Are you Planning to Buy an Existing Coffee Shop?
If you are in the process or thinking about buying an existing coffee shop with the hope of improving it's bottom line and operation, you must look very carefully at the following:
- How long is the existing lease? Can it be renewed for a longer period? If you get a short lease without written guaranty of a renewal, you would be throwing your money away.
- What is the MAIN product of the shop? That is, where does most of the money come from? If it is from food, this is not a "Starbucks type" coffee shop, it is a deli that happens to sell some espresso; your profit will be much lower than coffee, especially espresso based drinks. You can put more money in your pocket buy selling $500 of espresso than $1000 of food.
- If you start doing drastic changes, you probably will lose the existing customer base, and depending on the location, it may be hard to build a new one.
- Small changes won't work if you want to change the character of the shop, like upgrading it from mostly food to mostly espresso. You have to do it totally, just cleaning it up and changing a few people won't sell more espresso.
- Get the following information and call me after you read my main web site:
- How long is the lease? Is it renewable?
- What were the gross sales last year? Last month?
- What is sold mostly, coffee or food?
- How much is the rent?
- How big is the shop?
- How many pounds of espresso is used per week?
- Get a copy of the menu.
- An equipment list
The above information will determine if it is a good deal or not.
The main consideration in buying an existing business is the present - or potential - income that it may generate. Here are some other factors that you must consider:
- The location of the business: Does the location has great visibility and easy access by a large number of potential customers? If not, forget it, because no matter what you do, you won't be able to increase the sales to any appreciable degree.
- Lease terms: You don't want to buy a business with only a couple of years left on the lease. Renegotiate an extension with the property owner.
- Sales price: Good income coffee shops sell for approximately half their yearly gross revenues. If the shop generates $250,000 in sales, a fair price would be $125,000, (with a rent factor of 10% of gross) provided that it is making a profit of around $65,000. If it does not make a profit of 20%-25%, there is something wrong. Some of the wrong can be corrected, like payroll costs, cost of goods, menu, speed of operation etc. The only thing that cannot be changed is the location.
In general, it is much better to open your own in a good location than to purchase somebody's headache. The exception to the rule are shops in good locations that made a mess of their operation because they did not know what they were doing. You are not buying a shop for the equipment or the leasehold improvements. Some owners may have put $300,000 to open a shop, but if it is in a bad location, it is worth nothing.
I will be happy to talk to you without any cost or obligation about your potential purchase, but before you call me, finish reading the rest of my website and get all the details on the shop.
Please call me and let's talk about it.
Alex 503 590 9423 Pacific time 8am-8pm