Is Your Cafe Worth What You Want For It?

Is Your Cafe Worth What You Want For It?

 

After an appraisal call with a client earlier today I wanted to quickly post this to give you some help around the thought process of valuing your business.

As I have mentioned in previous posts many people that we work with are concerned about keeping the sale of their business confidential.

One of the biggest factors in selling without too many people finding out is make sure that your business is not on the market for any longer than it needs to be, price plays a big part in this.

Sounds obvious right?

Pricing the business correctly is something that we find people often struggle with.

When you get this wrong there are several ways that this can hurt you and, all of them cost you financially.

Basing the valuation of your business on what you paid for it is a flawed method and here are a couple of examples of why that is:

The cafe owner that I spoke to earlier today had owned her business for three years.

During the time that she had owned the business the sales, profits and expenses had all increased more or less in line with each other.

With that in mind it’s understandable that she thought the business might be worth a similar amount as to what she paid for it but here is what was overlooked.

The current market is very different to when she bought the business, three years ago there are differences in buyer confidence, competition, number of businesses on the market and so on.

The lease had not been renewed meaning that it was less than half the length of the original term and only had two years left.

The suburb had seen about four new cafes open and, whilst this business is holding its own the lack of redecoration during the time of ownership meant that the shop is looking a bit tired in comparison to some of its newer rivals.

When we discussed the figure that they had been trying to sell for I was interested to know how that number had been worked out.

The asking price had been based on what they needed to achieve for the business as well as what they had originally paid.

Both of these reasons are completely valid and can be achieved

BUT….

You need to work backwards and make sure that the numbers stack up, if they don’t then you need to do some work on them before you list the business.

By starting with the end in mind (like any good plan) you can work towards getting the figure that you want or need for the business.

The process of thorough preparation will also make sure that you have a clear idea of the current valuation and, if there are issues holding the value back this process will highlight them.

IT IS POSSIBLE to get what you what for the business if you plan and prepare properly.

Many people think that in order to get a quick sale you need to get the business advertised as quickly as possible and start generating inquiries, this could not be further from the truth.

Think about the sale in a similar way to setting up your cafe, how good would your lunch service be if you just rocked up and opened the doors at 11.45am with no prep done?

I am sure we have all had days where we have been smashed and underprepared, I have one particular Mothers Day that has scarred me for life! Not a good feeling right?

Try and look at the sale of your cafe in the same way, the better prepared you are the smoother the sale will go and the chances of you getting the return that you want increase significantly.

We have created a brand new Facebook community for cafe owners and industry professionals to share the best tips, tricks and insights to selling cafes.

Get exclusive access to live Q&As, actionable advice, and an amazing community of like-minded hospitality professionals.

I would love you to join our growing community and if this sounds like something that might interest you please click here

The group is all about helping cafe owners to sell in less time and for more money, watch this space for more tips, advice and battle stories about selling cafes.

We would welcome your comments, feedback and suggestions about what you would like help with so feel free to post in the comments section below.

If you would like to learn more about preparing your cafe for sale then why not book in a call with us. On this 45 min call we will cover the following with you:

  • What the current market value of your cafe might be.
  • The steps you need to take to prepare for the sale.
  • What the market is like at the moment.
  • How to make sure that your cafe stands the best possible chance of selling.

There is no charge for this call and there is no obligation. At the end of the call if we think that we can help you we will let you know about how we work and, if we don’t think we can help we will give you some advice about alternative options.

Either way you will come off of the call with a much clearer idea about the potential value of your business and of what you need to do next to achieve a sale.

Click on the link below to book in a time that suits you best, once you have selected a time you will be taken to a form which has around 10 questions about your business that will help us to get a better understanding and save time on the call.

Book your call here

Cafe - Restaurant For Sale - City Fringe

Cafe – Restaurant For Sale – City Fringe

This European & Mediterranean style café is well known for its unique breakfast and brunch menu. Dishes served here include meat, seafood and vegetarian specialities as well as a wide range of house made drinks such as juices & smoothies.

 

The coffee sales are around 15kg per week (mostly takeaway) and there is also a range of more than ten different teas to choose from.

 

The average spend per head for dine in customers is around $30.

 

The business has been established for five years and has shown continued growth year on year. The current owners have perfected the menu over this time to balance customer demand with ease of preparation as well as maximising profit margins.

 

The shop is approx. 28 square metres and has been fitted out in with a stylish European feel. The seating area inside has seven tables and seats fourteen and there are an additional six seats outside. The kitchen is custom made and is designed to utilise the space required for the menu and style of service.

 

Behind the kitchen there is a customer toilet and at the rear of the shop there is a cool room, custom built storage area and car parking space.

