Taking Over Cafe Business...
Comments
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Op, you've got some very cynical answers from people who don't know what they are talking about. Take it with a pinch of salt. Speak to a professional.
Moving back to the real world, people buy and sell businesses all the time. It is a very common and normal thing to do. It does not mean the business is a lemon.
But if you are spending a significant sum of money you do need to go into this with your eyes open.
Unless you are prepared to take a punt on losing your investment, you need to budget for professional fees on top of the cost of the business.
The first thing you need to do is speak to an accountant who specialists in the acquisition of small businesses. There are plenty. You should get the accountant's advice on what is in the accounts and how much the business is worth based on the accounts. You should also ask the accountant to do due diligence to confirm that the accounts are correct.
The next thing you should do is speak to a solicitor who specialises in business acquisitions. Again there are plenty but make sure you get a specialist. You will need the solicitor to do legal due diligence to confirm what you are buying - for example taking a quick look at the lease.
You will also need the solicitor to draw up a sale and purchase agreement under which the owner will give certain promises (known as warranties) about the business. The most important warranties are that the seller owns the business being sold and that the accounts are accurate.0 -
As others have said, you do need t be clear about what you would be taking on.
Also - why are you volunteering? I would suggest that getting a paid job in a similar business would be a sensible starting point, rather than buying with no experience.
As others have said, basics you need to think about:
- What is the length of the lease, and how much is the rent. When are the break and rent review clauses? Commercial leases are more rigid than residential ones, they are longer (10-15 years, with 5 year break clauses is quite common) and unlike residential leases the tenant will often be responsible for some kinds of repairs and upkeep?
- What do the accounts show about the viability of the business? What is the net profit for each of the past 3 years? Bear in mind that net profit for the income = gross income for you, so you need to account for your personal tax & NI.
- You say that he current owner runs the place with one Saturday girl. For a cafe, that sounds like a very low level of staffing to me, it would raise flags about how busy the cafe is.
- Does she bake / cook the goods she sells? If so, when? What sort of hours does she work? How does it work out with her being the only member of staff?
- What equipment is there? What type of food would you plan to sell, and is the kitchen appropriately equipped for that?
- Are you familiar with the Health & Safety issues and responsibilities you'd have?
- Have you checked out what food safety and other regulations you would have to comply with? Are you familiar with them?
- What is the current owner asking for business? How would you propose to raise the money and have you factored in the cost of any loan repayment when looking as the cash returns? How has the price been calculated? It's worth you bearing in mind that if the business is not doing well, or of the owner wants to give up, passing the business onto someone else would save her money compared to simply closing the doors, as it lets her pass on the responsibility of paying the rent and rates until the lease ends, removing equipment or redecorating (depending on the terms of the lease) and paying redundancy to any employee who might qualify, so even selling at a low price means you would be taking on those actual and potential costs.
If you are planning to run a cafe I would suggest that getting some basic qualifications in food handling / food safety would be appropriate.
I would definitely be suspicious of someone telling you they want to sell up and 'pursue other interests'. If the business were successful, it would potentially make more sense for her to install (and pay) a manager, and to continue to draw a profit from the business. Of course people do retire or want to go travelling or whatever, but it would make me very wary.
I would suggest that rather than planning to buy this particular cafe and take it on, that you take some time to get some appropriate qualification and experience and start to make plans to start or buy your own business in another year or so. I guarantee that you that there will be other cafes on the market.
The other thing I'd say is that if this is all on the level and the business is a good deal, the owner should not have any issue at all with you raising the questions about the accounts, lease etc. If she is unwilling to share information with you, be wary.
speak to an accountant with experiences of buying small businesses and be ready to pay for the cost of getting them to review the accounts for you.
But given you have no business experience and no catering experience, I would say take things slowly and make absolutely sure that you fully understand what you would be taking on.All posts are my personal opinion, not formal advice Always get proper, professional advice (particularly about anything legal!)0 -
Disagree with most and would say anyone can run a business.
My education was business and my work is business. I could tell you how to manage more or less any business but could i? Nope, no drive.
Business managers need a wide range of skills. You dont need to be the accountant, the marketer, the staff, the sales person or the cleaner, you just need to make sure thyere doing their job.
First place to start will be the HMRC and .gov sites. Theres an incredible amount of information, from accounts and tax to legallities within an industry.
The basic concept will be pretty simple with a cafe. You take supplies add a bit of value with staff and sell for a profit. Ideally youll have high footfall (ie a good spot) a menu that makes you stand out and a service that makes people come back. Cater to your customers. So if your near construction sites/warehouses poached egg on avocado baguels probably wont sell as well as a spam butty.
