Should I buy this cafe/coffee shop?

[lauragriff]

Hi
Ive always wanted to run my own cafe/coffee shop business business and feel at 31yrs old I need to start soon if Im to follow my dream.

Ive seen a freehold cafe for sale which has basically hardly any customers but from the look of it its so dated and run down with grumpy owner so I wouldnt go in to eat there either!

Its at a fab price and has a 1 bed flat above which can be rented out however the issue I have is that its in a rough area its a small town at the edge of a city which is rather run down and deprived. There isnt any other cafe in the vicinity only kebab shops, chinese etc. Its not on the main street but right at the end of the very long main street but is opposite a library and some council offices as well as by a free car park.

I think it seems like a gem but am worried in such a deprived area in a recession will the people spend money on a coffee/food??

Any advice appreciated as in order to raise funds Id have to remortgage a property which my dad in law lives in so its hell of a risk to take!

 

[MrsPWN]

This sort of business would really appeal to me as well but tbh the location doesn't sound too good. I recon you would get people hanging out for hours over a cuppa and a sticky bun.

 

[Rhodes100]

Starting a business is always risky, but buying a business is less risky than starting one because you at least have a track record.

The first point is, that you need to consider the current profits of the business as your base. I might suggest that trade is unlikely to reduce, if you cannot afford to live on the current profits including paying off the additional loan then this may be a red flag. Dont ever assume you can increase the turnover.

Another thing to consider is your exit strategy, sooner or later you will want to sell, and there is less demand for businesses in run down areas, it may be difficult to sell.

Does the property also need investment, you will probably never recoop a £20k bill to rewire, refit etc.

In other words do your sums and take advice.

 

[Chris Ashdown]

Go and look at the place mid morning, mid lunch and mid afternoon for the next six days and see how many customers they have and what they are eating, (just look through the window) from this and the price list you can see what they are doing now, old accounts will be a year behind probably

What are they asking for it sounds like goodwill will be or should be nothing if so run down and equipment at low cost, check out what new exuipment would cost and also setting up a new cafe in a better area

Do a full business plan and see if you can make it work before you think about buying it

Consider renting it from owner rather than buying

 

[iridessa]

I wouldn't necessarily let the location put you off. I know off a takeaway / cafe in a very run down part of Manchester which does a roaring trade. Obviously you would need to keep the prices very reasonable.
But this might be the perfect way to get your foot on the ladder. I'd certainly go and sit nearby at different times of day and also during the week compared to the weekend ....just to see how many vehicles pass and how many people on foot.
Also location wouldn't matter so much if you branched out into office buffet orders etc. and outside catering. Perhaps investing in a small run around sandwich van.....where you deliver to the customer. As long as the food quality was good I'm sure location would not make a difference to this type of customer.

 

[Kernowman]

As they say on the house buying TV programmes:

"Location, location, location!"

It sounds way off the beaten track in a run down deprived area and the current clientelle probably reflects that. I see little point in pouring many thousands into it when the customer base is going to be no different to what it is now, unless you can pour many more thousands into marketing it as the shining light in the locality - which the locals aint gonna buy for one moment.

Pursue you dream - somewhere else

 

[oldeagleeye]

Bad thinking right from the start. Cafe early morning start 6 day week. Forit to work you would need to live in the flat not rent it out.

Rob

 

[lauragriff]

Thanks for the advice everyone hmmm I really dont know what to do my heart says no as its not exactly my dream in a rough bit of town lol but its so cheap at £80,000 seems a bargain but I suppose theres a reason for that?? I may be naive but I really think I could improve trade just by making it look more welcoming and not so dirty??

 

[Naughty Vend]

Thanks for the advice everyone hmmm I really dont know what to do my heart says no as its not exactly my dream in a rough bit of town lol but its so cheap at £80,000 seems a bargain but I suppose theres a reason for that?? I may be naive but I really think I could improve trade just by making it look more welcoming and not so dirty??

Rip the shop out, convert it to a flat, rent both flats out at £500 a month each, ROI 15% gross... plus equity growth.

 

[BudgetB]

If you have any doubts then spending £80,000 is not the right thing to do.

 

[stugster]

It's not £80,000 though is it?

It's £80,000 + £20,000 salary for someone to work there, + ~£5,000 to get it up and looking good, +£5,000 for the council tax, water bills, leccy + £2,500 for your stock...

£112.5k. And that's the stuff you can budget for. What about sickness, insurance, theft, damages, banking costs.

