UK? Your advice is very useful as we are first time buyers and quite new to all this.

        Bev

        • User Avatar
          Post Author
          The Hospitality Coach
          Posted June 2, 2017 at 12:41 am

          Hi Beverly,
          I’m located in Australia, though I think you’ll find much of the advice in my articles is relevant in the UK also.
          Please don’t hesitate to contact me if you have any questions slowing your progress towards a successful business.
          speak soon.
          pete

  • Shelley
    Posted August 7, 2017 at 9:34 am

    Hi Pete
    I have been your blogs and found what you have to say to others really good . I was wondering if you could give me some advice. My husband is looking at buying a hole in the wall for $10 000 as it is currently not running at all. The owners bought it and were unable to keep it going as they live far from the cafe’s location and they have set up another business closer to home. I was wondering what sort of questions should we be asking? Is the price reasonable? It has equipment – coffeee machine, grinder, 1 fridge, 2 smaller fridges and some other basic stuff.
    We have never bought a business before and was a little nervous. Also as we are not sure what the right questions would be to ask.
    Thanks
    Shelley

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted August 7, 2017 at 11:30 am

      Hi Shelley,
      Given that the business is closed, i would say that you’re not really buying a business as much as you are buying equipment. If you know the make and model of the coffee machine i can tell you how close you are to market value on the equipment.
      To answer your questions –
      Is the price reasonable?
      It may be if the equipment at market value is somewhere around the $10,000 mark.
      You should be speaking with the landlord about the lease and if you can get it extended.
      Ask them if any of the equipment belongs to their suppliers, often the coffee machine and drinks fridges don’t belong to the business.
      My own personal opinion is that ‘hole in the wall’ cafes need to be in high traffic areas with a dense residential/commercial population.
      I hope this is enough to get you thinking further.
      please don’t hesitate to reach out if you have any other questions.
      pete 🙂

  • michael
    Posted September 27, 2017 at 2:12 am

    Hi Pete,
    love your experience and kindly sharing with everyone which is great! i cant put down the word but should be appreciated. which city are you locate by the way?
    Kind regards,
    Michael

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted September 27, 2017 at 10:56 am

      Thank you for the kind words Michael, I live in South Australia. Don’t hesitate to reach out if i can be of help.
      pete

  • Kris
    Posted October 16, 2017 at 8:58 am

    Hello THC,
    many thanks for hosting this site, it seems to be tailor-made for the industry.
    We started a coffee shop 11 yrs ago in the Riverina (NSW), about an hour north of Wagga, and are now looking to sell. The location might be a neg. (rural), but it is also the location that allows us to turn a decent profit, as our expenses are super-low (Rent $425 p.m.!), I believe our profit margin is greater than many city coffee shops.
    I read with interest your business valuation in a previous post, and we are asking nowhere near that. Being in the country, we have two of everything (from twin group auto machines to fridges/freezers, deep fryers, sandwich presses etc. etc. etc.), everything that you could imagine a coffee shop would have trading for 11 years, and more x2.
    We are only asking $65K, and even that is WIWO, fully stocked. Are we asking a fair price? Lease is pretty much open-ended. Do you know if this is a good time to sell in Oz, with Christmas coming up soon? And most importantly, WHERE and HOW would be best to advertise?
    Many thanks for your reply!

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted October 17, 2017 at 12:47 am

      Hi Kris,
      The rent does seem reasonable, but this would be relative to your turnover, as would your sale price. If you are saying after reading my article that at $65K it is very reasonable well it shouldn’t be difficult to sell the business. Remembering that my means of valuation is ‘how long will it take to recoup investment, and how much is left on the lease’. I come across many regional businesses that do better than alot of city based businesses. They can be very lucrative. The channels you can use for the sale of the business can be local realestate agents who often dabble in business sales, or online channels like gumtree, linked in industry specific pages and facebook groups with a focus on hospitality and business. I don’t know if this is actually a facebook group but a search for something like NSW baristas or something similar may yield a handful of pages with cafe enthusiasts who may be ready to do their own thing for the right price. So join these pages and post details of the business there. The other obvious channels are posting something in the local paper or even on your window, although I’ve always steered away from the window messages in fear that my landlord and customers would get nervous prematurely.
      Let me know if you have any further questions. Happy to help. pete

  • Kris
    Posted October 26, 2017 at 11:02 am

    Many thanks for your reply and suggestions Pete. I may have to get my kids involved with the social media thing. My wife was keen on advertising on shop window, but I think you make some very good points against doing so. I am sure she will agree, we don’t want to upset the apple cart. Thanks again!

  • Gurpreet Sehgal
    Posted November 4, 2017 at 12:42 am

    Hi Pete
    I got a lot of information on this forum which has given me some understanding of cafe business.

    I am interested in buying a cafe which is totally under management and the turnover is $19k a week.The owner will trial at $17k a week. Wages are $5100 per week rent is $5000 per month. Is open from 8am to 3pm 7 days. The owner bought it for $550k selling for $350k. He claims to be making $4000 pw.

