The first question we’re often faced with is the dilemma of buying a pre-established cafe or starting and opening our own cafe. And quite often for those new to the industry the choice is buying a pre-established business, but there are a few options available, below I will outline the tradeoffs for all options in point form.
Buying a pre-existing failing café
Advantages
Purchase price is usually lower
Pre existing infrastructure & stock is provided for
Council permits are pre- Acquired
Ability to quickly fix and sell for profit.
Disadvantages
Bad will may need to be overcome
New system implementation required
New marketing required
Renovations Required
Point Of Difference needs Establishment
Who Should Consider This Option
Experienced Café Operators who have successfully implemented a system with good results.
Those familiar with nuances of café business success.
Buying a pre-existing profitable café
Advantages
You have instant cashflow
Goodwill
Preexisting System that work
Preexisting Staff and Management
Disadvantages
Expensive Purchase Price
Difficult to build and sell at higher price.
Preexisting Systems can be difficult to change.
Who Should Consider This Option
New business operators who have confidence in their learning abilities. Experienced café operators who want instant cash flow.
Building a new café
Advantages
Building a new brand
New Depreciable Equipment
No Preconceived Perceptions of business
Flexibility in applying branding ideas
Easy to implement new system
New Staff adopt new culture
Disadvantages
No goodwill
Location risks
High Setup costs
Negative Cash flow during building and first few months
Implementation of systems can be time consuming.
Who Should Consider This Option
Experienced Café operators who want to develop or expand a brand. New well researched and planned entrepreneurs.
Buying a new cafe franchise
Advantages
Systems are in place
Ongoing support available
Location is often selected for you
Buying Power (not in all cases)
Goodwill
Disadvantages
Some franchises have exceptionally high startup costs, often higher than what it would cost to start your own business.
Ongoing Franchise Fees
Marketing/Advertising Fees
Inflexible systems
Dependant on franchisor success
False expectations
Location performance risk.
Outgrowing Franchise is a common problem also
Who Should Consider This Option
New business operators willing to invest more for a proven system where marketing and business systems are pre-established.
Ideal for those happy not to deviate from or outgrow the system
Buying a pre-existing cafe franchise
Advantages
Established presence brand and customer base
Systems in place
Preexisting Staff
Ongoing support available
Proven Location
Buying Power
Goodwill
Disadvantages
Paying a premium for pre-existing business.
Pre existing staff
Ongoing Franchise Fees
Marketing/Advertising Fees
Inflexible systems
Dependant on franchisor success
Outgrowing Franchise
Who Should Consider This Option
As per ‘Buying a new franchise’ but a greater premium will be paid for the security of a successfully proven location.
Obviously there are many things to consider as can be seen above, franchises are definitely only suited to those happy to work within a certain framework, and buying or building a café either profitable or otherwise will depend strongly on your financial position. What I have found in my personal experience is that you make of your business what you put into it.
Do your research and due diligence and be confident within yourself and your abilities that you can make it work. When it’s your own business, failing is not an option.
4 Comments
Claudia
Hi HC!
I am looking at a Cafe that I worked in over ten years ago. It is for sale. Since I worked there there have been 3 owners.
The location is great, the food and management has had it’s challenges.
Want to change name, upgrade the menu (breakfast & lunch) my questions:
What would I have to do to change name?
Do I keep the wine and liquor license? Does that automatically transfer?
Also there is 4 years left on the lease and the latest owner has only been there for on year.
Thank you for your help
The Hospitality Coach
Hi Claudia,
I’m going to assume you’re from Australia, as my knowledge of registering business names abroad is limited.
When you buy a business you’ll need to set up you own company, most accountants can do this for you and this is what i recommend for the inexperienced as they can also give you some great advice in structuring your business. Now here’s the crucial bit if you want to save yourself some time. If you register a new company name that is the same as the name you want to trade as you will not need to set up a trading name. If you already have a company set up; well then you’ll need to register the trading name you’d like and link the trading name to your company. Once this has been done then go to your bank and open your bank accounts for the business making sure that the trading name is noted on the account, eg John Smith Widgets pty ltd trading as double shot cafe. When it comes to looking up available business or trading names i think it’s all still done through ASIC.
So when you take over all you really need to do is change the signage/branding around the cafe to reflect your business name.
Liquor licenses will not automatically transfer, there will be an application fee and also a period by which objections to the transfer of the license may be aired also. Contact your states Office of Liquor & Gambling. For more information, my lawyer has handled much of this for me in the past, but this process can vary from state to state.
You should contact the landlord explaining that you are considering the purchase of the business and open discussion for the establishment of a new lease.
Hope this helps claudia, please don’t hesitate to contact me or post more questions as they come.
John stidham
You left out a big one. Leasing a closed up restaurant, equipping, introducing new concept and brand. Great for experienced operator
The Hospitality Coach
Hey John,
You’re absolutely right, and this isn’t all that uncommon. If you’re really lucky the landlord may have retained much of the equipment and have that available for a new tenant. A great help in retaining working capital.