 

[vvaannmmaann]

At £80k it does not sound like a bargain from how you describe it.

 

[Rhodes100]

Another point, 31 is not old to buy a business, the majority of business buyers are aged 45 - 55.

If this is not the opportunity for you, dont think that there will not be others and better ones on the Horizon.

Find out more about it and listen to your gut reaction, it is better that you dont waste your net assets on this if another opportunity is better for you.

 

[oldeagleeye]

£80,000. You have got to be kidding. After working 60 hrs a week your be lucky to earn £200 quid a week clear.

I am looking for an investor in an exclusive B2B service and a £20K investor would earn you more than that for sitting just in a cafe sipping capachinos.

In fact a £20K investment would return you around £30,000 a year. Sounds too good to be true ????.

ell . WThere are always exception to every rule including that one.

Rob

 

[DCart1803]

Do some due diligence - ask to see the accounts, VAT returns (if any), as mentioned above go in and see how busy it is, check to see what other businesses are around which may provide potential customers.

If you are buying the freehold the £80,000 asking price may well be mostly attributed to the actual property and not the business run out of it.

 

[stugster]

I honestly wouldn't even waste your time doing the diligence. Just walk away now. Even if the cafe was in the perfect location, at the perfect price, with the perfect footfall.... It's still going to be so much hard work for such little return it just isn't worth it.

 

[Chris Ashdown]

Why do you say that?

Some cafe can provide a good living, some a great loss. like pubs it depends on Location and owner, a good owner can change the fortunes of any business, a crap one or one who does not seem to fit in with his customers can ruin anything

But how you can say "walk away" with only the flimsy information given, it's hard to see what you base your judgement on

 

[DCart1803]

I agree with Chris you can't make rash comments on an opportunity without all of the facts to hand. To dismiss something on this basis would be rash.

If a business is struggling then you need to consider whether, amongst others things, you have the skills, resources and the drive to turn it around.

 

[stugster]

Rash comments?

Do the figures. See the lack of profit.

 

[KidsBeeHappy]

Rough area does not always equal a poor busines. Sometimes business in rough areas can do really really well. But the key is to pitching the product/service/environment correctly at your audience. Particularly cafes where people want to feel welcome.

Remember, that rough areas usually equal poor housing, which gives a good excuse to go out for a cup of tea and a natter with your mates. Guranteed, that that means that you'll probably have people lingering, but then if the cafe is a meeting place, constantly turning and full of people lingering, then that's one heck of a lot better than a cafe that's only full for the normal 1hr a day and three quarters empty for the rest of it.

I would say that if your dream cafe involves selling cupcakes, lattes and homecrafts, tableclothes and flower arrangements, then its not really going to be for you. However, if it revolves around selling good decent food, cheaply, and in a cheap but clean and welcoming environment. Just make sure that everything you do pulls together in the same direction, so utility furniture, rather than leather sofas, lino, not wooden flooring, etc etc.

 

[stugster]

Some cafe can provide a good living,

What cafe owners do you know that earn a "good living" from it? The four I know struggle to make ends meet most times and even when they're earning profits, it's not that good.

 

[S-Marketing]

Completely agree with Sandiep.

If you have a cafe in a rough place, make sure it appeals to rough people. Simple as that really.

Just dont fall in love with the idea of having a nice, posh little cafe though, where people pop in for afternoon tea out of decent china. It wont happen, if you go ahead make sure you do exactly what the locals want. What you want the business to be is irrelevant, its all about the customers.

 

[KidsBeeHappy]

What cafe owners do you know that earn a "good living" from it? The four I know struggle to make ends meet most times and even when they're earning profits, it's not that good.

Well my family's cafe business has supported 2 families for around 4 decades. So it's not done badly. (Despite the fact that my granny won't let the Harley Riders in because they're "rough biker men".) It is possible. You just have to provide what your customers want, rather than what you want to provide.

 

[KidsBeeHappy]

What cafe owners do you know that earn a "good living" from it? The four I know struggle to make ends meet most times and even when they're earning profits, it's not that good.

Its property that makes the difference. Whether you own it, or rent it. And when it was bought. (exactly the same as the solicitors firms, the only profitable firms right now are the ones who bought the property and are on the second generation of partners).

 

[workingnomad]

plus equity growth.

Who are you trying to kid? Have you seen the state of the housing market? Equity growth in 20 years if you're lucky.