    The deal looks too good to be true to me.

    Could you please advice. Thanks

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted November 7, 2017 at 10:53 am

      Hi Gurpreet,
      If the turnover is $17,000 net weekly and the wages were $5100 this sets the wages at 30% of turnover and the rest of $5000 per month sets the rent at 7% of turnover. These percentages are quite favorable. What you need to be careful of in this instance is that the wages account for super and workcover and any accrued annual leave also. Also ensure that the business is definitely totally under management and that the owner has not been productive in the business in any way, accounting for productive work the owner has undertaken is will increase this percentage.
      It would be good for you not to consider at all what the owner paid for the business as the business is only worth what it is able to generate and is only as good as its latest profit and loss statement.
      I have trouble believing the current owner is making $4000 per week profit when turning over $17,000 per week as this would place his profit at 24%. A more realistic profit would be closer to 10% or often less of turnover.
      The deal could still be good, but a good analysis of the profit and loss should be done, and time within the business to confirm turnover and labour costs should be done.
      I hope this information helps.
      If you have any further questions please let me know.
      pete

  • Dharmesh
    Posted November 5, 2017 at 12:28 am

    Hi
    I am looking to buy cafe in Melbourne
    I have questions about buying price difference between five and seven days open cafe.

  • Lucky
    Posted November 13, 2017 at 10:40 am

    Hi pete
    I look coffee shop to buy broker said the turnover is $8000 Pw and rent $732pw and selling price is $138000 what u think good or not

    • Lucky
      Posted November 13, 2017 at 10:43 am

      And saying 14 kg coffee PS

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted November 21, 2017 at 2:20 am

      Hi Lucky,
      The rent seems reasonable, but i think it would be important to have an accountant look over the profit and loss to confirm actual figures. With regards to the buy price, i feel this should be dependent on the the remaining or available lease period. On the numbers you have presented me I see this business making about $40,000 per year. This would see a payback period of about 3.5 years. If your lease is only for 3 years it’s very overpriced. My loose numbers are purely my conjecture so you definitely want to have some solid profit and loss statements in front of you to establish actual profit. The coffee volume per week loosely correlates and seems true to the turnover in my mind.

  • Alex
    Posted November 21, 2017 at 7:05 pm

    Hi Pete,

    Great site and professional advise.
    I want to buy less headache easy to run business. I want to buy coffee shop serves Shusha “hubbly bubbly”, hot and cold drinks, fresh juices, sandwiches, owner disclosed following figures:
    1. Turn over 8-10k/ week
    2. Rent 6400/month.
    3. Wages 15k/month approx
    4. Business hrs 10a – 12 midnight
    5. Asking price 120k.
    6. Lease remaining 2yrs plus 5yrs option.

    I’m not comfortable with price and figures owner disclosed as business needs renovation.
    I truly need your advise.
    Thanks,

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted November 23, 2017 at 9:41 am

      Hi Alex,
      I feel your circumstances are quite unique by way of businesses i comment on. Shusha to the best of my knowledge are those large pipes with flavoured tobacco, is that correct? From discussions with friends i’ve been told that the gross profit on these is quite high, this would bring your cost of materials down. From your information i’ve pieced together the following:
      Turn over 34,666 per month
      less
      Rent 6400/month. 18%
      less
      Wages 15k/month approx. 43%
      less
      Materials 35% $12,133 (I can only guess what percentage materials would be)
      this leaves:
      $1,133 per month. with Overheads ie. Electricity gas internet, insurance,etc not accounted for.

      Unless your cost of materials are very low and other overheads are very low, i can’t see how there would be much profit in this.
      The sell price would take you way too long to recoup costs.

      That’s not to say you shouldn’t investigate this business further. I would spend some time there and count customers and also assess staffing costs and see if you can perhaps confirm some of these numbers. Requesting a profit and loss will clearly identify weather or not the business is making money and what costs haven’t been reported to you.
      I hope this helps Alex

      yours in business
      pete

  • Alex
    Posted November 24, 2017 at 5:14 pm

    Hi Pete,
    You’re right it’s flavored tobacco.
    I just received lease Contract and found out remaining period 19 moths only “less than 02 years. I think less than two years means a lot of risk involved to recover business cost 120k.
    I requested available account records, profit loss statement, monthly expenses apart from monitoring daily real business transactions and dealings.
    Again appreciated you advise.
    Thanks Pete.