 

The tables in this café turn over very quickly and at the weekends they can easily serve more than 150 covers. Customers have welcomed the waitlist system implemented at busy times and most people are more than happy to wait 30-60 mins for a table.

 

During the five years that this café has been operating the owners have built a very loyal customer base, the café also has strong ratings on all the review platforms and a good social media presence. The café also benefits from a lot of tourist trade and has become a destination for many overseas travellers.

 

The current trading hours are Tuesday – Sunday 8am-4pm which leaves plenty of opportunity to extend the hours to Mondays and/or evenings if you wanted to.

 

The Current lease runs until 31st August 2020 with an option to renew for five years plus another 5 years. – Annual 3% increases. A 3 month bond is required by the landlord.

 

Summary

An established and well organised café in a prime city fringe location that makes the most of every inch of space to maximise the return. Ideal for a chef, couple or foodie that would like to walk into a business which is set up and already producing high net profits.

 

The owner is prepared to fully train the new owner and is committed to the continued success of the business.

 

For further information about this business Please Complete this Confidentiality Agreement.

 

**For confidentiality, the images in this advert are generic and do not accurately represent the style, décor or food of this café**

 

View all Cafes for sale in Sydney

 

Cafe – Restaurant For Sale – City Fringe

Years Est
5 years
Years With Current Owner
5 years

Trading Times
Tuesday – Sunday 8am – 4pm

Seats Inside
14

Seats Outside
12

Stock Value
5000

Unique Northern Beaches Cafe with Lifestyle Retail For Sale

Unique Northern Beaches Cafe with Lifestyle Retail For Sale

This unique Lifestyle Café in a thriving Northern Beaches suburb has established substantial patronage in just 20 short months since opening. Known for its ‘great vibe’ with lots of natural light, this café has positioned itself in an ideal physical location attracting regular customers and has built a strong reputation for quality coffee, while offering quintessential products in a popular lifestyle retail shop.

 

Coffee sales are still in the initial growth stage with current sales at 30kg per week and consistently increasing. Breakfasts and simple lunch items are also available, with an easy to manage style of menu, plus a wide range of cold drinks, smoothies and milkshakes. The café currently holds a 5 star health inspection rating, received with the first inspection.

 

Designed with ease of workflow in mind, the cafe fitout is of a very high standard. All equipment in the café is owned outright, including top of the range coffee machine and grinders, as well as a range of top quality appliances. No lease payments to factor in.

 

With the café and retail shop spread over two adjoining shop fronts under one lease, there are approximately 22 seats inside and 24 outside, with room to further increase outside seating. Total internal size is approximately 80 square metres (approximately 40sqm each shop).

 

The current owners have owned and managed the retail side of the business for over 10 years, only adding the café 20 months ago. They are selling due to a desire for a change of lifestyle. Although they are extremely proud of the café they have built, they know that someone with experience or drive can step in and take this business to the next level.

 

Years Est
2

Years With Current Owner
2

Staff No
2 x owners plus 7 casual staff (3 baristas, 2 cooks and 2 café assistants).

Lease Info
The 3×3 year lease commenced on 1 December 2015. CPI Increases. A 3 month bond is required.

Trading Times
Mon to Fri 5:30am to 3pm Sat 6am to 3pm Sun 7am to 12pm Retail shop open until 5pm Mon to Sat, 3pm Sun. A large doorway between the café and retail can be closed at any time to suit.

Size of Premises
80 m2

Seats Inside
22

Seats Outside
24

Stock Value
$32,000

How to Transfer a Liquor Licence NSW

How to Transfer a Liquor Licence NSW

 

 

Transferring your liquor license is not a lengthy or complicated process, the steps outlined below walk you through what you need to do.

 

 

Transfer of your liquor licence

 

You can transfer a liquor licence when you buy or sell a business. This allows the new business owner to trade under the existing licence.

Liquor & Gaming NSW allow a business to continue operating while it considers a licence transfer.  Provisional approval is usually given and the official confirmation of the transfer with follow later.

The licence transfer does not become effective until Liquor & Gaming NSW give provisional approval.

There are 4 ways you can transfer a licence but transferring with consent of the outgoing licensee is the most common.

Transfer your licence with consent of outgoing licensee

This is a straightforward process for both individuals and corporations.
Transferring a liquor licence this way takes two steps:

• provisional approval
• confirmation.

How to apply for provisional approval

You must give Liquor & Gaming NSW the following inforamtion:

• Evidence of Responsible Service of Alcohol (RSA) qualifications.

