Cafés are a very popular first business – and for good reason. The margins on each cup are high, trade is reasonably consistent throughout the day, and you’ll find competition is less of a problem than in other industries. However, behind the simplicity of coffee and cake, you’ll find an exacting industry with high standards. Without thorough planning, new café owners may find themselves in hot water.
Unsure if a café is going to work for you? Use this handy checklist to see if the business you’re considering is the right investment.
Location – say it three times for a reason
The basic principles of good retail apply to cafés too. You need to be in a high footfall area with a clearly visible shop front – a good level of walk-in trade is essential. Where a café is different is this doesn’t need to be a ‘high street’ location. Don’t discount cafés that are for sale near municipal areas like public parks, bus terminals or train stations – even business and industrial parks can prove successful for a café.
Frontage is key here. If your café isn’t immediately visible from the main flow of people – say it’s tucked away on a side street from the high road, or round the side of the train station – you need to plan how you will make your presence known for customers. Temporary signage and special deals for regulars are good options to make people take notice and keep coming back. The location is the biggest determinant of potential earnings for a café, so it’s worth taking the time to research thoroughly
Premises – size up the size of your setup
The beauty of the café business is it works in a variety of settings, and at a variety of scales. 100-cover restaurants can work as well as a mobile coffee van. You just need to make sure that your potential investment works for your ideas. It might be tough to offer a huge drinks menu with dining options from a lock-up kiosk, for example. Or perhaps you want to focus on handcrafted gourmet drinks – this might be a challenge in a large sit-down venue where customers are expecting to dine. Think back to your location too; if you’re by a train station, you should focus on your takeaway options as this is where you are likely to see the bulk of your earnings.
All the gear, no idea
When preparing your business case for the café you’re considering, list out all the equipment included in the sale. For cafés, the equipment (espresso machine, coffee grinder, griddle, dishwasher and so on) has a direct impact on your earnings, and they can be surprisingly expensive to replace. A new espresso machine suitable for retail can cost more than a good second-hand van, and you’ll want it to stand up to just as much wear and tear. You need to know how many years these assets will last and set aside contingency in your quarterly budget for problems that may arise.
You need to know how old the equipment is, but it’s equally important to know the ownership status of the equipment. Is the equipment owned on a HPA (hire purchase agreement) basis, or is it owned outright? Does it need to be insured? If so, for how much per annum and what is the nature of the cover? Liabilities like this should be weighed up in your business case.
Check the Lease!
The vast majority of cafés for sale here at Daltonsbusiness are offered on a leasehold basis. In other words, you’re purchasing the rights to rent the premises, rather than buying the premises itself. Commercial leases tend to be issued for 10-15 years, and you’ll be buying the time remaining – otherwise known as the term.
If there is not long left on that term, you may find it harder to borrow money for your purchase; how can you prove to lenders that the business has long-term viability? Consider speaking to the landlord about extending the lease or drawing up a new one – but be careful. Both options are expensive, and not necessarily in the landlord’s best interests, and they will need to be on board for these options to work.
Property leases are complex legal documents, so always ensure that you seek independent legal advice from a qualified professional before you commit to a purchase.
Make Sure the Numbers Add Up
When advertising a café for sale, the seller will often state a profit and turnover amount on their listing. This information might be based on the last available monthly or quarterly accounts, or it could be a ‘top of the head’ figure based on numbers that the seller knows by heart. You can rely on these figures while you’re browsing, but you need to look deeper when it comes to confirming a purchase. If you’re concerned about the authenticity of the numbers being presented to you, a good informal ‘common sense’ way of testing the figures is to ask the seller some questions that reveal the kind of trade they are doing.
One good question to ask is whether or not the business is VAT registered. By law, if a business has a VAT taxable turnover in excess of a certain limit (currently £85,000 as of July 2022) then the business should be VAT registered. If you’re told that the turnover is higher than the VAT registration threshold, but that the business isn’t VAT registered, something fishy is afoot. Probe further. Another question to ask – how many kilos of coffee beans and how many pints of milk do they buy in a given month? These two numbers should imply a level of coffee sales that roughly tie in with the reported earnings.
Before you sign on the dotted line, make sure you’ve examined at least three years’ worth of accounts. If the café you want to buy is trading as a limited company, you can buy the latest set of accounts from Companies House for a nominal fee. If you have shown that you are genuinely interested in buying the business, then a truthful seller who has built a business that they’re proud of will have no issue introducing you to their accountant.
Always bear in mind that the past performance of a business is no guarantee of its future earnings; the moment you take the reins, you will become solely responsible for the success or failure of your new business.
License to Thrill
From the moment you become the owner, you’re responsible for the legal compliance and licensing of your café. From a local planning perspective, the premises you operate from needs to be A3 registered if you plan on selling hot food, and you will need to comply with food labelling legislation regarding use-by dates and allergy advice. The FSA are the public body responsible for food hygiene and food safety and can advise you further in this area. If in doubt, contact your local council who will be able to give you advice on what you need to do to keep your business always operating within the law.
Daltonsbusiness have over 2000 cafés for sale; have a browse and use this checklist to start your journey today!
cafés for sale in the United Kingdom