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted November 25, 2017 at 12:05 am

      I think the lease is too limited, although don’t forget you can always speak to the landlord prior to purchasing a business and renegotiate a lease.
      the sale of the business can then be subject to lease re-negotiations.
      keep me posted
      pete

  • Elaine
    Posted January 7, 2018 at 11:38 pm

    A small cafe only open for 6 months running at a loss is available to buy . Lease has 18 months with an option to take on another 3 years . Asking price Is $60 k with the business not turning a profit I am not sure what I would be paying for so not sure if I should show an interest , figures provided high sales , mismanagement is the reason given for not making a profit. What advice could you give me as I really would like to take up this opportunity

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted January 9, 2018 at 4:15 am

      Hi Elaine,
      I would say almost all hospitality businesses turning a loss are mismanaged, and sometimes it takes a fair amount of expertise to turn a mismanaged cafe around, especially if there are other factors contributing to it’s failure. Have the profit and loss statements looked at by an accountant to assess if better management of labour and materials may turn things around. The cost of rent relative to the turnover may also be a significant limiting factor to the business’ success. Ask yourself when you walk into the business if you would ever meet up in a place like this with friends. If the answer is no, then you also know you need to do alot of work to the place aesthetically to make it work and this will come at a greater cost. To pay $60,000 for a business making a loss, is a hard pill to swallow, especially if the equipment isn’t almost new and you know you can turn things around in a big way. With 18 months left on the lease i do think it’s rich selling a business that’s making a loss for $60,000. You absolutely should be speaking with the landlord to try to establish a new lease if possible. I think if you’ve had experience in business or hospitality or ideally in both this could be worth perusing. If you haven’t the learning curve will be steep in turning this business around. Worth investigating further. Without seeing the location; what i’ve said so far is perhaps the best opinion i could provide you with. I hope this helps. pete

  • Christian
    Posted February 12, 2018 at 11:42 am

    Hi Pete, Love your blog.
    I would love to buy this business but Is this business too good to be true?
    Weekly takings $35,000
    Cost of goods $10,325
    Gross Profit $24,675
    Rent(ex Gst) $2,325
    Outgoings $450
    Wages $7,000
    Phone,Insur, elect $890
    Misc $3185
    Total expenses $13,850
    Net Profit $10,825

    Sale price $600,000

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted February 13, 2018 at 3:08 am

      Hey Chris,
      Too good to be true? perhaps. I would definitely want to see the profit and loss, and then have my accountant look over in case i missed anything glaringly obvious.
      A business this good warrants you sitting in it for a day tallying up average transactional spend, and counting staff to approximate staff costs. Your rent including outgoings is about 8% which is sensational, wages are too low to be true also, this may be owing to the owner not declaring his pay in the business for work performed.
      I would really want verification of the above numbers before moving further. You should also look further into the lease and the remaining term, or ability to draw up a new lease for an extended period.
      Hope this helps, keep in touch.
      pete

  • Christian
    Posted February 15, 2018 at 5:57 am

    Thank you Pete,

    The owner is working the floor and books roster etc and her husband is the head chef and their wages are not included.

    The business kiosk and restaurant is right on the beach in Sydney and does a lot of wedding functions as well, the landlord is the council which takes 5% of gross profit plus $800 a week rent and lease runs out in 2021 and has a 5 yr option on top.

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted February 16, 2018 at 12:21 am

      Hey Chris,
      I would account for all the working time the owner works on the floor and all the time the head chef spends at the cafe. Easily done when you grab the market rate/award for floor staff and market rate/award for a head chef, multiply their daily working hours by their rate of pay, add super work cover and annual leave to the calculation, and then addback that expense into the profit and loss.
      I’m not surprised by how good the rental is given it’s controlled y the council. I’ve seen this a couple of times with other beachfront premises and have noticed terms of up to 50 years which is peculiar. Would love to know more about these types of leases if anyone has had experience with councils and leases.
      At face value the opportunity sounds great. But due diligence is the key. Spend some time verifying the numbers so that you can feel confident moving forward.
      Keep in touch. Pete

  • Marie
    Posted February 21, 2018 at 8:38 pm

    Hi Pete,

    I’m interested in purchasing a cafe and I wanted to know what questions I should be asking the owner so that I can make an informed decision on whether or not to purchase it or not?

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted February 21, 2018 at 10:52 pm

      Hi Marie,
      Some of the basic opening questions i would ask are the following:
      How many Kilos of coffee do you use per week (this can be confirmed by the supply of invoices)
      What do you pay in rent? Does it include any outgoings?
      How many years are remaining on the current lease?
      How many staff do you employ on any given day Monday to Friday & how many on weekends? (this can be confirmed with the supply of staff rosters)
      Do you include your own or family member’s pay in the profit and loss report? (you can tell if they haven’t if the wage costs are too good to be true)
      What is your weekly turnover? Is this a gross or net figure? (the difference between GST inclusive or not)

      The review of a supplied profit and loss may reveal further questions.
      I would also suggest spending some time in the cafe yourself, counting customers, calculating average customer spend, studying clientele and staff interaction.

      These questions are definitely only a place to start, but i hope this assists you.
      Keep me posted on how you go. Pete

  • Marie
    Posted February 22, 2018 at 12:42 am

    Thank you so much Pete! This definitely helps! 🙂

    I’ll keep you posted.

  • Marie
    Posted February 27, 2018 at 2:09 am

    Hi Pete,

    Where do you go to find great suppliers for your equipment and inventory? Are there any suppliers that you would recommend?

