Purchasing a cafe

[Bobby500]

I used to work in catering and having been made redundant am looking at purchasing an established sandwich shop. Turnover 200k and rising, net profit currently around 45k.

It’s only open until 2pm each day and sales are solely from walk ins. Asking price is 60k. It obviously has all the equipment included but could do with a bit of a make-over (not urgent). Wondered if anyone had any comparisons / thoughts.

Thanks

 

[fisicx]

Does that £60k include the lease?

 

[Mark T Jones]

I used to work in catering and having been made redundant am looking at purchasing an established sandwich shop. Turnover 200k and rising, net profit currently around 45k.

It’s only open until 2pm each day and sales are solely from walk ins. Asking price is 60k. It obviously has all the equipment included but could do with a bit of a make-over (not urgent). Wondered if anyone had any comparisons / thoughts.

Thanks

A couple of thoughts / pointers

1. Equipment - is it owned outright or on finance? Has it been serviced/maintained? How old is it?

2.remises - what are the lease terms?

3. Why are they selling? Really?

Other than that, get figures that are bang up to date and broken down in details & study them closely. Pay particular attention to trends

 

[Bobby500]

Does that £60k include the lease?

The lease is £650 pm with 5 years left

 

[BubbaWY]

I used to work in catering and having been made redundant am looking at purchasing an established sandwich shop. Turnover 200k and rising, net profit currently around 45k.

It’s only open until 2pm each day and sales are solely from walk ins. Asking price is 60k. It obviously has all the equipment included but could do with a bit of a make-over (not urgent). Wondered if anyone had any comparisons / thoughts.

Thanks

Is that profit once the owner(s) have taken out their wage?

 

[Bobby500]

no that is the owners salary, so owner takes c 40-50k per year currently

 

[BubbaWY]

So for £60k, you will be buying yourself a job which pays £40-50k per year? OK, you will have an asset to sell as and when you decide you have had enough, but the equipment will be older, sales may not be as strong as they are now, there will be less time left on the lease.

 

[fisicx]

How many staff?

 

[Bobby500]

2FTE (made up of 4 PT)

 

[Bobby500]

A couple of thoughts / pointers

1. Equipment - is it owned outright or on finance? Has it been serviced/maintained? How old is it?

2.remises - what are the lease terms?

3. Why are they selling? Really?

Other than that, get figures that are bang up to date and broken down in details & study them closely. Pay particular attention to trends

Thanks - I haven’t seen the lease yet, not at that stage.

Equipment is a mix of older and newer but all in working order.

The price is mainly for the trade, it’s a popular cafe of 20 plus years taking over 4K per week

 

[Bobby500]

So for £60k, you will be buying yourself a job which pays £40-50k per year? OK, you will have an asset to sell as and when you decide you have had enough, but the equipment will be older, sales may not be as strong as they are now, there will be less time left on the lease.

Yes effectively but obviously with the hope to grown the business further . Isn’t that the same for any small business? Your not going to pay 60k for a business the returns 40k “profit after all salaries” !

I guess alternatively you could hire a manager for 30k and then take the 15k ROI.

 

[fisicx]

Maybe he closes at because traffic ceases after lunch. Maybe it’s grown as much as it can. Maybe customers come because of the owner.

Have you ever run a cafe/sandwich shop?

 

[MJD12]

If the price is mainly for the trade then I'd want more than 5 years left on the lease. Especially if I'm paying 60k upfront.

 

[Bobby500]

Maybe he closes at because traffic ceases after lunch. Maybe it’s grown as much as it can. Maybe customers come because of the owner.

Have you ever run a cafe/sandwich shop?

 

[Bobby500]

No

If the price is mainly for the trade then I'd want more than 5 years left on the lease. Especially if I'm paying 60k upfront.

good point that’s definitely something to consider

 

[Bobby500]

not run but I’ve worked in carering.

I do think there is potential to increase sales (deliveries etc)

Agree on your point re the owner as a potential risk, but I guess most people go to a sandwich shop for the food rather than to see the owner (well I hope so anyhow).

