A Guide on How to Choose the Right Cafe for Sale
A Guide on How to Choose the Right Cafe for Sale
Australians love a good cup of coffee, rather they love a latte, cappincino, long black, mocha, chai latte - whichever takes their fancy. We all have our favourites!
The coffee culture is strong in Australia and a regular part of many people's day. When you look at the options available, you will see there are over 2,500 cafes for sale on Bsale. It is the most popular type of business for sale and the cafe sector has a current value of $994 million. The average price of a cafe on Bsale is $408,602 with a staggering 65 new listings added in just the past 7 days.
Coffee shops are a popular choice for business owners!
Why? Usually, it's the demand for coffee, when you can have multiple cafes in one area, naturally there are more businesses, so when it comes time to sell a cafe, the number is higher. Cafes also have a relatively low entry point, and the level of experience to operate a cafe isn't as high, as say, a construction business. So a cafe business is appealing to a wider audience of buyers.
With so many cafes for sale, how do you choose the right cafe for you?
7 Step Checklist for Choosing the Right Cafe for Sale:
1. Net Profit
It's all about the money, money..... The price you will pay for a cafe for sale is highly dependent on the money it is making - importantly the net profit. You want to ensure the cafe for sale is creating a good income, covering its expenses, paying its taxes and any debts and there is money in the bank at the end of the cycle. This is the net profit, and this number is important.
Depending on how you intend to operate the cafe you are buying, you may look at this number differently. I'll explain in detail further the differences in owner-operator vs under management. But it is a factor to consider when looking at how much money the cafe for sale is actually making.
The profit not only plays a big part in how successful the cafe for sale is, but it's also used to determine the asking price. So if you want to pay a fair market value for the cafe for sale, you need to understand how the net profit is derived and how much room for negotiations you have.
2. Location
Traditionally, cafes need good foot traffic. Though with the rise of social media there are some very successful cafes for sale in obscure locations, that are only found thanks to the wonders of Instagram and Tik-Tok. Qwerky vegan cafe in a warehouse down a dirt road? Hello, influencers!
Influencers aside, for the most part, foot traffic is extremely important. The repeat clientele is what keeps a cafe for sale running and successful. You need the local businesses and residents to be visiting you to stay afloat. If the cafe for sale is on a back street or too far from the main business hub, it may place it into that "too hard" basket for many people and affect its income.
If you take a look at cafes for sale in industrial areas, they are only open Monday to Friday, usually 6 am - 3 pm and are very successful. Why? They are providing a much-needed service (food and drinks) to a local clientele of workers. These clients don't want to get in their car and drive far, they have limited time on their break, they will walk to the local cafe or takeaway shop to buy their breakfast or lunch and return to work. These types of cafes for sale can be very profitable, but require a quick and efficient turnaround time on food and beverages.
To give you an idea of an industrial cafe for sale, this one was recently advertised on Bsale in September 2022 in Western Australia for $450,000.
"Long established business in an industrial area. Only open 5 days. Turnover $20,000/week. No deliveries. Huge Net Profit. Easy to run. Can be run under management. No experience is required. The owner will train new operators. Same owner 10 years, now retiring." Fortune Business and Property Brokers
Location is very important for the success of most cafes, as mentioned earlier, there are so many. So when you look to buy a cafe for sale, look at the location. Make sure you have adequate foot traffic so your not spending a lot of money on advertising and marketing (it can add up quickly). Review the marketing budget of the cafe for sale you are looking to buy. How much is it costing them to get exposure?
3. Competiton
Start counting, how many cafes are there in the area you are looking to buy that cafe for sale? There's no point just looking at the financials and details of the actual cafe for sale, take a walk around, and look at the competition.
Go online and see reviews on websites like Google My Business, Trip Advisor, Facebook and more. Look at the current cafe for sale, but also look at competitors. Where does this particular cafe for sale you are looking to buy, fit in? Is it unique in any way, can you change the current offerings of the cafe such as food, beverages, and decor? Can you offer something different?