    Many thanks and kind regards,
    Marie

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted February 27, 2018 at 11:10 pm

      Hi Marie,
      Suppliers can vary depending on where you live. But honestly the best recommendations will come from others in the hospitality industry. It will initially sound funny when hear me say so, but try starting with facebook. Please hear me out, this will make sense in a moment. Log into facebook, and look up industry based groups in your area. I can recommend : The Australian Cafe Owners Network, because i’m an administrator on this group but there are many others such as ‘melbourne baristas’ or ‘sydney hospitality crew’ I made those names up by the way, but you’ll find similar facebook groups if you look for them. The people in these groups are passionate. (they log on to discuss their industry with each other after work) if you ask the question ‘who has an awesome general dry goods supplier’ or ‘milk supplier’ or ‘fresh produce’ who goes above and beyond, they’ll be happy to share their experiences with the suppliers they have settled on. From that point on it will be a matter of meeting with some of them and choosing the best supplier for you based on price product and support. For products that are a little more unique you may need to do your own investigating.
      This is an easy and good starting point if nothing else.
      pete 🙂

  • Amande
    Posted March 14, 2018 at 12:40 pm

    Hi Pete, we are planning to buy an established cafe in shopping centre. We are told about annual turnover is $368000 last year.
    $7250 gross monthly rent include lease, outgoing, water, electricity but wages aren’t included. Net profit comes near around $120000 annually. So is it worthy to buy? Do I need to ask my accountant to check BAS regarding profit or loss. Thank you.

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted March 15, 2018 at 4:59 am

      Hi Amande,
      On the very loose numbers you have given me i would say you definitely need to investigate further.
      The rent and outgoings are a little high, but this could be normal for shopping centers. The net profit seems questionably high also at 32% of your turnover.
      This suggests to me there are undeclared/unreported wages. If you have had profit and loss reports made available to you i would definitely have your accountant look over them.
      That’s not to say that this isn’t a good business at the right price, but you want to be sure of how much it is truly making and this perhaps can be best surmised from their profit and loss statements.
      Hope this helps.
      Pete

  • Amande
    Posted March 15, 2018 at 9:52 am

    Yes Pete, we are investigating further. I will let you know as soon as we get all other documents.
    Thank you.

  • Sebastian
    Posted March 28, 2018 at 12:55 pm

    Hi Pete,

    Thanks for all the info and experience you have shared with each person that have asked you for help.

    I’ve been making coffee the last couple of years, and I started teaching how to make coffee since January 2017.

    Just recently a friend of mine asked me if I would like to manage a cafe, as his interest is to buy a cafe in Adelaide CBD.

    A couple of things I would like to ask:
    1. I have never been a manager of a cafe. What can I do to overcome this challenge? Or what should I focus on?

    2. My friend/investor wants me to help him find a cafe or venue. How should I start looking for opportunities?

    Thanks for your time,
    Sebastian

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted April 2, 2018 at 3:02 am

      Hi Sebastian,
      You’re in luck, I live in Adelaide also. I would be happy to speak to you about cafe management and also what you need to look for in a new cafe location.
      please email me at info@thehospitalitycoach.net with your phone number and i’d be happy to call you and arrange a time to speak.
      speak soon.
      pete

  • Sebastian
    Posted April 18, 2018 at 4:59 am

    Hi Pete,
    thanks for your prompt reply.

    I have sent you and email.

    Thank you,
    Sebastian

  • Chris
    Posted April 25, 2018 at 11:24 pm

    Hi Pete,

    Hope you are well. This post is amazing, no wonder it lasted all these years.

    Hoping for a bit of an urgent advice.

    An opportunity came up to buy a well known local cafe situated on a busy main road in Sydney, and it is also right next to a major bus stop so foot traffics are guaranteed.

    The cafe recently changed hands 3 months ago, the current owner selling it stated his partner has bailed so he has no time and staff to run this second cafe since he already have one elsewhere.

    He is selling the cafe around $30,000, with the decor quite new and all the equipment included…

    We are a bit worry this is too good to be true.

    He said he stopped opening the cafe a couple days ago since he has no staff.. but if it is profitable, wouldn’t you just hire someone?

    In this scenario, what should we check before going ahead?

    Really hoping for a quick answer as we will soon be making a decision.