 

[fisicx]

not run but I’ve worked in carering.

Running a cafe is a whole different animal. You will probably need to shadow the current owner for 6 months or so to learn all the things they do without thinking but you aren't even aware of. There will be a thousand little things to consider. As an example, how many disposable cups will you need to order each week.

 

[BubbaWY]

Yes effectively but obviously with the hope to grown the business further . Isn’t that the same for any small business? Your not going to pay 60k for a business the returns 40k “profit after all salaries” !

I guess alternatively you could hire a manager for 30k and then take the 15k ROI.

The cafe may already be running at capacity. OK you may be able to increase turnover, but then you may need to pay more in wages so any increase in profit may be minimial, whilst creating larger headaches.

Some small businesses grow into medium/large businesses. But a cafe is the sort of business that has a ceiling and the only way to turn it into a bigger business is by having multiple cafes.

Your final sentence probably sounds the better plan especially if you have a job elsewhere.

 

[Mark T Jones]

not run but I’ve worked in carering.

I do think there is potential to increase sales (deliveries etc)

Agree on your point re the owner as a potential risk, but I guess most people go to a sandwich shop for the food rather than to see the owner (well I hope so anyhow).

Potential isn't what you pay for, it's your reward.

There are numerous threads along these lines, and in truth there is no reliable way to assess whether the purchase price is right or not. The key question here is, removing the stars from your eyes, what is it really worth to you against, say:

Starting from scratch.
Other comparable businesses
Not starting a business.

There is just one absolute golden rule - their job is to sell it, your job is to question, challenge and DYOR.

 

[BusterBloodvessel]

I have owned a bakers/sandwich shop, lost during/after Covid.

Now I have no idea where this shop is located, but I can say with 99% certainty he's in dream world expecting £60k. As is often pointed out on here, you're effectively buying a £40k a year job. If you applied for a job, then were offered it and they said "we just need 60 grand before it's yours".... what would you say.

Potential has no value, if that potential is really there then the current owner could realise it, and maybe then he would have a business worth 60 grand. It's not your job to do that for him.

The easiest thing is to look around at all the equipment and work out what it would cost to buy it all - second hand, of course, not new. You have no more guarantee that a freezer and microwave you buy off him is going to last any longer than one you could buy off eBay. There is lots of second hand catering equipment around at the moment and again without knowing the premises then I reckon you could kit it out for £10k, £15k tops. So what's the extra £45k for? I agree that the goodwill and customer base has some potential but what's to stop you opening a cafe 2 doors down and throwing a load of money at marketing.... would it really cost you £45k to build up some business? As that's effectively what the difference would be.

Appreciate the ease/convenience of buying the shop as it is but generally when I have seen these things sell, and had discussions around buying them, anywhere between £15k and £30k tops is usually more realistic. In fact one shop we looked at buying started off with almost the exact same figures - the owner there wanted £60k as she claimed she was making £35k a year. After failing to sell it at £60k, then £50k, then £40k, I know she eventually sold it for £13k.

Adding on deliveries could work especially if the place isn't on any of the main platforms already? UberEats was a massive income boost for us - especially breakfast time as we had no competition other than McDonalds. Have a look online at 9am or 10am what options there are in that area on UberEats, Deliveroo etc if it's sparse then that could be a good easy add on. But as mentioned above, factor in how that would fit in workload wise if the shop is busy at those times already.

 

[BusterBloodvessel]

Forgot to add - check the most recent incomings & expenditure most seriously. How badly has he been affected with not only recent downturn in spending but also increased costs, most notably gas/electric? This was the final nail in the coffin for us (admittedly this was at it's worst point I'd say post-covid) but we had suppliers who were basically unable to give us a price list as prices were rising so rapidly "the price is what it is on the day". Not to mention an electric bill that went up by over £1000 a month overnight....!

Happy to answer any specific questions if I can...

 

[Bobby500]

I have owned a bakers/sandwich shop, lost during/after Covid.

