5 THINGS YOU SHOULD CONSIDER
BEFORE BUYING A CAFE

You only have to watch MasterChef Australia to see how much work goes into producing one of the world-renowned chefs’ intricate signature dishes.

Given that this article is directed at prospective café owners, we thought we would serve up a food analogy. Just as there is a recipe with detailed instructions and ingredients which you need to follow to the T to produce a specific dish, so there is a list of things you need to go through in detail as you prepare to buy a café.

According to research by Statista, the industry revenue of cafés and coffee shops in Australia is estimated to reach approximately $5 billion by 2019/20, up from about $4.35 billion in 2014/15. The number of employees in the industry is estimated to reach approximately 96,211 people by 2019/20, up from about 86,243 people in 2014/15. The growth in the industry has been on an upward trend, which is a good sign for café owners (present and future).

We’re going to cover 5 areas you need to consider, which are by no means exhaustive, but give a good overview of what’s involved in the pre-purchase phase of buying a café.

 

One of the most important questions to ask the seller is quite simply, “Why are you selling?”. Just as “Why did you leave?” is a question all recruiters ask about the jobs you have left, asking these questions gives you clues and possibly red flags as to the viability of the business (and the quality of the candidate).

If they are selling to run for the hills because they are not profitable, it could go either way. If you are able to identify the issues and fix them to make the business profitable, A for away; but if not, it’s probably better to walk away.

Someone selling to retire or to pursue a new business interest could still be running a very successful café, but if sales are dropping and other stores are moving out of the area, that’s a different story. Aside from evaluating just the numbers, using some investigative interview techniques (we can learn from  A Current Affair) and some good old-fashioned intuition goes a long way.

It’s advisable to consider getting some help with this aspect, even if you are generally good with numbers. There are many things to consider and bringing in an accountant, business advisor or lawyer to do a comprehensive due diligence will help you to make a well-informed decision whether to buy or not to buy. Unless of course you are an accountant, business advisor or lawyer, in which case good on you and DIY.

The professional due diligence doer you hire will evaluate, amongst many other things, financial statements, accounts receivable/payable, credit history, lease agreement, supplier contracts and equipment register.

Location, location, location – we can’t emphasise enough how important it is to choose a favourable spot. It’s not just about being in a good geographical location, it’s also about what’s around you. The more foot traffic you have coming past your café, the better your chances of landing a customer. Think of the smell of freshly brewed coffee or bread baking in the oven wafting from your café, beckoning customers to come inside. If you don’t have people coming past your café, there will be no customers to beckon.

You also need to take note of the other stores around you. If they are drawing people to the area that’s good news for you, but if their offering is too similar to yours, you may have direct competition. It’s not to say you shouldn’t have any other eateries around you, as it’s more attractive for customers if there is a selection of places to choose from in an area, but that you should be able to stand out and offer customers something unique.

A location in a shopping centre or near retailers and entertainment will also increase foot traffic, as it’s more convenient for customers to go to one place to do everything they need, i.e. shop, eat and have some fun. Suburban locations can also work if the surrounding population is big enough to support the stores in the neighbourhood. If the café is already well-loved by the locals, that’s a huge bonus.

The professional due diligence doer you hire will evaluate, amongst many other things, financial statements, accounts receivable/payable, credit history, lease agreement, supplier contracts and equipment register.

If you think about your favourite café, how much of your experience is influenced by the people that serve you? Customer service is such an integral part of running a café, so having the right people working with you is a major factor of success.

Of course, the food and coffee are the heroes of the day, which brings us to your chefs and baristas. If the existing customers are happy with the current staff, it would make sense to negotiate retaining them. On the other hand, employing new staff can bring a breath of fresh air into a business, and possibly a fabulous new menu. Bear in mind that people are more often than not creatures of habit, so too much change (assuming it’s already a successful café) could unsettle them.

Aside from your staff and customers, you also want to have good relationships with your suppliers. This not only helps with negotiating favourable pricing but also impacts their willingness to help if you’re in a tight spot, e.g. your chef forgets to order mushrooms and you have a table of 20 for a vegan breakfast the following morning.

And last but not least, your customer – the person who has the potential to be your biggest advocate or your toughest critic, or in fact both depending on the day. It’s your goal in life (as a café owner) to make sure that they will enjoy the best possible experience from the moment they set foot in your store.

You also need to take note of the other stores around you. If they are drawing people to the area that’s good news for you, but if their offering is too similar to yours, you may have direct competition. It’s not to say you shouldn’t have any other eateries around you, as it’s more attractive for customers if there is a selection of places to choose from in an area, but that you should be able to stand out and offer customers something unique.

A location in a shopping centre or near retailers and entertainment will also increase foot traffic, as it’s more convenient for customers to go to one place to do everything they need, i.e. shop, eat and have some fun. Suburban locations can also work if the surrounding population is big enough to support the stores in the neighbourhood. If the café is already well-loved by the locals, that’s a huge bonus.

The professional due diligence doer you hire will evaluate, amongst many other things, financial statements, accounts receivable/payable, credit history, lease agreement, supplier contracts and equipment register.

It has been said that if you fail to plan, you plan to fail. This is true of any business, so sitting down with no distractions and working on a business plan is a top priority, as you will definitely need it when applying for finance. If you need some help to get started, business.gov.au has a useful guide and business plan template on their website. It can seem like a daunting task at first but make yourself that hot cup of coffee and get stuck in – break it up into just one section at a time. We know you can do it!

Something happens when you get things down on paper (or in this day and age, on screen). It makes your business more tangible and proves that you are taking it seriously. It also helps to organise all the information hidden in your brain so that you can take action and make things happen. It’s important for all your activities to stem from your business plan, so that you know you are always working towards your goals and objectives.

For further information, the business.gov.au website provides a comprehensive list of things to consider when buying an existing business.

The art of running a café involves many moving parts and one of the areas we can help with is ensuring that you have the specialised insurance cover you need for a hospitality business. You will invest so much time, money and effort in your business and we want to make sure your investment is protected. Ryno’s hospitality insurance cover provides, among other things, protection against theft, damage, business interruption and public liability.

P: 1300 650 670
E: hello@rynoinsurance.com.au
W: www.rynoinsurance.com.au/hospitality

Important Note: All insurance policies have exclusions. Please refer to the Product Disclosure Statement or Policy Wording to decide whether an insurance policy meets your needs.

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Ryno Insurance is a specialist division of East West Insurance Brokers Pty Ltd ABN 83 010 630 092, 
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