Is there a cafe out there actually making money?

thecafeninja

Hi Guys,

Interested in your feedback - I do pre-purchase assessments on a LOT of cafes for sale on behalf of often very naive buyers (but that's another story). Almost every assessment I do shows that the cafe is an absolute dog. Of course, the broker figures make it look like it is making a fortune.

I'm starting to lose faith in the fact that cafes can actually make money! So I'd like to ask the probing question to all of you cafe owners out there - are you making money and are you happy with the amount of money you are making? I don't need you to tell me how much you are making, but I'd be interested to know if there are ANY happy and wealthy cafe owners out there...

Thanks,

Craig Reid - The Cafe Ninja

blanyon

Yes there are very profitable cafes out there but I would imagine that they don't come up for sale very often as the owners are happy running them. Generally the ones for sale have issues (high rent, low traffic etc) or they are just poorly run (ie I can make a great sandwich so I can run a cafe attitude). My belief is that good cafes are run by passionate people who understand business and so park their cafe in the right area paying the right rent and keeping costs under control. Ninja you seem to pretty busy posting all over the place at the moment. Cheers Brett

askthecoffeeguy

One of Melbourne's (Australia? The world?) cafe pioneers, a guy who's opened and largely on-sold 120 plus cafes in the last ten years once said to me, "If you're doing it for the money then you're in the wrong industry" He went on to say that passion, commitment, experience, and expertise are required to run a good business, and especially so in the cafe industry The industry itself tends to be self regulating with those who can rising on to bigger and better things, and you have to be a numbers man (or woman) at heart to be able to crunch the figures, and work the margins Still... I don't see to many agents offering to reduce their fees or drop their commissions, which can be as much as ten per cent of the sale price of a cafe, so there is definitely room their for concerned brokers o give something back to the little guy... By the way, Craig, I've taken the liberty of removing your personal and professional contact details - as I'm sure you wouldn't want to accused of shameless  self promotion - which runs contrary to accepted protocol Cheers, ACg

thecafeninja

Thanks for your comments guys but not one of you has been able to give me a definate "yes" - it's much along the lines of "well I think so but I don't really know"! Are any of you currently cafe owners? I have a theory that the hundreds of cafes for sale in each city is a result of naive people buying them thinking that they will make a fortune then selling them 1-2 years later to yet more naive people...and so the cycle continues! Cheers, Craig - The Cafe Ninja www.the cafeninja.com (shameless self promotion, what's wrong with that?) ;D

blanyon

Not a cafe per say but a coffee van, I wouldn't be buying a cafe in my own town (Wagga) as the numbers just don't add up. There are some that have cheap rent but low traffic and the ones with high traffic the rent is amazing so numbers just aren't there. Cheers Brett

askthecoffeeguy

I've owned three cafes in the last ten years and my current one has just been listed in melbourne's top 20 cafe destinations according to the Melbourne coffee guide hardback edition for 2011... Sure there are plenty of cheap and cheerful cafes out there willing to substitute quality for quantity and I agree that they're a dime a dozen but I wouldn't know about there operational margins nor do i care about there resale value as I wouldn't choose to frequent or compet with them in the first place As far as I'm concerned its the ordinary cafes that make the great ones look so good I think too that a lot if cafe owners apply conventional wisdom when it comes to running their businesses i.e. Shop around for the cheapest possible price or best deal for whatever it is that they're selling then flog it off for the highest possible margin, combined with a work till you drop mentality and squeeze every last drop out of your workers until they're no good to you any more - and these dated values do a disservice to the industry Tourist destinations especially spring to mind as charging a fortune for very average  produce made by folks who couldn't give a stuff about what they selling And the bottom end of the market appears to be saturated and  by cAfes competing  on price point, with little emphasis on quality or value for money - and it's little wonder that these places have a high failure rate - as there is very little margin in what's on offer and money to be made only by cutting corners on quality produce or by paying staff very low wages in order to be competitive with what the other guy is doing In theory if your operational profit is say 100k after expenses, which is $300 profit per day for a 7 days per week operation, or $400 per day for a 5 days per week operation - then theses figures ought to be achievable on top of a reasonable wage by an experienced operator - and should in theory at least offer a reasonable return upon sale of the business I'm lucky because I've had profit and loss literally beaten into me by some of the industry's finest - but financial savvy combined with adequate capitalization, and relevant industry experience, ought to be a minimum prerequisite when opening a cafe...

