For many coffee lovers, running a coffee shop would be their ideal job. Who wouldn’t want to spend the day surrounded by the inviting aroma of roasting coffee beans, the distinctive sound of frothing milk and the sight of delicious cakes? That’s not to mention the sound of the till from all the paying customers you’d be serving.
Before you get to that point, here’s some advice to help you on your way.
Why would I buy an established coffee shop?
While starting a business from scratch might seem like a glamorous route, buying a coffee shop that’s already established could be a better option. All the usual struggles of a start-up business taken care of; you have an existing customer base, there’s a full range of equipment and necessary legal documents set out already, all you need to do is buy the shop and start running it.
Freed from the cost of having to find a property and secure a lease, purchase all the equipment, buy stock, ensure you’re running to correct food hygiene levels and more – you can instead concentrate on the actual running of the business.
Coffee shops are also a good option for first time business owners too. The margins on each cup are often high and you can count on trade being consistent – if you put in the hard work, of course. As everyone is so familiar with coffee shops and cafes, it’s also easy to know what your customer’s expectations are.
Buying a café or coffee shop in 2019: Industry average value and turnover*
Cafes and coffee shops come in all sorts of different shapes and sizes so gauging the average turnover and asking price can be difficult.
We’ve crunched the numbers and had a look at the industry so you know what to ask for.
The average turnover is between £100,001 and £150,000, with 22% of all cafes and coffee shops achieving this.
5% of cafés and coffee shops have a turnover of up to £25,000 while 12% are making upwards of £250,001 every year
As for the rest, 8% make £25,0001 to £50,000, 18% are turning over £50,001 to £75,000, 12% are generating between £75,001 and £100,000, 14% have a turnover of between £150,001 and £200,000, and finally 4% are turning over between £200,001 and £250,000.
Average coffee shop or café value in 2019
A café and coffee shop’s value can be impacted by loads of different factors including location, customer portfolio and services among other things. But to give you a rough idea, here’s what cafes and coffee shops are worth in 2019.
The average value of a café is £73,082. The lowest average is £54,218 and the highest is £91,947.
Given their similar nature, coffee shops have an average value of £68,873. The lowest average is £55,098 and the highest is £82,648, so you have a rough idea of what to aim for.
But how do you decide which café or coffee shop to buy?
Make sure you’re right for the role
Before you even begin to research and find the café you want to buy, you first need to decide if owning a coffee shop is right for you.
It goes without saying, but you need to know about different types of coffee and how to make them. Of course, you don’t have to be a hands on owner. You can employ a manager to do all of this for you but expertise needs to be in place as soon as you take over. Coffee lovers can be very particular about how their favourite brew is made, so making sure you get everything right is a must – especially to keep people coming back.
If you decide not to be hands on and serve customers, it will still help for you to have a working knowledge of how to make different brews. This will help just in case you need to provide an extra pair of hands and will give you a greater understanding of the day-to-day running of your business.
It helps if you already have work experience within the industry. This isn’t essential if you want to buy a café, but it will make the adjusting to the working patterns much easier. It will also mean you already have a lot of the skills that are needed and are familiar with interacting with customers.
If you don’t have work experience, talk to business owners and try to get an idea of what to expect. You’ll be working long hours and be constantly talking to customers. Being a people person helps, as well as having the intuition to recognise when someone doesn’t want to talk. Ultimately, being able to understand your customers and their needs is what will make them return to your business time and time again.
How to choose a location
There are several ways you can decide on which coffee shop or café to buy.
- What size shop do you want?
- Do your research
- Consider the footfall
- Investigate regulations
Coffee shops and cafes are extremely versatile and can cater to over 100 people or they can be tiny takeaway kiosks. The type of coffee shop you want to open will likely dictate the location so it’s important to be flexible. If you find the perfect business in a great location but it doesn’t quite fit the picture you built in your head, still consider its potential.
It’s a good idea to visit the coffee shop you’re interested in as a customer before enquiring further. Have a look at the premises, see how the staff interact with customers and try the food and drink they offer.
Try to see how the customers feel and how they’re reacting to the business – and if they’re likely to return. Observe the staff and owner of the business – do they seem calm? Are they coping with demand or do they look stressed?
Talk to customers and passers-by. Ask them why they visit the coffee shop? What do they like about the shop? What needs improving? What do they want from a coffee shop? You might find that this gives you inspiration for a plan, or reveals too many problems to solve and so you need to move on to the next opportunity.
You should also check out the local competition. Investigate similar cafes and coffee shops, chain cafes and also any other food or drink outlet nearby like a restaurant or a pub. Identify similarities and also where there is opportunity for you to do something different.