Theres thousands of independent cafe's across the country that manage perfectly well and provide solid incomes to their owners, otherwise there wouldnt be as many cafes. Unlikely youll see incomes of £30k+ but thats because its a cafe not amstrad. And if a cafe owner needs to have the skills made out in this thread i would think they would be better running the multi million pound business they would be capable of running instead of slogging to earn a pretty average income.
After youve got some reasearch (the local market, selling prices, trends, legalities and costs) its time to number crunch. Before going anywhere near with an offer. Use the current accounts to run the numbers. The key thing is a cash flow forecast. You dont want to be runnin gout of money so always worth planning for times when the money might not be flowing (if you do hot food, summer might be quieter with people buying salads, if you sell lots of ice cream winter could be quieter, you could be susceptible to tourism and fluctuation in seasons) try and account for everything, in fact dont try do account for everything and see how much wiggle room there is for contingencies.
Do your research, go in with a level head with a bit of healthy skepticism. Be conservative with the numbers and plan. The rest is pretty much down to hard work and luck. Normally the harder you work the luckier you get but its no guarantee.0 -
steampowered wrote: »
Op, you've got some very cynical answers from people who don't know what they are talking about. Take it with a pinch of salt. Speak to a professional.
I dont think anyone on here has asked anything or given any answers that arent valid to be expressing.steampowered wrote: »
Moving back to the real world, people buy and sell businesses all the time. It is a very common and normal thing to do. It does not mean the business is a lemon.
Likewise, whilst people do buy and sell businesses all the time, its worth trying to get to the bottom of WHY - particularly IF the seller is moving a business on again quite quickly.steampowered wrote: »
But if you are spending a significant sum of money you do need to go into this with your eyes open.
Unless you are prepared to take a punt on losing your investment, you need to budget for professional fees on top of the cost of the business.
The first thing you need to do is speak to an accountant who specialists in the acquisition of small businesses. There are plenty. You should get the accountant's advice on what is in the accounts and how much the business is worth based on the accounts. You should also ask the accountant to do due diligence to confirm that the accounts are correct.
The next thing you should do is speak to a solicitor who specialises in business acquisitions. Again there are plenty but make sure you get a specialist. You will need the solicitor to do legal due diligence to confirm what you are buying - for example taking a quick look at the lease.
You will also need the solicitor to draw up a sale and purchase agreement under which the owner will give certain promises (known as warranties) about the business. The most important warranties are that the seller owns the business being sold and that the accounts are accurate.
So basically what everyone else is saying already then?0 -
Everyone has to start somewhere right? I just need someone, who isn't the seller, to explain it all to me.
I have no experience in catering.
Gail
You need to consult both an accountant and solicitor. This is bread and butter work to them and they'll guide you through the various stages.0 -
A cafe is indeed an ideal "first" business for someone and an ideal business for someone to learn all about business. Not quite as good as a burger van, but close! It's one of the simplest business models, i.e. buy something, cook/prepare it, and sell it. Very low barriers to entry as usually quite cheap to buy/rent and the only "qualification" is food hygiene. And very high potential earnings IF you do your homework, choose the right location, pay the right price and offer the right goods, ie. what the punters want to buy and at times they want to buy it.
Get a few professionals around you and you'll be fine. BUT, you really have to choose the right people to help and you have to choose the right business to buy.
Lots of little cafes are worthless because they don't make anywhere near enough money to survive - turnover is vanity, profit is sanity. Lots of new owners have wholly unrealistic ideas about what people want to buy, i.e. they project their own ideas onto the potential customers, but to be successful you need to give them what they want - if that's bacon buns rather than tofu salad, that's what you need to offer them! A little bakery/cafe near me changed hands and the new owners decided to turn it into a "deli" selling olives, cheese, etc - a complete disaster - sold again and new owners turned it into a bacon bun/burger bar and it's now heaving with passing lorry drivers and tradespeople and making a very handsome profit. Don't try to force your business idea into the wrong location/area.
"Some" little cafes are goldmines, others are money pits - you have to do your homework and be realistic to ensure yours will be the former rather than the latter.0 -
A cafe is indeed an ideal "first" business for someone and an ideal business for someone to learn all about business. Not quite as good as a burger van, but close! It's one of the simplest business models, i.e. buy something, cook/prepare it, and sell it. Very low barriers to entry as usually quite cheap to buy/rent and the only "qualification" is food hygiene. And very high potential earnings IF you do your homework, choose the right location, pay the right price and offer the right goods, ie. what the punters want to buy and at times they want to buy it.
Get a few professionals around you and you'll be fine. BUT, you really have to choose the right people to help and you have to choose the right business to buy.