• If required, evidence of Responsible Conduct of Gambling (RCG) qualification.
(not relevant to cafes)

• If the liquor licence includes gaming machine entitlements, you will also need to provide a direct debit form and data monitoring forms to show there are no outstanding payments. (not relevant to cafes)

• A copy of your NSW National Police Certificate that is less than 3 months old.

• Corporate licensees must provide a current ASIC extract showing directors and officeholders. You can buy this document through the ASIC website

Liquor & Gaming NSW usually confirm your licence transfer within 60 days.

Fees

Please note that fees vary depending on the type of licence you want to transfer.

Online transfers

To complete the online form you will need to download and complete by clicking the button below, once you have filled it out you can submit it using the instructions on the form.

How to Transfer a Liquor Licence NSW
What to ask your solicitor when selling a cafe

What to ask your solicitor when selling a cafe

 

 

When talking to your solicitor about the sale of your one of the most important things to review is the current lease of the business.

 

In most cases we don’t tend to look at this document after we’ve bought the business but during the sale process it’s important to go through this again in detail at it can have a huge impact on the valuation and the ability to sell, I always suggest that my clients make the solicitors meeting one of the first in the process.

 

If you do find it there is an issue with the lease then this can take some time to sort out so its always better to get this checked out early on.

 

Key questions to ask.

 

A few of the key points to review with your solicitor during this meeting are

 

How much time is left on the current lease and do you feel that buyer’s will feel it is long enough in relation to the price that you’re asking for the business?

 

• If you’re not already sure check how often the rent is due to increase and how this is calculated. This is a commonly asked in the early stages it’s good to answer it in the initial marketing.

 

• What does the lease say about assignment?

This is the transfer of the lease from yourself to the person buying the business.

Most leases will state that all costs relating to the assignments to be paid by the lessee (you) and it’s a good ideas at this stage to make sure your solicitor pushes for you to only pay 50%.

 

By giving your solicitor the heads up about this early on you can make sure that this agreement to pay 50/50 is drawn into the contract of sale and its an easy way to save yourself a good chunk of money on legal fees.

I’ve always advised my clients to do this and it’s very rarely gets questioned by the purchaser’s solicitor but, it is important that you instruct your solicitor to do this it can be missed.

 

• How much are they going to charge you?

I’ve noticed that solicitors fees of my clients seem to vary greatly for very similar transaction.

It’s a good idea at this stage to get an indication of what the solicitor is going to charge you in relation to dealing with preparation of the contract of sale and helping deal with the assignment of the lease

 

Understanding what your legal fees are likely to be is important when you work out the sale proceeds you will be left with after all of your costs.

 

If you feel that their costs are too high don’t be afraid to question them or seek other quotes, a lawyer working for you on this does not necessarily have to have any history with you.

 

I work with a couple of lawyers in Sydney who specialise purely in business sale transactions so if you need a second opinion feel free to let me know and I’ll happily pass on their details.

 

Also, just so you know I don’t take any kickbacks or referral fees from anybody that I work with and I only recommend people who I know can genuinely help the people that I work with.

 

I hope this helps, feel free to get in touch if you have any questions about selling your café.

 

 

 

 

 

 

What to ask your solicitor when selling a cafe

How to Sell a Café – Financial Preparation

How to Sell a Café – Financial Preparation

How to Sell a Café – Financial Preparation

 

One of best things that you can do in order to prepare your café for sale is to have your financials prepared and ready to provide to qualified buyers.

 

Having your financials prepared basically means having up to date information that proves the amount of sales, expenses and profitability of the business.

 

When your financial information is prepared and ready to go it helps with the business sale in several different ways but, most importantly it will save you, the business owner a great amount of time.

 

In worst cases if this information is not properly prepared (and accurate) then it can cause a sale to stall and even fall through.

 

If you have worked hard to market and advertise your café and you have generated some interest you need to make sure you keep those people interested and give them very little reason to pull out or try and negotiate the price downwards.

 

Selling a cafe has a lot to do with reducing risk in the eyes of the buyer and if you do not have things like your financials in order the alarm bells will start ringing.
Many of the people that consider buying your café may not have any experience in the industry and may not be aware of how many café businesses operate (I think you know what I am talking about here).

 

Your job is to demonstrate the income that they can expect from the business and, if your BAS statements and financial accounts can’t prove this 100% then you need to think strategically.

 

One way that you can get around this is to use a tracking sheet in an application like Excel. This kind of spreadsheet can be completed in a matter of minutes each day and can be a very useful during the sale process.

 

How to Sell A Cafe - Financial Prearation

 

One of the key things to remember with this system is that you need to back up the information entered onto the spreadsheet. For example it’s no good just putting down that you took $1200 on the 14th of August unless you have kept a Z report or a POS record which verifies that.