Now I have no idea where this shop is located, but I can say with 99% certainty he's in dream world expecting £60k. As is often pointed out on here, you're effectively buying a £40k a year job. If you applied for a job, then were offered it and they said "we just need 60 grand before it's yours".... what would you say.

Potential has no value, if that potential is really there then the current owner could realise it, and maybe then he would have a business worth 60 grand. It's not your job to do that for him.

The easiest thing is to look around at all the equipment and work out what it would cost to buy it all - second hand, of course, not new. You have no more guarantee that a freezer and microwave you buy off him is going to last any longer than one you could buy off eBay. There is lots of second hand catering equipment around at the moment and again without knowing the premises then I reckon you could kit it out for £10k, £15k tops. So what's the extra £45k for? I agree that the goodwill and customer base has some potential but what's to stop you opening a cafe 2 doors down and throwing a load of money at marketing.... would it really cost you £45k to build up some business? As that's effectively what the difference would be.

Appreciate the ease/convenience of buying the shop as it is but generally when I have seen these things sell, and had discussions around buying them, anywhere between £15k and £30k tops is usually more realistic. In fact one shop we looked at buying started off with almost the exact same figures - the owner there wanted £60k as she claimed she was making £35k a year. After failing to sell it at £60k, then £50k, then £40k, I know she eventually sold it for £13k.

Adding on deliveries could work especially if the place isn't on any of the main platforms already? UberEats was a massive income boost for us - especially breakfast time as we had no competition other than McDonalds. Have a look online at 9am or 10am what options there are in that area on UberEats, Deliveroo etc if it's sparse then that could be a good easy add on. But as mentioned above, factor in how that would fit in workload wise if the shop is busy at those times already.

Thankyou that’s really helpful and provides a lot of food for thought. The sandwich shop is in Lancashire in a business urban location.

I fully agree 60k is too much but equally I still can see value in the significant trade that’s been built up.

You asked would I pay 60k to earn 45k well that sounds ludicrous, but I guess it depends on what the alternative is. If it made more financial sense then maybe I would (obviously reluctantly).

I think for me the difference is the risk … as in it’s not guaranteed to continue to be profitable as a business. As you’ve said rising costs , fewer customers etc. I had forgot to mention a huge housing development is due to be built a stones throw away, so that makes it more interesting. Also my abilities - can I run it as well as the previous owner!

I reckon I’d snap the current owners hand off at 30k! But I fully expect it will take a while to get there as she is certain the business is fairly valued. I think all I can do is wait and see.

 

[Bobby500]

Potential isn't what you pay for, it's your reward.

There are numerous threads along these lines, and in truth there is no reliable way to assess whether the purchase price is right or not. The key question here is, removing the stars from your eyes, what is it really worth to you against, say:

Starting from scratch.
Other comparable businesses
Not starting a business.

There is just one absolute golden rule - their job is to sell it, your job is to question, challenge and DYOR.

Thanks Mark appreciate this. Agree ultimately it’s the reward

 

[pentel]

she is certain the business is fairly valued

Where has she got this idea from?

 

[Bobby500]

Where has she got this idea from?

No idea to be honest!

To be fair there are lots of similar establishments advertised for a similar price (often with lower turnover). Perhaps non of them will sell for anywhere near asking price too

 

[Socio South West]

With any small business like this the value to you lies mostly within working out what it would cost you to get the same premises, and to get it equipped to the same spec.
For the vendor, if they don't sell.... they close down and they have some functional but probably well used catering equipment to dispose of at probably knockdown prices..... after the labour of removing it.
You are thus in a reasonably strong position from that angle.

If there are similar establishments nearby then unless the place does something particular that people particularly go there for, there isn't a great deal of value to the goodwill.

The big hurdle in working out what you want to pay is the terms of the lease, especially dilapidations. You will be well advised to engage a surveyor to get an in depth condition report on the premises if the terms of the lease put any significant repairing obligations on to the leaseholder.
Also discuss with the Landlord plans beyond the current term of the lease which may affect what you should be paying for it.

An offer never hurts..... The Vendor can always say No!