Lots of little cafes are worthless because they don't make anywhere near enough money to survive - turnover is vanity, profit is sanity. Lots of new owners have wholly unrealistic ideas about what people want to buy, i.e. they project their own ideas onto the potential customers, but to be successful you need to give them what they want - if that's bacon buns rather than tofu salad, that's what you need to offer them! A little bakery/cafe near me changed hands and the new owners decided to turn it into a "deli" selling olives, cheese, etc - a complete disaster - sold again and new owners turned it into a bacon bun/burger bar and it's now heaving with passing lorry drivers and tradespeople and making a very handsome profit. Don't try to force your business idea into the wrong location/area.
"Some" little cafes are goldmines, others are money pits - you have to do your homework and be realistic to ensure yours will be the former rather than the latter.
+1
Wholly agree.
There are alarm bells ringing all over the place with this one for me though.0 -
Some years ago my sister-in-law was in a very similar position to the OP, but although broadly in the same trade area it wasn't a cafe more a bakers and sandwich shop. The owner of the business was a friend and she had worked for her for a number of years. Friend said she was finding running two location too much and was looking to sell. S-i-L thought it would be ideal. Friend said it was a great little business making a good profit and S-i-L took her at her word and purchased the business from her.
She very soon found it wasn't a great money maker, worse that a convenience store was shortly to open literally two doors away and would undercut all her prices.
Cut a long story short the business failed within 18 months leaving her with a mountain of debt. Moral of the story is to take nothing on trust no matter how nice the person is, or seems to be. Their interest is in selling up and getting the best price they can, not in helping you along. As others have said, if you have no business or catering experience you are taking a huge risk.
As a first step you definitely need to get an accountant to look over the books, and that probably won't be cheap. If the owner hesitates about allowing that to happen don't walk away - run as fast as you can.
I was watching a programme recently which featured a couple who were running their own cafe. They said it had always been their dream and they had the money behind them to back it. They admitted it would never support them financially as an income, but they enjoyed doing it and it didn't lose money.
Can you afford to work on that basis?0 -
Some years ago my sister-in-law was in a very similar position to the OP, but although broadly in the same trade area it wasn't a cafe more a bakers and sandwich shop. The owner of the business was a friend and she had worked for her for a number of years. Friend said she was finding running two location too much and was looking to sell. S-i-L thought it would be ideal. Friend said it was a great little business making a good profit and S-i-L took her at her word and purchased the business from her.
She very soon found it wasn't a great money maker, worse that a convenience store was shortly to open literally two doors away and would undercut all her prices.
Cut a long story short the business failed within 18 months leaving her with a mountain of debt. Moral of the story is to take nothing on trust no matter how nice the person is, or seems to be. Their interest is in selling up and getting the best price they can, not in helping you along. As others have said, if you have no business or catering experience you are taking a huge risk.
As a first step you definitely need to get an accountant to look over the books, and that probably won't be cheap. If the owner hesitates about allowing that to happen don't walk away - run as fast as you can.
I was watching a programme recently which featured a couple who were running their own cafe. They said it had always been their dream and they had the money behind them to back it. They admitted it would never support them financially as an income, but they enjoyed doing it and it didn't lose money.
Can you afford to work on that basis?
Thats exactly the sort of thing that would concern me.
People are genuinely ruthless about getting shot of something thats losing money, but presenting it to others as a great opportunity.
My dad, some years ago looked into buying a business and the amount of times that when you did your due diligence properly, there was something lurking that made it all not as it seemed, was plainly frightening.
It basically fell in to 4 camps :-- Business wasnt making money, owner getting out (invariably within 2 years)
- Business was making money, owner knew something you didnt and was jumping ship
- Business was making money, then ultimately they kept it and put a manager in it or sold it / gave it to a relative to own or run
- Business was making money, owner looking a fortune for it
That covered 95% of the scenarios. The difficulty becomes sifting out the good 5% of businesses for sale that are sensibly priced, making money and there are viable medium to long term.
Yes, there are lots of viable businesses sold daily, however the confectionery shop / coffee shop / corner shop / small supermarket / cafe / sandwich shop / chippy market is a minefield.0 -
A friend had a thriving takeaway business until McDonalds opened up round the corner, he was lucky in being able to sell the business. another friend had a wholefood type cafe, sold after 2 yrs as couldn't make the books balance favourably.
Gail, I don't like saying this, but you seem very naive. As previous helpful posters have suggested you need the services of both a specialist accountant and solicitor. The fact that neither come cheap is immaterial, they could save you wasting a lot of money.
Then you have to check out the competition or any possible future competition (think Subway, Costa etc)
Next stage, given that the business seems OK and projected income will more than cover all your expenses (rent, repairs/alterations, insurances, stock, rates, water, waste collection, cleaning, cooking, heating and lighting, fixtures and fittings, purchase of lease and goodwill, staff wages and NI etc) how much is left to pay your wages? If this means you would be on NMW or slightly more/less, then for the hours, stress and aggravation, it just won't be worth it.If you are querying your Council Tax band would you please state whether you are in England, Scotland or Wales0
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