The internet also gives you a great opportunity to do more research. Look online for reviews of the cafes and coffee shops you’ve researched and see if anything jumps out at you. Does one have particularly bad reviews, or one with a mixture of good and bad? That could provide you with inspiration for improvement.
When you speak to passers-by, evaluate the footfall. Are you close to public transport? Is it right in the middle of the high street? Are there offices nearby?
You don’t have to be in the middle of a shopping centre to attract footfall. Areas with offices nearby are likely to attract a lot of walk-ins and the same can be said for industrial parks. If you’re in an area that’s not easily accessible but does get a lot of footfall, parking will be essential.
It’s also worth speaking to an Environment Health Officer to make sure that the café you’re interested in buying meets local regulations. This could also give you some insight into any previous accidents which could have had an impact on the reputation of the business.
You may also want to enquire with the local council to see if there are any building plans nearby that could impact your business – whether for good or bad.
You can also research into the accounts and finances of the business, but we’ll talk more on that later.
Decide on your menu
Before you buy a coffee shop or café, you need to think about your menu. Are you going to provide food as well as drinks? What about alcohol? Will it be based around a theme? Whatever you choose to settle on, talking to customers first will help you decide. Remember this is about their taste and preferences and not yours.
If you decide to serve hot food, work with a chef to design the menu based. Don’t be afraid to ask for customer feedback and adapt you menu accordingly.
It may be easier to decide what kind of food and drink you will serve, at least to begin with, based on the equipment the coffee shop or café already has. At an absolute minimum, here’s the equipment you will need:
- A till system to handle cash and card payments
- Espresso machine or a coffee/cappuccino machine
- Essentials like crockery and glassware – if you are selling food this should extend to cutlery
- Fridge – even if you’re only making coffee, you will need one for milk.
- Electric water boiler
There are some extras you could consider too that will impact how long people stay in your café. Offering free Wi-Fi (maybe in exchange for an email address?) and having tables and chairs for people to sit and work at will keep them around for longer. So consider how often you want to turn over tables – if you have them – and the things you can do to
Licences and legal requirements
Your menu will also dictate what licences you need to get. A food licence is needed if you are planning to sell food to the public (even if it’s not cooked onsite), an alcohol licence is needed if you plan to sell alcohol and an entertainment licence allows you to play music in your café.
You will also need to check that your business is registered with environmental health service and that you have adequate insurance in place too. Insurance can often be an afterthought but it’s there to protect you, your customers and your business.
Put together a business plan
A business plan is an essential part of owning a business. It will help make your direction clear, act as a reference when you need help and can make tricky decisions easier.
Once you’ve decided you’re going to buy a café or coffee shop, you should write a business plan.
It should include:
- A general overview of your business proposition.
- The objectives you want to hit and how you will measure success.
- The purpose of your café and what you want to achieve. These can be separate from business objectives and include things like ‘be a hub for the local community and hire five locals’.
- Where your finances are coming from and a breakdown of everything you will spend your money on for the initial takeover. A business plan will be particularly important if you want to secure finances from an investor or third party.
- Where you café will be located and what the advantages and disadvantages of this will be. This should also include how you plan to address any issues that arise because of the location.
- The products you will sell including menus, suppliers, quantity and how much you plan to sell each item on the menu for.
- The research into your competition and how your café fits into the market. You should include how your café or coffee shop will best the competition and tie these back to your objectives.
- Who your target customers are, why they are your target customers and what you can do to keep them coming in through the door
So once you’ve drawn up your business plan and conducted your research, here’s how you go about buying a coffee shop.
How to buy a coffee shop
1. Consider your budget
A large part of your search will revolve around your budget. A lot goes into valuing a coffee shop, from looking at annual turnover to the cost of the assets and how much the property is worth (if the business owns it), so it’s important to bear this in mind when thinking about how much you want to spend.
Shops with top-of-the-range equipment will cost more money, so you’ll have to consider whether you’re willing to (and able to) pay more for a shop with high quality machines or if you need a lower-cost option.
Your budget will also influence your return on investment. The cheaper the coffee shop, the more likely you are to make a profit on your investment. But you shouldn’t be any means try and undercut the seller. Your offer should be a fair reflection of work the seller has put into building the business.
2. Start your search
Having decided on a location and how much you want to spend, the next step is to look for coffee shops for sale. At this point you should keep an open mind and look at several different businesses, as every one is different and you don’t want to lose time on one that might not be the best option.
