How to Increase the Value of a Café
In some ways selling a café is very different to selling other businesses but there are several ways in which you can add value to a café that are pretty much the same with most businesses.
So how can you increase the value of your café?
Reduce the Risk
One of the factors that will reduce the value of your café and also increase the time on the market is when buyers sense that there is some risk associated with the purchase.
Examples of this might be a short lease, a lease with a demolition clause, declining net profit and even a poorly maintained shop.
It’s a really good idea to start planning the sale of your business as early as possible, ideally your business should always be ready for sale but I appreciate that this is not always practical.
Negotiating a new lease or arranging an assignment can be a lengthy process so, before you commit to the sale process it is a good idea to meet with your solicitor to discuss any potential issues with either option.
With an incoming tenant most landlords and managing agents are going to want some proof that the person looking to purchase your business is going to make a good tenant. Make sure you understand exactly what your landlord will require to assess the purchaser and then make sure that the buyer is aware of this early on.
Another thing that worries some people is when they think that the business is too reliant on certain employees (barista, chef etc.) or even yourself. Anything you can do to reassure purchasers that you have a café which does not rely on one or more individuals is going to reduce risk and increase the price.
This could be achieved by having a documented system in place for things like recruitment, training and operations. What you really want to aim for is to show that anyone could buy the business and follow your systems to keep it running the way it is currently.
Improve the Bottom Line
It seems basic to mention this but I often see businesses that have the opportunity to increase profit without making too many changes.
It’s tough when you get into the mindset of selling to stay focused on profit but a few small changes can often have an impact on the bottom line that can help to increase the value and saleability of the café.
Start with your biggest impact areas:
- Wage costs – How is you wage cost percentage? Are there ways that you can tighten the rosters and save a few dollars here and there?
Can you cut back on a few casual hours?
- Food costs – How is you Gross Profit percentage?
Along with wage costs supplier expenses are another major weekly outgoing for cafes and often an area to make quick improvements.
How does your gross margin compare to the industry average?
Are you confident that you have the best deal possible from your suppliers or can you negotiate some more discount?
Are you monitoring the food waste and stock control?
Are you confident that the margins are right for all of your dishes? When was the last time you checked?
If your café is taking $10,000 per week and the food costs are 38% a reduction of just 2% could result in an extra $10,400 in annual profit which will in turn increase the value business, lower the risk and make you a few extra $$ whilst the business is on the market.
Drive the Top Line
One of the key metrics that buyers look at are the weekly sales of the café, it therefore makes sense to make sure you are doing all you can to maximise these, right? You would be surprised how many businesses I see that have stopped driving sales because they are on the market or the owner is thinking of selling.
Many buyers will see the lack of marketing such as social media posts, new menus and promotions as a sign that the owner has given up or is too busy with other commitments.
When I was buying cafes I was always pleased to see a neglected Facebook page or Instagram account as this signalled that I was more likely to get a deal.
Try and keep running the business like you just started it, keep the social media up to date and keep working on ways to bring in more business.
Focus on the only three ways to grow the business:
- Get more customers (advertising, social media etc)
- Sell more to your customers (would you like fries with that?)
- Sell more often to your customers (loyalty programs etc)
If you combine the impact of improving the margins mentioned above (wages and food cost) with an improved top line the impact can be very beneficial.
The value of the café is ultimately going to be determined by the net profit so the more you can do to improve the bottom line the higher the potential value will be.
I hope that this has helped you learn a little more about How to Increase the Value of a Café, you might also find this 20 point checklist useful.
If you have any questions about how to maximise the value of your café feel free to email me [email protected]