coffee-842020

5 things to consider when buying a café

 

Introduction
When looking to buy an existing business a café sounds like a good bet, the profit margins are good and we can all make a cup a coffee and a sandwich. If you do your research well then pricing can be kept relatively competitive to the rest of the market and competition may not be much of an issue.  Just like any other business though, you need to do your due diligence, plan properly and research before jumping in with both feet.  Here are a few considerations to take in to account when looking to buy a café.

1. Location
Research the area where the café is situated, is it in a busy town centre, close to a train station, bus terminal or near an industrial or business park where there is a lot of foot fall? Cafés are reliant mostly on walk-in trade so you need to ensure that you are in an area that sees a lot of people pass by on a daily basis. A good location is going to be key to the success of the café. Your business needs to be visible to passing trade so that your customers are drawn in as they pass by, if you are not on the main walkway, you need to look at boards and signage to draw in your customers. The wrong location could be the difference between success and failure.

2. Design & size
With a café there is no specific design that you need to work with, a café can be run from a tiny area to a 100 square metre shop quite successfully. What you need to look at is if you can cater to your customers’ needs, whether it is a take away coffee shop or a much larger sit-down cafe for upmarket customers. If you are offering a catering service, you will need a much larger premises than if you are looking for a small kiosk to dispense coffee and sandwiches. Look at the type of service you are offering, the area you are in before deciding on the size and design of the café. In an existing café, you may want to renovate to change the current design and décor, which is often possible, but it is not always possible to expand the premises should the business require it.

3. Equipment
Whether you are buying an existing café or starting up a new one, you will need to look at the equipment required. Small appliances such as coffee makers, griddles to large appliances such as refrigerators, ovens and dishwashers may need to form part of your inventory list. In an existing business you may need to replace or add on more equipment, so you would need to investigate this thoroughly as it can be quite expensive. A new business would need to cater adequately for the appliances and equipment. Check on warranties on the products so that you can allow for future replacement if necessary. In an existing café, you also need to ensure that all equipment is fully owned and part of the café sale. Items on a hire purchase agreement may not be sold. Check on whether you need to insure items and the costs for this as well. You also need to take in to account storage containers, cutlery, crockery and so forth depending on the size and type of café.

4. Lease
Are you buying the premises with the café or is the café in a rented premises? Most cafés are operated from rented premises and you would need to check that you will have permission to rent the premises when you take over the business. Cafés that are on rented property should be sold with the rights to lease the premises already arranged. Check on the length of the lease and if you would be taking a new commercial lease or renting on the existing one.  A longer lease period is preferable, especially if you are purchasing the business using a bank loan, as it shows long term commitment. You may want to discuss lease arrangements with the landlord before signing the documents for the café purchase.

5. Profit & Loss
When it comes down to the crunch, the bottom line is what matters when looking at buying a café. You want to know how much profit the business is likely to make. You cannot always go on the information given in the business advertisement and best practise would be to examine at least 3 years of figures for the business to ensure that you know what you are getting. If the books do not appear to be legitimate, make sure you ask detailed questions, perhaps watch the business in operation for a period of time and other ways of determining whether the figures presented are authentic.

There are many other aspects that you would need to look in to, such as ensuring that all permissions and licences are in place, that the business is in good standing with various governing bodies, that the premises is registered correctly and so forth before taking ownership. Ask as many questions as you can and bring in professionals if required to ensure you get exactly what you are paying for. Once you have taken ownership, the success or failure of the business becomes your responsibility, so ensure you are buying a thriving operation and not a sinking ship.

Click here to get in touch and find your ideal cafe!

 

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5 things to consider when selling a business

Selling a business takes a lot of research and preparation, almost as much as when you purchase a business.  It is important to price your business correctly if you are wanting to attract buyers. Research similar businesses and have your business information to hand. Here are a few things to consider when selling your business.

Price for what is, not what might be
Buyers generally do not pay for the business potential and look at the actual current revenue when working out if the business is worth the asking price or not. If you are trying to sell a concept, it takes something really special to get a buyer as most buyers look to acquire a business that is already making income.

Your revenue is not as important as your profits
When it comes to buying a business, the bottom line is what counts to savvy buyers. You may have high revenue, but if running costs are high and profits low, your purchase price would have to reflect this. A business with a much lower income but a higher profit margin will have a higher profit. The better the net profit, the better the value of the business.