Some things for you to consider to help narrow down your search:
The size – is it big enough for what you have in mind? If you plan to serve food there needs to be enough room for tables, if you plan to be family friendly you will need changing facilities, if you just want to provide a takeaway service then you need neither of those things.
The layout – This is something you can play around with after you buy the café but is there room for growth? Can you easily reconfigure the layout if you need to?
Equipment – This isn’t a huge one to consider but it can still impact you choice and the price. If you are trying to decide between possibilities, look at what equipment is included in the price. If you don’t need it all, you could sell it.
3. Assess the shop’s accounts and understand the lease
Once you’ve found a coffee shop you’re interested in, you must look at its accounts. How much does it have coming in versus going out? Are there any glaring errors or red flags that could prevent you from taking it over? You’ll want to go through the accounts with a fine-toothed comb to make sure there’s no nasty surprises.
You will need to look at least three years’ worth of accounts to get a good idea. If you need to, rope in help to give you a second opinion.
If the company you are interested in is a limited company, you should be able to get a set of accounts from Companies House.
There’s also no harm in asking questions. If a company is VAT registered then they have a taxable turnover limit of at least £85,000 so this is a question you should ask. You could also ask questions about the quantity of supplies they buy. Asking about the volume of milk, coffee beans and cups will give you an indication of the café’s level of sales.
You should also ask questions about the lease so you thoroughly understand it. Examine the terms of lease and question how long is left on it, as this may affect your chances of borrowing. Again, at this point it’s okay to get a second opinion – especially if this is your first time buying a business.
4. Arrange a viewing
Having satisfied yourself that the coffee shop is a good opportunity, the next step is to arrange a viewing with the owner. This gives you a chance to see the property, the coffee preparation area, seating, equipment as well as ask any questions you might have about the shop.
You could ask:
- What are your challenges?
- How did you arrive at the asking price?
- Why are you selling?
5. Prepare an offer
If you’re still interested having viewed the financials and the coffee shop, your next move should be to make an offer. There are a number of ways to value a business, though when valuing a coffee shop you tend to look at a multiple of the weekly takings plus asset value plus freehold value (if applicable).
The seller will then either accept, decline, or counter your offer. This negotiation can take some time, as both parties exchange offers to get the best deal. Should you both come to an agreement and an offer is accepted, a letter of intent will be signed by both you and the owner. A letter of intent is a document which outlines the agreements both parties have made regarding the offer, and is a step towards the purchase of the business. You still won’t have bought the business at this point.
6. Undertake due diligence
Due diligence is a vital part of any business sale, and ensures you know exactly what you’d be getting into if you bought the business.
Due diligence is performed once a letter of intent is signed, and basically involves looking everything the business has – sales records, legal issues, financial documents and more – to determine the size of the opportunity the coffee shop presents. As hard as it may be, if things just don’t stack up at this point, you may have to walk away from the sale. You can read our full guide to due diligence here.
7. Completing the sale
Having agreed on a deal and undertaken due diligence to make sure the business is all it’s cracked up to be, the final step is to complete the sale of the coffee shop. You’ll need to involve a solicitor to deal with contracts for both parties to sign and handle money, and this legal process can take some time. Once this is completed, the final step is to take over your new business and serve your first coffee!
How to run a café
Congratulations! You’ve completed your purchase and now you have to focus on running your café or coffee shop. Here’s some things you need to immediately deal with.
- Marketing your café
- Opening times
If the café you’ve bought already has staff, chances are they are essential to help it run. You should immediately notify them if their jobs are secure and they will continue working for you or if you’ll be looking elsewhere.
Part of this is making sure that you have effective training and management strategies in place too. This especially crucial if you plan on hiring a manager to help you run your coffee shop. A manager will also be able to help you with hiring staff. Any new staff should be personable, friendly and patient – especially if they’re front of house and deal with customers.
You should also think about how you’re going to advertise your café. Consider having a launch night to announce a new owner and provide incentive for people to attend and spread word of mouth.
Posters and flyers, networking and offering loyalty schemes to regular customers are other ways you can get business through the door. Another way is simply making people feel welcome!
This may be a case of trial and error but talking to regular customers may give you an idea of the hours it’s best to open. You should also consider your location and the kind of customers that frequent your café. Are they professionals who are only in the area between set hours? Or do you attract shoppers? Do more people visit in the morning than the evening?
If you do decide to change opening hours, you should make your customer well aware of the changes.
*Data taken from Bizdaq’s customer portfolio.
Posted on February 19, 2019 | guides, howtobuy, buying, Buying a cafe, buying a business, Cafe