thecafeninja

OK, coffee guy, so what you are saying here is that if you run your cafe well you should expect a 20% profit margin plus a wage - so say 25% profit if we include a wage? From my own experience I'd say that most cafes are making about 10-15% profit including owners wage (well actually some are making -10-15%!!), but I think you are talking about someone who knows what they are doing, right?! Still, having looked at a lot of cafes I find it hard to believe that a 25% profit margin is achievable. Cheers, Craig

thecafeninja

AM - I'm looking at it from a buyer's perspective. When someone looks at buying a cafe they just want to know how much money they can make a year - which to them is the wages that they can pay themselves + the profit that is left over. Yes I agree, it shouldn't be bundled together - it just makes it simpler for the buyer to understand. I think all owners should pay themselves a wage and consider the profit as the cream on the cake. Unfortunately it's very hard for most owners to make much of a profit. So if we split it out we're looking at 5-10% profit + owners wages (if they are lucky!). It's no surprise that at any one time there are hundreds of cafes up for sale in Sydney... TCN

Cherry

Hello ninja, having fun buying a business can be challenging. Approach with self-confidence and patience. Self confidence in your ability and what your business offering will be. Patience in buying running shop or starting one from scratch. A few questions to answer about your self. How much capital do you have to go into business with? Once you are sure about your capital, this will become major factor in where? What? Why? you chose business. What kind of shop do you want to run?( coffee only, with food etc) The more you offer, the more work you are creating for your self. Putting pressure on service focus, requiring more staff. Not that their is anything wrong with employment! I love working with people. Just puts pressure on business to keep up with wages. Leads me to next question What skills are you bring to the business? Where will you be working in business everyday? The more owner is working part of business the potential is greater to make more for yourself Must run now more later Hope you find this helpful What skills are you bringing to it?

thecafeninja

Cherry - you didn't answer my question...

Cherry

What did you want to hear?

DoubleRistretto

don't want to speak for TCN, but assume he means the question in the name of his thread - ie is there a cafe out there... dR 

Cherry

Hello ninja, going over what you've been saying. I'll try again. As owner of buzzy cafe if you are paying yourself between $800 and $1500 your doing well. But I think building up run down or start up shop, with focus to sell. Gives you greater chance to make $50,000 every 2 to 3 years. Another way to make better money would be to buy free hold that your business is in. You then have options to go and open another shop, or sell business and stay as land lord, or sell building too. I hope that's more helpful

askthecoffeeguy

Hi cherry - thanks for your detailed reply - I think that you will find that ninja is a 'buyer's representative' when it comes to buying cafes - I'm hesitant to use the term cafe broker as that has not been established yet I agree that if as a cafe owner you are netting between $800 and $1500 take home a week, then you are doing ok - especially in the early days of the business - and any profit should be considered the icing on top I've just finished my first 12 months of trading of what is now my third cafe, and we're finally starting to see some reasonable sales figures on a regular basis - as you would want to do at this time of year... The conventional wisdom is that the money to be made in cafes is not by running them, but by building them up into a profitable enterprise, and then selling them while business is good Even one of the owners of Mecca in Sydney said recently that his income as a cafe owner was only just above an average wage - if that's what the industry's finest are saying then what hope is there for the rest of us? Cheers, ACg

Cherry

Well written acg glad to hear your shop is going well

admin

in terms of CN's original question, I'm assuming you'd include all the really top [coffee] cafes, such as those we've included on our Best cafes of Sydney [2009] and Best cafes of Melbourne [2010] - I'm mean I'm assuming those guys actually make a fair bit - don't they... ? or would their set-up costs be so huge that they would have incurred bucket-loads of debt: Pat, CafeN?? A

Cherry

Set up costs, including fixtures and equipment can run into the hundreds of thousands very quickly. Cost of highest grade beans are now pushing $10 to $20 per kilo green. Often minimum order is one Tonne at leased 60 kg. Then wages can be 40 percent of turn over. Especially if one is trying to pay real money to real people to be outstanding. Showing up everyday aspiring to roast and espress excellent coffee is more than just bottom. The hours one commits never adds up Excellent coffee is a way of life

askthecoffeeguy

True spoken dat...