 

[IanSuth]

I had forgot to mention a huge housing development is due to be built a stones throw away, so that makes it more interesting. Also my abilities - can I run it as well as the previous owner!

Check the plans for that carefully - every new one around us recently (and there have been scores) has been built with a convenience store usually a co-op - they have a costa machine and a fresh bakery section (think they have a small oven out back, heat part baked products throughout the day) plus a hot lunchtime food section (pasties/slices etc) - if the tradesmen pop in their for paper/fags/pack of mints they may very well get something that competes with you as well.

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[BusterBloodvessel]

Thankyou that’s really helpful and provides a lot of food for thought. The sandwich shop is in Lancashire in a business urban location.

I fully agree 60k is too much but equally I still can see value in the significant trade that’s been built up.

You asked would I pay 60k to earn 45k well that sounds ludicrous, but I guess it depends on what the alternative is. If it made more financial sense then maybe I would (obviously reluctantly).

I think for me the difference is the risk … as in it’s not guaranteed to continue to be profitable as a business. As you’ve said rising costs , fewer customers etc. I had forgot to mention a huge housing development is due to be built a stones throw away, so that makes it more interesting. Also my abilities - can I run it as well as the previous owner!

I reckon I’d snap the current owners hand off at 30k! But I fully expect it will take a while to get there as she is certain the business is fairly valued. I think all I can do is wait and see.

To be fair she's not going to say she think's the business is overvalued!

This isn't on a small industrial park sort of inbetween Bolton & Bury is it..... ?

 

[DontAsk]

increased costs, most notably gas/electric?

This ^^^

Search the forum for the horrendous increases that business owners have faced/are facing in standing charges and unit charges.

When do the current energy contracts expire? Can they be transferred, or do you need to start afresh.

 

[Bobby500]

With any small business like this the value to you lies mostly within working out what it would cost you to get the same premises, and to get it equipped to the same spec.
For the vendor, if they don't sell.... they close down and they have some functional but probably well used catering equipment to dispose of at probably knockdown prices..... after the labour of removing it.
You are thus in a reasonably strong position from that angle.

If there are similar establishments nearby then unless the place does something particular that people particularly go there for, there isn't a great deal of value to the goodwill.

The big hurdle in working out what you want to pay is the terms of the lease, especially dilapidations. You will be well advised to engage a surveyor to get an in depth condition report on the premises if the terms of the lease put any significant repairing obligations on to the leaseholder.
Also discuss with the Landlord plans beyond the current term of the lease which may affect what you should be paying for it.

An offer never hurts..... The Vendor can always say No!

Thanks - I have seen the lease so have no ideas on terms, clauses at this stage.

I’ll most certainly be reviewing in detail and getting legal advice (if we moved forwards).

I’m considering an offer - as you say there’s no harm. But I suspect it’s a bit too early to be considered.

 

[Bobby500]

This ^^^

Search the forum for the horrendous increases that business owners have faced/are facing in standing charges and unit charges.

When do the current energy contracts expire? Can they be transferred, or do you need to start afresh.

Thanks great advice I will find out. Definitely an area I need to get much more detail. And of course it is risk!

The owner had flagged energy rates had come down significantly . The costs whilst high are currently c500 pm, so not as significant as I was expecting. But it is a small shop and only open half days.

 

[Bobby500]

To be fair she's not going to say she think's the business is overvalued!

This isn't on a small industrial park sort of inbetween Bolton & Bury is it..... ?

Nope not that one

 

[BusterBloodvessel]

Nope not that one

No worries - just thought it sounds like one for sale near me!

 

[BubbaWY]

Thanks great advice I will find out. Definitely an area I need to get much more detail. And of course it is risk!

The owner had flagged energy rates had come down significantly . The costs whilst high are currently c500 pm, so not as significant as I was expecting. But it is a small shop and only open half days.

With the level of turnover, £500pm isnt bad at all.

When my now ex wife had a cafe, she was paying about that on a turnover of £80k.

 

[Bobby500]

Ok definitely something for me to check. I’d like to think we’ve seen the peak of price rises for the next few years (ideally decades!!) but in reality who knows!