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted April 26, 2018 at 6:14 am

      Honestly this is a strange one Chris.
      If he has another cafe staffing wouldn’t be a great issue as you can borrow and share staff to keep things ticking over.
      And to make the decision as early as 3 months in is very peculiar. Often you would want to run a little longer to realise the business’ potential.
      If it was only 3 months. perhaps you can speak to the previous operator if the landlord would be happy enough to give you some contact details.
      $30,000 isn’t a large asking price for a business, which may suggest the profit it generated when it was sold to them wasn’t too great if any at all.
      $30,000 almost sounds like the price of plant and equipment at a location.
      If i was you i would try to reach out to the operator previous to these guys to gleam some insights.
      hope this helps.
      pete

  • Daniel
    Posted July 15, 2018 at 3:35 am

    Hi Pete,

    I want to buy a existing industry cafe shop in sydney which currently is operated 5 days only . Based on the following figures provided by the agent.
    1. Do you think the ask price is reasonable?
    2. What is the fair price you think?
    thanks
    Daniel

    Sale price: $390000 plus SAV
    Annual Rent : $13,000 – Weekly Rent : $250

    Annual Turnover : $624,000 – Weekly Turnover : $12,000

    Annual Gross Profit : $364,000 – Weekly Gross Profit : $7,000

    Annual Ebit : $195,000 – Weekly Ebit : $3,750

    Premise : Leased

    Lease Commencement : Jan 2012

    Lease End : Jan 2022

    Lease Option: 5 years

    Current Outgoings pa: $20,000

    Total Floor Area : 145 Square Metres

    Franchise : No

    Approximate Stock Value : $6,000

    Year Purchased : 2011

    Year Established : 1980

    Days Trading : 5

    Staff : 1 Full Time – 1 Part Time – 4 Casual

    Staff Salaries : $130,000

    Reason for Sale : Personal reasons

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted July 16, 2018 at 12:56 am

      Hi Daniel,
      At face value this looks like it’s worthy of deeper investigation. As is the case with almost all Sales proposals i review, the numbers are good until you start asking questions and comparing them to industry benchmarks. On these numbers the rent is at about 2% of turnover (though it is unclear if this is net or gross, my guess would be that the above noted turnover is gross) this number is extremely low and a great deal. With rent this low i would definitely have an accountant interpret financials before moving forward and a lawyer examine the lease. This may also be a red flag with regards to the reportable turnover.
      The net profit is at about 31% which seems a little high to me also. This is not to say it’s not possible but this warrants an examination of a true profit and loss statement.
      Wages are also at 20% which is very low, i would expect them to sit at around 28 – 35% of turnover so this may indicate there are people working in the business who’s wages are not being accounted for.
      The remaining term on the lease is favourable and if they are in fact left with a net annual profit of $195,000 it wouldn’t take long to pay off your investment and start making money.
      I think further analysis of the profit and loss by a good accountant will reveal some interesting addbacks or ommisions in wages.
      This cafe deserves further investigation, could be good, but have a professional find out where the true numbers lie.
      Hope this helps, keep me posted.
      pete

  • J9
    Posted July 21, 2018 at 12:20 am

    Kia Ora Pete,
    When you talk about net profit is this also the total after the business owner has paid themselves? Or do owners draw on profits and decide their worth at a later stage?
    Thank you.

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted July 21, 2018 at 12:43 am

      Hi J9,
      When i talk about net profit, it includes the owners wages/salary if they’re productive in their business.
      The net profit needs to include all expenses required to run the business, and this includes the owners wages if they work in the business.
      Owners can draw on the net profit at a later stage, but when i talk about net profit it includes what the owner pays themselves if they work in the business.
      If you see a net profit that doesn’t include the owners wage and you know they do actually work in the business you need to factor this in and adjust what the net profit is.
      Only this week i visited a business a coaching client was considering buying, and found that two owners were actively working in their business, but the sales document and profit and loss provided did not list them as employees or take their wage into consideration in the profit and loss. When we added two wages into the profit and loss we found the business was in fact not making a profit but a substantial loss. The lesson here… always visit a business you’re considering purchasing.
      Hope that answer wasn’t too long winded, and was helpful.
      keep in touch.
      pete

  • J9
    Posted July 21, 2018 at 1:46 am

    Makes loads of sense and thank you for the prompt reply. Much appreciated.

  • Louis
    Posted August 21, 2018 at 11:38 am

    Hi Pete, great post. I learnt so much about buying cafe especially from reply in comment section. Recently I just start the search for cafe to buy. Just wondering is there any particular site that you recommend is good for the search? Any business broker you recommend? I am based in Sydney. Thanks in advance. Louis

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted August 27, 2018 at 1:35 am

      Hi Louis
      There are different avenues for each country and city. Often my recommendation would be to google business brokers. It’s also not uncommon for cafe owners to list their businesses on online marketplaces like Gumtree in Australia in an effort to avoid advertising costs and even broker commissions.
      Hope this helps.

  • louis
    Posted October 1, 2018 at 12:00 pm

    Thanks Pete.

