We often have clients approach us wanting to purchase a coffee shop, cafe or other hospitality business. As accountants, we like to look at the figures first.
Running a coffee shop can appear to be a fun lifestyle choice, but the reality is that running your own business is hard work. Taking a good look at the accounting and finances of a coffee shop you are wanting to buy will help you make the best choice.
Here are our top 5 tips when you are looking to buy a café.
1. Know the Numbers
It is essential for you to review the accounts. Don’t just take the seller’s word for it. What are the sales trends for the last 2 to 3 years? Is it making a profit – i.e. is it covering its expenses and leaving you with sufficient funds to pay yourself a wage and cover any loan repayments (if you need to borrow to purchase the business)? In addition to the purchase price of the business you will need to ensure you have sufficient capital for additional establishment costs, such as working capital, stock, rental bonds. It is so important to get an experienced Accountant involved at this stage.
2. Check Staffing Requirements
Will the staff be staying with you or will it be a family run café? Are the current staff being paid the correct award rates? Have you visited the café and counted the number of staff working there and then compared this to the figures in the accounts provided – does this stack up?
3. Review the Terms of the Lease
Make sure you and your solicitor review the lease carefully. Do you know how often rent reviews are and whether the increase is a set % or market review increases? If a market review, would you be able to cover the increase? How long is left on the lease? Check any restrictions – like mandatory business opening hours. If there is not much time left on the lease, will the landlord renew it?
4. Existing Equipment
Is any of the equipment under Lease/Finance? You need to ensure that any items under Lease/Finance are paid out before you acquire the business. Otherwise you will have additional finance obligations that have not been taken into account. Take a look at the equipment. Is the existing equipment in good working order? If not, you will need to budget for improvements, repairs and upgrades. It’s common for coffee machines and grinders to belong to the coffee brand that the café is aligned with. So factor this into your cost if you want to use a different coffee brand.
5. Potential for Growth
Have you considered any growth opportunities and ways to improve the business profitability? Coffees and cafes are on trend at the moment, with some areas having a cafe on every street corner. What will be your point of difference? Does the business have good reviews on Facebook and review and hospitality websites such as Trip Advisor? Does it have a good following on Instagram?
We are a small business accounting service located on the beautiful Sunshine Coast and would appreciate the opportunity to help you, your friends, family and colleagues. Contact us on 07 5451 1118 for obligation-free confidential discussions today.