 

[oldeagleeye]

Its property that makes the difference. Whether you own it, or rent it. And when it was bought. (exactly the same as the solicitors firms, the only profitable firms right now are the ones who bought the property and are on the second generation of partners).

Your joking. The typical fees even for a small law firm are £250 -£300 quid an hour for a plodder. £500- £1000 an hour for a partner. Turnover for a well run practice around £1 million a year.

BTW. You can't claim tax relief on a freehold so most law firms and other owners lease back the premises and charge themselves a market book rent.

I wouldn't feel toooooo sorry for the legal profession if I were you.

Now anyone need a shareholders agreement. Typical cost £1,000 - £1500 quid. A hrs work for a sparrow.

Rob

 

[KidsBeeHappy]

Your joking. The typical fees even for a small law firm are £250 -£300 quid an hour for a plodder. £500- £1000 an hour for a partner. Turnover for a well run practice around £1 million a year.

BTW. You can't claim tax relief on a freehold so most law firms and other owners lease back the premises and charge themselves a market book rent.

I wouldn't feel toooooo sorry for the legal profession if I were you.

Now anyone need a shareholders agreement. Typical cost £1,000 - £1500 quid. A hrs work for a sparrow.

Rob

Seen many accounts for local high street solicitors? You know, the ones up and down the country where the vast number of solicitors work, that survive on 75% conveyancing work :|

 

[Esk247]

professional law firms are not struggling from my point of view, they may not be able to have as long on holiday in the bahamas as they did a few years ago but struggle they aint!

I park next to enough of them to know by the cars, 08 plate is the oldest, they're doing quite ok at the moment. (generally speaking of course).

and to the OP don't really worry about wasting too much time on this cafe, 80k is a lot of cash and to be honest, having worked in a cafe a few years ago, you're going to struggle.

If you have 80k available, look at other projects, you could invest a quarter of that and get a healthy return with very little work.

if you run a cafe its long hours, things go wrong, there are hidden costs that you don't budget for, you need deep pockets for something that demands so much attention just to make a return.

 

[oldeagleeye]

Actually I spent 6 months researching the income of law firms right across the board and few I can assure rely on conveyacing work - solicitors are not stupid. The housing market has been in the gutter for over 2 years now.

Try matrimonial work then. Divorce may be easier but sorting out the finances is a nice little earner for solicitors. Crime is on the increase. Business law is becoming ever more complicated. Health & Safety as can PI cases can bring a small fortune in.

Make no mistake. Some will fall by the wayside when there is a shake out but solicitors will always get work as will the ladies of the night. After all they are both in the same game

Solicitor or a prostitute charged with the offence of soliciting both have the same fee structure and perform the same task

Charge an exhorbitant amount of money for a few minutes work --- ucking the customer.

Anyone for cricket chaps.

Sorry to hi-jack thread OP.

rob

 

[patientlady]

Thanks for the advice everyone hmmm I really dont know what to do my heart says no as its not exactly my dream in a rough bit of town lol but its so cheap at £80,000 seems a bargain but I suppose theres a reason for that?? I may be naive but I really think I could improve trade just by making it look more welcoming and not so dirty??

Your heart is telling you something!

Who uses the cafe? Who will you be appealing to? Business people? Locals do not use there local cafe they drink/eat at home!

 

[KidsBeeHappy]

Is the cafe used for workmen - workmen are the bread and butter so to speak of many a "rough" cafe. They turn up every day, at the same time, and order pretty much the same thing. But there is a big difference between mobile workers in the area and local workers. Garage Mechanics are my favourite, they seem to find an excuse to visit at least 4 times a day. Make sure that you have a good stock of sweets, pop and fags to pick that custom that visits more than once a day.

 

[Rhodes100]

Usually with Cafes you either do very well out of them, and has been mentioned here or you struggle like hell.

The asking price is £80k, one thing that hasnt been mentioned I think is, what is the bricks and mortar valuation of the property? If the business is offered at bricks and mortar valuation, the owner is asking for nil goodwill. This persons exit strategy could then be to sell to a developer if change of use can be obtained.

Another possibility is to market the cafe using social media, (facebook, twitter and foursquare to develop customer loyalty, I know of business who use these marketing methods and their turnover defies what should be acheivable in their location.

It is a risk, but so is every business without local knowledge no one can provide a definitive opinion.

 

[workingnomad]

Its way too risky, why can't you consider renting a shop in a nice area?