  • Paul Landy
    Posted November 10, 2018 at 10:50 pm

    An area where many people get misled is in cafe valuation and how long it will take to repay the purchase price. It is misleading to say I will purchase a cafe making $100,000 profit per annum for 3 times the profit therefore valuing the cafe at $300,000. To begin with your $100,000 profit is your total income and you need to live, mortgage, car, food, living expenses etc so you will not be paying back $100,000 to the bank per year. At best, more like half of that amount. Additionally you will be paying bank interest and fees. So as always buyer beware…

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted November 12, 2018 at 4:35 am

      You’re right Paul, this calculation will never be cut and dry. Do be careful though. A businesses net profit should always include your salary/wage, which should take care of your living expenses. Many businesses for sale do not include the owners ‘working wages’ or include them as an ‘add back’ in an effort to make the business more profitable. Anyone working in the business should have their wages accounted for in a profit and loss when looking at the true net profit of a business. If you’re looking at the reported net profit of a business in a business sales document and they don’t include the wages of an owner that is working in that business, your offer for that business would be significantly less given that the owners wages will be subtracted from the net profit.
      So how do you know if a business is reporting the true wages paid in a business by all working staff? I recommend you use the benchmarks provided by the ATO. See link below:
      https://www.ato.gov.au/Business/Small-business-benchmarks/In-detail/Benchmarks-A-Z/A-C/Coffee-shops/
      My take and personal experience in applying these benchmarks is that if wages(inclusive of workcover and super) are less than 28 – 32% of net turnover the business is either run with sensational efficiency (highly unlikely if it on the market) or there are wages not being reported. So in any case I completely agree with Paul on this one ‘buyer beware’ Thanks Paul

  • Danny
    Posted February 5, 2019 at 8:37 pm

    Hi Pete,
    Great wealth of information, however I am looking to buy a business in USA and most if not all of the above information is pertaining non-USA.

    I would appreciate it if you can help me with some insights on USA coffee shop valuation.

    Thanks,
    Danny

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted February 12, 2019 at 4:39 am

      Hi Danny,
      Valuing a coffee shop in the US isn’t dissimilar to the Australian Market, in that you should be looking at the net profit of the business relative to how much you are likely to purchase it for. (being very careful the the net profit figure is a true net profit – always have an accountant review the Profit and Loss Report)
      Obviously there are many other factors that need to be considered and this is very simplified. But you should simply assess the businesses propensity to generate a return on investment and for how long it can securely do this (term of the lease).
      Hope this helps Danny.
      Pete

  • Victoria
    Posted February 12, 2019 at 11:19 pm

    Hi Pete,
    I am looking into getting a kiosk/cafe which will be subleased from a guy who runs a swimming pool on the premises. I am walking into an empty shell as the last person took everything with them except the kitchen sink literally. I have been in contact with council and there are apparently outstanding modifications to be attended to even though the last owner ran the kiosk. Council is unable to tell me what is outstanding and I am unable to obtain an OC. I am going to engage a town planner. The person I am going to sublease from has given very little information (no documents, no profit and loss statements, nothing in regards to the kiosk) except that the overheads are around $1000 per month and rent will be $175/week and that the last kiosk owner made roughly around $1000/week. There are no records. I have asked for overhead statements (electricity, water etc). He has around 700 families/attendees that attend swimming/lessons. It has taken more than three months to finally obtain the floor plan from council.
    Could you please let me know who is responsible for paying for the modifications and some advice on whether this is worthwhile.
    Thanks
    Vic

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted February 13, 2019 at 5:12 am

      Hi Vic,
      Hard to say who is responsible for the modifications, without knowing what modifications are required. Once you do find out you can choose weather you want to ask the landlord to pay for them (as they are potentially fixed and adding value to the property) or you want to pay for them to get your business looking the way you want it. This could be a bargaining chip when negotiating the lease also.
      As to how worthwhile this business is depends greatly on its potential to generate income. I suggest you find similar businesses in your area and speak to the owner or manager about how busy they are. If they’re unwilling to share average daily turnover with you, simply asking for average daily transactions should be enough to give you an idea of the average turnover (calculate this by guessing the average spend per customer).
      The rent seems quite reasonable as do the overheads but studying similar businesses will give you the insights you need.
      The business would then need to be modeled using the ATO benchmark percentages (if you’re in Australia) to give you an idea of expenses relative to revenue and what profit you might be left with.
      I hope this information is helpful, don’t hesitate to reach out if I can help further.
      Pete

  • Wollermann Business Brokers
    Posted February 18, 2019 at 12:17 pm

    Every business has its own atmosphere, requirement etc. The post is really helpful for new users to avoid mistakes.
    Thank you for sharing it.

  • Mark
    Posted February 23, 2019 at 11:01 am

    Hi there
    Is there someone to helpe me?
    I want to buy a coffee shop but I don’t know nothing about it.

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted February 25, 2019 at 9:14 am

      Hi Mark,
      If you’re wanting to start or buy a cafe I can’t recommend my Cafe In A Box Mentorship Program enough. The course has been put together for people exactly like you. I put the course together because i have seen too many people start and fail in their new business because they lacked some very fundamental knowledge and tools. Visit this website for more information and reach to me if you have any questions.
      Speak soon. Pete

  • Marie
    Posted February 24, 2019 at 6:38 am

    Hi Pete,

    Can you please advise me of what would be a reasonable percentage of revenue that should go towards the lease in a kiosk at a shopping centre such as Westfield? I am interested in purchasing a cafe that’s located at a kiosk in a Westfield and the rent is approx. 20.4% of the total sales. Is the rent too high?