Keep proper financial records
Keep a proper record of your invoicing, bank deposits as well as invoices from creditors to prove your business is generating the revenue you claim and your financial statements are legitimate. Buyers may need to see the actual bank statements or even the bank accounts live online to verify the monies deposited in to the business bank accounts. Using a proper accounting firm or auditors will give your business even more repute, but this isn’t always feasible for smaller businesses.

Base the price on the current business
A potential buyer is unlikely to care how much money the business made in the past, besides as an overview of the business history. The current financial year tells a more relevant story. Most buyers will want to look at the past 12 months of sales and costs and will base their decisions on these figures. A business might have done great in previous years, but is currently struggling. The buyer will look at the current situation when determining value. A buyer will not look at potential fixes in order for you to make a larger profit on the sale as these fixes are likely to cost money and do not guarantee an increase in revenue. A history which shows steady growth over the years may however, be good to show your potential buyer.

Be honest
Lying to a potential buyer will almost certainly result in a lost sale. Most buyers will do proper due diligence before purchasing a business so telling your potential buyer the truth is more likely to develop a trust in you and your business in the long run.

Be ready to answer many questions from many buyers wanting to buy your business
You might want to put together a sales pack with some of the most frequently asked questions, but you will still have to answers many of the questions from any potential buyer yourself.  For the busy business owner hiring a professional to do the work for them makes more sense due to the amount of time it takes to deal with potential buyers of the business. Instructing a good business broker to help sell the business will ensure that you only deal with qualified buyers and that time is not wasted on people who are window shopping and could not afford the purchase or have no actual interest in buying the business from you.

If you are thinking about selling your business then get in touch and find out more about our no risk approach to selling a business.

Click here for more information

Tel: 01204 556 302
Email: enquiries@hiltonsmythe.com

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Money-Growth

5 Reasons to sell your business now

The UK economy is on an upswing in 2017 and if you were planning on selling your business, now is a very good time. The market is currently right for sales and you should be able to reach the maximum potential price for your business in this more lucrative market. The economy is rising steadily and the UK is set to have the best economic growth in 2017. So why sell your business now?

Tax relief: There is currently a 10% capital gains tax payable when selling your business as opposed to the usual rates of around 18-28%, various relief’s can also reduce or defer capital gains tax. These include Entrepreneurs’ relief for individuals selling part or all of their business and Business Asset Roll-over relief, if you reinvest gains in other business assets. Alternatively, you may be exempt from capital gains tax if your gain was invested in shares under the Enterprise Investment or Seed Enterprise Investment Schemes. This means a big cost saving to you as the business owner when you sell. This situation may not always be in effect and this special tax relief may be removed in future, seeing an increase in fees once again.

Low interest rates: The Bank of England is currently holding the interest rate at a low of 0.50%, which makes finance a lot more affordable to people wishing to purchase a business. There are a lot more people who will now have access to higher amounts of finance and may be interested in buying a business like yours. The low interest rates also mean that people are able to spend more, improving consumer spending and showing better profits for businesses, showing an improvement across the board for most industries.  Interest rates are unlikely to stay at this all-time low and it becomes more expensive for people to use financing, so purchasing will reduce and people will be willing to pay less for your business.

Better valuation: With more buyers having access to affordable finance, and a lot more buyers looking to buy a business, you may have a lot more buyers interested in your business, which means you are far more likely to reach your maximum sales price especially if your business falls in to the high demand category.

Location: You might be in a prime location or an area which may be ripe for expansion, with some corporations looking to purchase smaller businesses in good location as they look to expand, it is often more convenient and cheaper for them to buy an existing business that has been trading for several years. The low interest rates also means that these businesses now have greater access to funds in order to purchase smaller businesses to increase their portfolios.

The proof is in the pudding: If your business is thriving, and you have been in business for three years or more, you have shown that your business can stay strong even during tough times. The UK has been through a recession and a number of very difficult years for small and even larger businesses recently and having survived these hard times shows the tenaciousness of your business. For most buyers, this will be a good selling point, if they purchase your business, they will still be able to keep trading even if there is a downward trend again in the future.

If you are looking at retiring or perhaps going in a new direction, or any other reason you might want to sell your business, now is the best time to sell, so get in touch and find out more about our no risk approach to selling a business.

Click here for more information

Tel: 01204 556 302
Email: enquiries@hiltonsmythe.com

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