The Price is Right (for cafe)

Comments

• Unknown

  November 2005

  Hi Macchiato and welcome to Crema ! I am pretty new here also. I have been in IT for 20+ years and when my job is outsourced (only a matter of time I figure)  I plan to open a cafe also. So I would be interested in the answer to your question also. Cheers, 98%caffeine.

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• admin

  November 2005

  Hi guys - this is a pretty interesting question - does anyone know anyone who's up on the economics of these things? -A

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• Steamed

  November 2005

  Others will contribute their opinion I'm sure, but here's mine... As a quick and dirty guide only, a privately owned cafe may sell around 1

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• FreshCoffee2

  November 2005

  There is a formula which is then subject to the individual situation as outlined above. Speak to a business accountant. Regardz, FC.

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• Remus

  November 2005

  i own my own business, (not cafe related), and the message is simple...get advice and if at all possible get an auditor or like to scan thru their books. as someone pointed out there can often be gross descrepencies in actual/ declared profit/ loss. look at their returns and claim for GST etc. only an accountant, auditor or business analyst will know this sort of stuff well. why one is more expensive than the other could be a gazillion reasons; more often than not in retail, alot of it will be driven by length of time left on a lease, length of lease renewal terms, lease repayments etc. other things that influence the price could be neighbouring businesses, is it part of any franchise or multiple-store arrangement, ease of parking, interior furbishment and design, facilities, equipment, assets to the business, outdoor seating approvals from council, business hrs restrictions, max seating approvals, food prep approvals or just beverage. the amount you bring in is not necessarily the only driver of purchase price.

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• Macchiato

  November 2005

  Thanks for all you guys' inputs. I really appreciate your advises.   Summing up opinions from brothers Steamed,Fresh Coffee and Remus, getting help from accountants will be the best option. I know from experince that cafe like other cash businesses most do not declare all their TO. Hope accountant can help me see thru the mist. Thanks again for your help!! Macchiato

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• Crackles

  November 2005

  I own a cafe and run courses on buying Cafe's, as well as doing alot of due dilligence work. What you are all saying is true. Cafes should sell for approx 2 times net profit Cafes in the CBD (5 days will sell for 3 times due to shorter openning times ) The real problem is finding out there real profit/TO/Any true figures. You essentially need to rebuild there profit and loss from information you can gleam. Important things to remember turnover includes GST whereas most of the costs in Cafe's don't. So take 9% off the turnover. When you are looking at a cafe for sale remember it is like buying a used car. 1/ The price they advertise is intended to be bargained with.2/ A cafe with up to date books and good systems is better than something run from an exercise book. If you want more info email me off this forum.

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• andrewk

  November 2005

  Hi Macchiato, I am an accountant (and I just happen to work for a bank as well). Crackles is absolutely on the right track.  My 2 cents worth: 1) Due Diligence A Due diligence is absolutely necessary - and to be blunt if you don't do one you've got rocks in your head.  What is truly frightening is the number of businesses that get bought without one!  You wouldn't buy a car without an NRMA check would you?  A due diligence is simply making sure you've examined all the details before you make the purchase.  Its not a guarantee of success but it should minimise any nasty little surprises that might crop up after you've bought your place.   2) Risk - As crackles points out, it appears different cafes trade at different multiples of net profit.  Why is this?  Simply put:  its due to risk.  Less risky cafes will trade at higher multiples.  More risky cafes trade at lower multiples.  Without going into financial theory - you see the same thing with companies on the stock exchange. And it makes sense too - a long established, successful cafe will sell for a higher price (ie multiple of net profit) than a brand new, untried cafe. Hope this helps & good luck. rgds andrew

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• crema_dillema

  April 2006

  Hi guys, i follow an even simpler rule for buying cafes....for every 10 kilos of coffee per week the price should be around 100K....therefore if a cafe is doing 60Kilos per week expect to pay 600k for it.

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• Luc

  June 2006

  Would it be cheaper to not buy a business, instead lease a shop and fit it out yourself. Which is what I'm thinking about. I'm thinking - Why pay money for a business? - when I don't know for sure the figures are accurate and also the design of the place will be completely different? I was looking at www.realestate.com.au and noticed how many shop/old cafes are for lease in Melbourne. If I plan to design the cafe myself(in conjunction with a friend) and offer different food I should be looking to just find a vacant place and lease. Is this line of thinking right?

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• Reschsmooth

  June 2006

  Luc, I have no expertise in cafe's or even buying and selling businesses (to a point), however, one of the benefits of buying an existing cafe is the fact that the cafe may have a 'brand' recognised by patrons. When setting up from scratch, you will effectively be an unknown in the area. So, in effect, you maybe paying for goodwill. Now, this goodwill could evaporate as soon as customers realise the original owner has gone. To avoid this, you can have a purchase agreement which says the original owner may have to stay on for a period of time (I don't know if this is relevant in the hospitality industry). Another point is that sometimes you can pick up a business cheaply if the vendor NEEDS to get out (hey, there maybe business related issues as to why he/she needs to get out). It depends on who is the more keen party - the vendor or the purchaser. Cheers P

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• askthecoffeeguy

  July 2006

  I agree that it's good to look into all the possibilities. Cafes can be a lot of hard work without much reward, especially if you haven't got a strong background in the area. If you can buy (or setup) something that runs M to F days only, then you would expect to pay more for this prospect. I took over an existing cafe that wasn't doing very well, then revamped the place, adding more expensive equipment as demand grew over time. I do think that its cheaper to start from scratch yourself, but only if you are confident of gaining adequate market share, and have done all you sums (such as the projected per head spend per person, and the number of covers you would need to do each day just to cover your overheads - this can also determine your price structure) Sometimes its a beter buy to purchase an existing establishment and build on existing relationships. Depends how much you have to spend and how confident and capable you are in you ability to turn a profit. My advice is to ask some successful owners for some practical advice I had a business coach and two business mentors, when I set up my cafe, and I found their support and advice to be invaluable. ACG

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