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted February 25, 2019 at 11:14 am

      Hi Marie,
      This one is a hard one for me to advise on, as I’ve never operated within a Westfield. The ATO benchmarks suggest that your rent should probably be sitting between 7 and 11% of net turnover. This would put Westfield at around double what most profitable cafes operate on. Again hard for me to comment on as i haven’t seen a lease and can only speculate on the high percentage being justified at least in their minds by the substantial foot traffic in a shopping center. The Percentage may also cover some outgoings. This would be stipulated on the lease.
      I’m sorry I can’t advise on this situation one way or the other, but I would suggest speaking with other Westfield tennants in other shopping centers running similar businesses and consult with a solicitor regarding your lease. The preparation of a projected profit and loss would also serve you well, a good bookkeeper or accountant could assist with this also.
      Hope this helps.
      pete

  • Emma
    Posted March 27, 2019 at 10:14 pm

    Morning,

    Help please.

    We are looking to buy a cafe. Lease runs out in 3 months but has the option to extend for another 3 years I believe. Owner (freeholder) of the block is currently selling the whole block. Would we ask the business owner to negotiate extending the lease before we buy or do we do that ourselves with the landlord? And how does this affect the price we pay for the business knowing full well it expires so soon. We haven’t seen P&L yet but will use your suggested model once we do.

    Many thanks in advance.

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted April 29, 2019 at 1:31 am

      I would suggest that if the land is selling there is too much uncertainty about the business being sold. A new lease would definitely need to be renegotiated with the new owner of the land. It may turn out that they want to redevelop the land. In which case the premium paid for buying a business amounts to nil. I would say the business doesn’t have any goodwill without the security of a decent length lease. If you renegotiate a lease with the new owner of the property the most i would do is offer to purchase plant and equipment off the current business owner. It is likely though; that the current business owner will be offered first right of occupancy after the block is sold, at this point they will likely renegotiate a full lease. This will add value to the business sold and then give the current operator something more secure and tangible to sell.

  • William
    Posted April 27, 2019 at 7:55 am

    Hi,
    Great article. Probably a simple question:
    Do you think it’s wise to buy a managed coffee shop and have the existing team run it, rather than step in and have to work in it.
    I work full time (and will continue to) but would like to have a small business, however wonder if you can actually trust the existing people/manager and how much time is required to provide oversight.
    Thanks!

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted April 29, 2019 at 12:05 am

      Hi William,
      I think it’s great buying a cafe that can run under management, though i do think it’s important you can work in the business or have someone you trust and knows cafes working in the business so you can understand what is going on in this business and the staff know the business is being managed by the owner. Alot of things can go horribly wrong when leaving staff to their own devices, even moreso if you’re not looking at the business carefully daily and providing direction and feedback.
      On the whole buying a business that is profitable under management is very desirable. But the management and staff need to know the person they’re working for is appreciating the work, effort and results and is communicating often about the business.
      So yes it’s wise to buy a business that is profitable under management, but not wise to expect it to continue to track well completely unsupervised.
      Hope this helps.
      Pete

  • fred
    Posted July 13, 2019 at 7:09 am

    Hi coach,

    looking at buying an iconic milk bar which has been run down for the last 3 years. terrible reviews on social media and third party websites. looking at the financials, 2018 was $120k EBIT. looks pretty high to me. however this doesn`t include owner wage.
    the joint has been trading since 1964. lease is 10 + 5. equipment is worth nothing. there is about $30k to be invested to rejuvenate the place.
    locals wants it to be great again.
    price is $140k.
    thoughts?

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted July 16, 2019 at 4:57 am

      Hi Fred,
      My concern is a business that has a net profit of $120K that is being sold for $140K seems underpriced. This suggests to me that perhaps the declared profit may not be exactly what it seems. Try adding back the owners wage incl. super workcover and accrued annual leave. Check that the percentage of wages relative to turnover is around the 32- 36% mark. If it’s still lower than this range, i suggest further investigation (usually it’s higher in businesses for sale).
      Hope this helps Fred, let me know how you go.
      Pete

  • Ali
    Posted October 23, 2019 at 3:59 am

    Dear coach,

    Your responses to questions is very precise and helpful, many thanks for that.

    I am about buying a cafe or coffee shop business in Melbourne and started looking around for that. I have seen some businesses for sale for example $250k with the claim that taking is $12k (in one case $15k) pw with a low rent of less than 1k pw. If I want to operate it by my wife (we both are trained barista but with few experience), it seems very profitable. We can have a high profit in this case. I can’t understand what they mean when talking about “takings”. It could be either the profit after paying the cost of materials or the profit after paying all costs. In both cases, it looks too good to be true. If someone can earn such a huge profit by managing a coffee shop, why they should sell it.
    And, is there any possibility to get 80 LVR loan for such a business by securing it against the equipment and its goodwill?