Cherry

I'm inspired by more shops roasting for themselves. All the trials and tribulations roasting for yourself Soooo exciting. It all starts with big passion and desire to consume loads of coffee. Then realization of money. You can start with one item at a time or mortgage the house and get everything at once. I'm keen to embrace anyone that wants to take that next step and start roasting for themselves! The journey is great

blanyon

I'm keen to embrace anyone who wants to roast for themselves too but it does take a level of skill and commitment to roast something worth drinking. I am interested when I see a roaster in a shop but it really comes down to what is in the cup that matters. My opinion is that I am concentrating on getting the best out of the bean at the coffee machine without complicating things further by adding a completely different skill set (and costs) to my business. Just my 2c Brett

Cherry

Moto are you roasting now? Would you like to learn?

blanyon

I roast for personal use using a kkto but I leave the commercial roasting to the professionals, as I always say never say never but right now I am happy just making coffee. Brett

askthecoffeeguy

I dont rate the coffee from a lot of cafes that roast for themselves - roasting is one thing but palate structure is another and that cant be taught, it needs to be aquired over time... Happy to be proven wrong with this one though or maybe I just need to get out more often?

blanyon

I put it in the same category as something like baking bread for your cafe, you will probably save money doing it and if you do it well you will end up with amazing results but....subway bake their own bread and look at what they produce. Not sure that I have made my point very well but I think it just adds a layer of complexity to an already complex business and the chances of mucking it up and doing my business more harm than good is not worth all the hassle (and there is a lot of hassle!!!) Brett

Cherry

Maybe a few start up roasters would be more open to feed back, as they would listen and change for their customers. As for franchise models, they are really stuck to make any changes. Roasting is a journey, can be learned . Every batch is like an espresso, each one prepares you for the next batch . Not jamming idea, thinking out loud.

askthecoffeeguy

on 1288029738:

Maybe a few start up roasters would be more open to feed back, as they would listen and change for their customers. As for franchise models, they are really stuck to make any changes. Roasting is a journey, can be learned . Every batch is like an espresso, each one prepares you for the next batch . Not jamming idea, thinking out loud.

Actually I think that there are a few startups who are doing an outstanding job of roasting - especially considering how new they are to the market - everyone's tastes are different, but I know what my preferences are!

cafelawyer

Yes, yes and yes. Plenty of cafes make money, but its not surprising that the profit is hard to find.

thecafeninja

on 1291786747:

Yes, yes and yes. Plenty of cafes make money, but its not surprising that the profit is hard to find.

Guys - I'm not a broker - I'm a cafe consultant. I help improve cafes and also help clients assess cafes that are up for sale. I think my question has been answered. There are a few cafes out there making money, but the summary of the feedback is "not a lot". Considering the huge effort and commitment involved to earn $50-70K pa you would earn more money per hour working in a call centre doing customer service. So the bottom line seems to be, if your passion for the business can overcome earning very little and working really hard then it's worthwhile.

Dodger

Hi guys, I realise I'm a bit overdue here but I came across this conversation when exploring the subject question and found it pretty insightful. Hopefully everyone is still active!? So basically it sounds like there is an average wage + profit to be made running an above average cafe. I just wanted to know what everyone is selling apart from coffee to come to this conclusion. Anyone licensed, late hrs, serve  dinner etc? I would've thought late wknd and maybe wk day-night hrs with alcohol would make a substantial distance. Anyone there? Helloooo!

Koffee_Kosmo

on 1329699261:

Hi guys, I realise I'm a bit overdue here but I came across this conversation when exploring the subject question and found it pretty insightful. Hopefully everyone is still active!? So basically it sounds like there is an average wage + profit to be made running an above average cafe. I just wanted to know what everyone is selling apart from coffee to come to this conclusion. Anyone licensed, late hrs, serve  dinner etc? I would've thought late wknd and maybe wk day-night hrs with alcohol would make a substantial distance. Anyone there? Helloooo!

I have been self employed for a few decades Previously in shops and now in the building services industry There was on many occasions that I would work for years without a holiday My record is 9 years straight / 7 days per week / with one or 2 days taken off at Easter or Christmas 1) In reality! -  any profit a boss makes is not enough for the hours one puts in compared to employed staff 2) There are more hidden costs in business then one normally assumes KK

Dodger

Cheers for the reply KK, what where your shops if you don't mind me asking? Me and my girlfriend have been discussing going into the cafe business for a while now and we are coming to a stage where we are setting goals and thinking seriously about what we want to offer people, apart from a great coffee, that could make it work. So I wanted to know what everyone is having luck (if any) with, if anyone is selling alcohol, selling some signature meals/snacks/deserts or doing any sort of entertainment etc. I've been in bands for yrs and wanted to put on live acoustic music at night with drinks and real simple menu. Basically want to get some insight in what areas people have tried and failed/succeeded in with their cafes. Tried a dinner menu and wasn't worth the effort and overheads?...etc.