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How to Buy a Cafe

Read this and find out how to do your due diligence, value a café and negotiate the terms of sale.

If you’re thinking of buying a café then your starting point should not be browsing businesses on the market, but your own suitability to the sector.

You don’t necessarily need experience of running a café, but some food-service experience and culinary qualifications are arguably important.

Cafe

As the boss, it’s your responsibility to arrive early in the morning to set up before opening to the public, as well as staying until after closing time to clean up.

You must be friendly and attentive to customers even as you work briskly during busy periods. Your people skills must also extend to staff, who you must recruit, train and nurture with care.

Preparing yourself for café ownership

Make sure you understand regulations around hygiene, food safety and business generally before and/or during the buying process. Depending on your skillset, it might be wise to also take relevant catering qualifications or training in various business skills like bookkeeping, marketing and HR.

Find out more about the café sector before you embark on the buying process.

Business brokers

If you pass your own due diligence, then it’s worth considering appointing a business broker or lawyer experienced in buying food-service businesses. They can help you with negotiations, paperwork and an independent business valuation – more on which later.

Cafe waitress

You also need to consider your budget. Unless you’re lucky enough to have significant personal capital, you’ll probably need a bank loan, although some vendors might accept a portion of the sale price in instalments.

At the time of writing cafes for sale in Canada on this site range from $40,000 for a grill in Stoney Creek, Ontario to $489,000 for a Second Coffee Cup franchise in Toronto.

The price and your priorities will be shaped by criteria such as:

  • Historic revenues and profits: the most obvious factor, but others below could convince you that a struggling business can be turned around
  • Location: high streets, tourist hubs, business districts, transport hubs and other high footfall areas come at a premium
  • Premises: Size matters in terms of growing revenues
  • Interior décor and furniture
  • Range and quality of equipment like cookers, fridges, coffee machines
  • Length of lease
  • Business model: Is it a pure café or better described as a coffee shop, café-bar or restaurant? Depends on menu and whether there’s an alcohol licence
  • Competition – not just local cafes and coffee shops but also bars, bakeries, restaurants

You can narrow your search on BusinessesForSale.com by various factors, but your budget might not stretch to getting you everything you want. You need to consider carefully the time and costs involved in, say, revamping the menu, renovating the kitchen or refurbishing the dining area.

Valuing a cafe

It’s worth appointing a professional to conduct your own, independent business valuation once you’ve found the right café. Sellers seldom undervalue their business but, if they’ve valued the business themselves, unconscious bias can lead to overvaluation.

Director of Black Market Roasters and founder of Oz Café Exchange Angus Nicol reminds buyers of “the old adage that something is worth only what someone is willing to pay for”.

However, the combination of equipment value and income earning potential, he says, can give you a starting point.

Cafe waitress

Valuing equipment, “which is pretty simple,” is the “purchase price minus wear and tear, taking into account what it would cost to replace that piece of equipment.” Also, value stock like coffee beans and other dry goods.

Once calculated net profit should then be annualised based on historical data.

The profit is then multiplied by a ratio, which is higher when parameters like location, goodwill and lease length are favourable.

Striking a deal and due diligence

Once you’ve agreed on a price and terms of sale, they’re drafted into an agreement.

Called a letter of intent, this agreement is non-binding, so you can still seek to renegotiate or walk away from the deal altogether until the final purchase agreement is signed.

But renegotiating without a valid reason can erode trust – which is where due diligence comes in.

Due diligence means scrutinising the accounts and other paperwork plus inspecting the premises and seeing the café in action. Try out the menu, observe customer interactions and notice how busy the café gets at various points during the day and week.

Check TripAdvisor and similar platforms to gauge customer sentiment.

Research the area – including demographics, local competition and whether any redevelopment plans are in the pipeline that could affect trade (for good or ill).

Subject to any ‘skeletons’ uncovered during due diligence, once final terms are agreed they’re incorporated into a final purchase agreement – which is legally binding once signed by both parties.



Bruce Hakutizwi

About the author

USA and International BusinessesForSale.com Manager for BusinessesForSale.com, a global online marketplace for buying and selling small medium size businesses. The website has over 60,000 business listings and attracts over 1.5 million buyers to the site every month.

@BizForSaleUS

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