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted October 23, 2019 at 9:52 am

      Hi Ali,
      I’m glad you’ve found this page useful,
      Unfortunately i would say it is too good to be true.
      Takings generally means ‘the money your customers give you for goods’ or ‘the money you put in the till’
      from your takings you then need to pay staff, suppliers, rent etc. The average cafe, run relatively well can expect a profit of 10% of ‘net takings’ (takings less GST collected from customers) A good operator may be left with up to 20% of takings. Another word for takings is also turnover or revenue.
      Remember to also ask if the takings someone is reporting when selling a business is inclusive of GST. Of late i’ve seen many business brokers presenting prospective buyers with profit and loss statements which have Gross takings (takings inclusive of GST) instead of net takings. This is a sly move because GST collected is payable to the government and isn’t our money. So always ask for confirmation that the takings are ‘net turnover’ figures.
      I hope that’s not too confusing.
      Banks currently are very cautious in their lending. It is highly unlikely that you will get a loan against a business in the current economic environment. The banks will most likely ask for a guarantee/guarantor in the form of real estate. So it’s highly unlikely you’ll secure any financing against equipment, certainly not against goodwill in hospitality.
      Please keep in touch if i can assist further. Pete

  • Ali
    Posted October 23, 2019 at 10:39 am

    Hi Pete,

    Thanks very much for your quick and complete response. Let’s to have some dollar figures if you don’t mind:
    Assume that the taking is $15k pw (GST exclusive) for a coffee shop working 5 days a week totally 50 hours (That is what they say). It includes selling coffee and sandwiches. And let’s say that a net taking of 10% will remain which is 1500 pw. If both myself and my wife work there and have a pay of let’s say $20 per hour, we will earn another $2k pw. If this is the Scenario, we will earn something about $180k per year. Do you think investing $250k and earning such amount is a smart one?
    Cheers,
    Ali

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted October 24, 2019 at 8:46 am

      Ali,
      There are various other considerations here. Firstly you want to check their profit and loss statements and examine any other expenses the business may have that can lower or completely eliminate the 10% profit.
      An example of this is a lease that is too high. This is common. If the business isn’t run correctly labour can easily erode the 10% profit as can miss managed stock purchases and pricing.
      You shouldn’t include your wage as a return on investment. Because a true investment should be able to run without you in it. So the best case scenario in this business is that they are making a 10% profit which would leave $78,000 per year profit.
      I would make an offer only after i could confirm this level of profits and once i knew how much was left on the lease. There is no point offering $250,000 if the business is making 78,000 per year and there is only 2 years left on the lease. Make sure you make an offer so that you can pay off your investment and then continue to make a return on your investment for the remainder of the lease. Never make an offer in the hope that you can extend the lease.
      I hope this is clear and makes sense Ali. Pete 🙂

  • Ali
    Posted October 24, 2019 at 12:10 pm

    Hi Pete,

    Thanks very much for your thorough and extremely useful response. It is much appreciated.

  • Ian Wollermann
    Posted November 27, 2019 at 9:38 am

    All the points are looking amazing. It is important to do your own research first. Thank you for sharing the post. enjjoyed reading the huge number of comments with lots of information.

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted January 25, 2020 at 10:18 am

      Hi Ian,
      The comments are seriously the best part of this article aren’t they? Some great questions.
      thank you for the kind words. Keep in touch. Pete

  • Nicole
    Posted June 16, 2020 at 7:11 am

    Thank you for the great article. I have also enjoyed reading the questions and comments. Can we talk about good will. How do you put a price on good will?
    Cheers
    Nicole

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted June 16, 2020 at 9:54 pm

      Hi Nicole,
      This is a great question. In my experience business brokers or business owners selling their business will set the price of goodwill as the difference between what their business appears to be worth on paper and the price they would actually like for the business. Now i know that sounds a little arbitrary, but this is my observation. I don’t subscribe to goodwill. If you’re buying a business you’re paying for all of the mechanisms that generate that income. If those mechanisms cannot be substantiated tangibly, they shouldn’t be paid for or at the very least it should be your prerogative as to weather or not you want to pay more for this. But given that it is intangible, what is the guarantee to you that you can continue to reap the rewards from this intangible element? So personally i don’t put a price on goodwill. My offer would always be based on the businesses ability to generate a return on investment and what that return actually is. My apologies for the long winded answer. I hope this helps.

  • Eli Richardson
    Posted April 19, 2021 at 1:56 pm

    I’m glad you talked about the importance of checking a coffee shop’s material costs when purchasing one. Recently, my wife mentioned she thinks it’d be a good idea to invest with her sister in a coffee shop. She says it’d be a good way to grow our money, so I’ll be sure to read your article thoroughly. Thanks for the tips on food business suppliers.

    • User Avatar
      Post Author
      The Hospitality Coach
      Posted February 28, 2022 at 10:29 pm

      Eli,
      I’m really glad you enjoyed the article. Definitely keep in touch if you need any advice moving forward.

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