cafe business

What You Should Know Before Buying a Café Business

Buying a café is not something one does without careful consideration. Making this investment requires careful consideration, a lot of research and most importantly, the confidence and financial investment to see it through. It’s not an industry that requires significant experience, but it certainly does not hurt.

There are a few different avenues for a potential café owner to consider. Whether you choose the franchise route – which offers support, training, and a lot of marketing help, or opt for the independent option (which gives you complete control), owning a café is made much easier by following these proven tips.

Consider Why You’re Buying this Type of Business

The first question that should be asked of any future café owner is why they are making the plunge. Anytime you begin a new business endeavour, you need to start by asking why this is important to you. In many instances, the owner will fail to ask this first fundamental question and make a poor decision.

Owning a café is one that requires attention to detail, extreme focus, and a lot of hard work. However, it’s also much more complex than simply making good tasting coffee. If you have direction in your role, the tools you’ll need to succeed, and know what level of commitment is needed; you’ll be set up for success.

Build a Business with Growth Potential

The key to investing in a good business venture is ensuring it will grow. When a business starts off slowly but gradually increases value, it not only establishes profitability, but also gives a business owner multiple options to consider. In some cases, it makes sense to invest in a ‘growing business’ if there is a plan in place to improve the service. Maybe the service is less than stellar, or the coffee served is poor quality. If this is the case, investing in an existing café with growth potential is a smart idea.

Complete Due Diligence

If you’re thinking about buying an existing café, it’s important to complete research – a lot of it. While number crunching is a good idea to give you a good baseline, there is value to visually inspecting what’s going on in the business. Think about visiting a café during periodic times. Visit them during a slow weekday, in the morning, evening, or even on weekends. Take notes about the operation, and do some research about the business from reviews customers have posted online.

It’s All About Profit Margin

It’s understood that financial standing is crucial for economic success. But, in the end, profit margins determine if a business will be a good investment. While there are several places to ‘trim’, in the end, you need to determine if buying a café is going to be profitable vs the amount of time needed to turn it into a profitable business. If you’re required to put in more than 40-hours per week, that might not be practical (especially if you own other businesses). If a café you’re interested is showing profitability with an existing team and management, and does not require your personal daily input, this is likely a good business decision.

Potential for Growth

Buying a business also requires research about growth potential. One factor to consider is the location, and if it’s ripe for growth or expansion. In some instances, a café buyer will purchase a facility if there is room to expand or open secondary locations. If there are simple enhancements that can be made to become more profitable, such as increasing seating, service offerings, and more, it makes sense to invest.

Staffing

The team working at a café is going to operate the day to day operations. The baristas, food prep team, and managers will be the public face of the business you operate, so it’s important that you review the team, determine their strengths and weakness, and ensure they are fairly paid for their work. If multiple staffing needs are required, consider that as well.

Leasing or Purchase

There are some cafés that operate in an existing business space that leases the property. In that case, you’re simply buying the business end, not the property itself. This comes with the reality of paying a rental or leasing fee. It’s important to consider the current lease terms. If the current lease is short-term, and you have to relocate the business somewhere down the line, this could be counterproductive to your acquired customer base.

The potential of moving also introduces the opportunity to own property you build. If this is your objective, then it makes sense to review the potential of buying bulk land and building secondary businesses you can lease out.

Relationships with Suppliers

You’ll also want to review the condition of your current equipment and the relationships with vendors or suppliers. Make sure those who supply the café are dependable, have good payment terms, and are happy to build a new relationship with you and your ownership team. It’s just as critical to verify that the equipment is in good condition. If not, determine the cost of new equipment vs what you’ll pay for the business.

Don’t Do Everything on Your Own

A big mistake that many café owners make is taking on more than they can handle. Even if you’re a seasoned café professional, make sure you gather a team of support professionals such as lawyers  or accountants to help you review financials. This will help you verify that you’re making a solid investment and set yourself up for success. New business owners and existing ones should also make sure they consider their insurance options.

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