 

The same applies with your invoices and staff payments, keep a separate record and make sure that everything matches with your spreadsheet.
I know what you are thinking and can almost hear the groans but trust me, spending a few minutes each day entering this information and filing the matching paperwork will pay dividends.

This simple system will help you to clearly demonstrate the value of your business and at the same time speed up the sale process by giving buyers less things to ask questions about.
The earlier you can start this the better, the more information that you can give to buyers like this the easier it’s going to be to get them over the line.

 

When to give out this information.

Naturally this information is very confidential and should not be shared with anyone unless you are confident that they are serious.

 

With my brokerage clients I take a goodwill deposit of 5% before this kind of information is shared. After this deposit is paid we grant the buyer a two week period of exclusivity where they can carry out their due diligence.

 

If you are selling on your own then you can still get a signed confidentiality agreement, (something that we cover in out Six Weeks to Sale program) which helps to ensure that any information provided is treated with confidentiality.

 

If you have any objection from somebody about signing a simple agreement like this then that is normally a sign that they are not a serious buyer.

 

When you get to the point that you consider sharing this information you will probably have had several interactions with the person interested and you should feel comfortable providing all the details required for them to confirm the figures you have quoted in the marketing of the business.

 

 

I hope this has given you a couple of ideas about how you can sell your café with more ease, it does not have to be a long or stressful process you just need to be prepared.

 

If you would like a copy of the spreadsheet I mentioned above just type “Spreadsheet” in the comments below and I will send you a copy.

Exit Planning For Cafe Owners - Lease Considerations

Exit Planning For Cafe Owners – Lease Considerations

 

 

 

The Sweet Spot – Timing the Sale of Your Business

 

This post marks the first in a new series discussing the ways in which you can add value to your cafe and maximise the return when you sell. This article discusses what an important part of the valuation process the lease is and, how it can affect how saleable your cafe is when you go to market.

 

 

All retail food businesses have a built-in clock. For some this clock sets the time frame for business growth and for others it is a ticking time-bomb. The realities of the retail food game are harsh. A profitable business on a poor lease, is a still a poor business. In this article, we explore the relationship between the length of the lease and the sale of your business.

 

There are two closely related moving parts. The first, is the impact your lease has on the value of your business and secondly, the sweet spot – when your business stands the best chance of achieving maximum sale price relative to the time left on the clock.

 

So we start with a simple reality.

A profitable business with a long lease can be sold for more than a profitable business with a short lease.

No two businesses are alike, so what value drivers are common to most successful business sales?

Answer: Profit and lease years remaining.

We will explore profitability later on in this series, here the focus is on lease years remaining, and more particularly the valuation multiples that apply to food businesses.

 

If you have come along to one of my workshops, or heard me talk at trade shows or industry events, you would know that establishing the correct profit (earnings) multiple for your business is crucial in planning the sale.

 

There are a host of value drivers and detractors that depend on the subjective circumstances of your business. The days, hours and intensity of operation, the relative skill (or not) required to produce menu items, the location and demographic are all examples of the factors you must carefully consider and balance.

 

Say, for example, having found that balance with your business advisors and accountants you arrive at a profit multiple of 2.6. That means you could expect a buyer to pay 2.6 years’ worth of profit for your business.

How many lease years need to be left on the clock to justify the buyer paying you 2.6 years of profit upfront ?

If you were buying would you pay 2.6 years of profit with 2, 4 or 6 years remaining ?

What if the landlord refuses to extend the lease ?

 

Take-Aways

This brings home the plain truth – you must plan to sell your business before you sign the lease. Opt for a lease with a baked-in exit strategy that coincides with sales growth, projected profitability and the multiple you need to make the risk worth it. Yes, you need to value your business before you build it.

Knowing the multiple means you can make strong decisions early, rejecting sites, offers and landlords that drive the multiple down. Remember apart from a bunch of second hand equipment, all you really have to sell is the opportunity to make profit from a site for a fixed number of years. The more years left on the clock, the higher the price.

 

© Peter Panagiotopoulos 2017 @cafelawyer

 

Exit Planning For Cafe Owners – Lease Considerations

 

 

Peter Panagiotopoulos of CRAFT Legal is a leading lease and business sale negotiator who has protected the rights of food and beverage retailers for over two decades.

 

Known within the industry as the cafelawyer®, Peter has personally choreographed the sale of hundreds of small businesses and has dedicated his legal career to giving businesses the tools and confidence to make the right business-building decisions.

 

 

Mobile              0414 257 298

 

Web                 www.craftlegal.com.au

 

Twitter              @cafelawyer https://twitter.com/cafelawyer

 

Blog                 https://cafelawyer.wordpress.com/