The only way to have a successful cafe is to offer what your customers want. If you have a lot of competition in the area, what makes this particular cafe for sale any different, can it be successful, and is there room for it in the current marketplace? Always checkout the new cafes listed so you understand their profitablity and why they are selling.
3. Lease Agreement
Without a good lease agreement, you don't have a business. Most commercial leases on cafes are for 3x3x3 or 5x5x5 year terms. Sometimes longer, depending on the location - want Sydney Harbour? You will probably be looking at a 10x10x10.
If the lease is currently ending or open to discussions with the current landlord. Make sure you 100% understand what this means. If the landlord intends to sell the premises, increase the rent or open it to tender once the current term ends, you will have a problem.
Don't be naive and think "oh it's ok, I can just move the business". Ask any cafe owner, it's hard to make the people come. They liked walking to that particular location, they won't go another 400m up the road. You will basically have a new business when you move, so why did you pay so much for the cafe for sale?
So check the lease agreement, and have a professional such as a commercial solicitor read over the agreement. You want to know you are protected when you buy a cafe for sale. You are paying for the location, and the lease is part of that. Without a solid lease, you are just buying equipment.
Consider the Atmosphere of the Cafe for Sale
4. Atmosphere and Decor
Don't underestimate (or overestimate) the importance of a good atmosphere in a cafe for sale. Anyone in Sydney knows about the 'Grounds of Alexandria' why? Because they created a beautiful atmosphere that has become famous in Sydney and they carried it over to their two locations.
When you compare cafes for sale, take a look at the ambience, and what is one cafe for sale offering over the other? Is that ambience important to its success, or is another more simple cafe just as successful? Could a little revamp on the 'less pretty' cafe make it even more successful? This comes back to point one - net profit. The ambience doesn't always equal more money, but it is worth reviewing.
It can help you decide which particular cafe is right for you. Maybe the run-down cafe needs a little love and can be even more profitable. Whilst the fancy, up-market fit-out cafe struggles to make ends meet, even though it's busy, it has too many expenses.
5. Staff
The saying "staff are worth their weight in gold" is very true in terms of cafes for sale. Without good staff, you will end up with bad reviews online, and bad reviews for a hospitality business can mean disaster unless fixed quickly. The happy wait staff, the talented chef, and the good barista all make a cafe work and run. So if you find a cafe for sale that has good staff and a good vibe, that is well worth considering.
Especially in these current times when hospitality businesses are crying out for staff. If you find a cafe for sale that has long-term, committed staff members that are well trained and work well together. This is a very good sign and worth consideration.
6. Under Management or Owner Operator
The benefit of cafes for sale is that you have such a wide variety. You can purchase a cafe for sale from $30,000 to $400,0000+. You can buy a cafe for sale that has just a full-timer and some casual staff or a business that is under full management.
This comes back to what is right for you, and what you are looking for. If you are new to owning a hospitality business you may be looking at undermanagement. If you have a talented team capable of running the business and you are an overseer, this could be a good option. These cafes for sale, tend to run upward of $250,000 as they are fully staffed.
If you are looking for a change of lifestyle, so basically looking to buy a job or run a business where you work full time and earn an income. You can be looking at owner-operator-style cafes for sale. These businesses tend to start around $30,000 though the income is probably low (or minimal) but you could look to grow that. To be in a safe position you should be looking at a cafe for sale that can give you the same income you currently have, so something over $100,000. So even as an owner-operator, you are earning enough to support your personal lifestyle.
You can find many business coaches who offer advice specifically to running cafes and hospitality businesses such as Cafe Coaches. These businesses can assist you to understand the cafe for sale you are looking to buy and offer advice on growing and improving the current business to make it more profitable and whether owner-operator or under management is a better option.
7. Contracts
What you need to also remember when someone starts a cafe they do it with the intent of making money. They want to have the best cafe in town. Often a new business owner will rush into decisions about the cafe they are building, and sign contracts they think they can fulfil. They have a vision and part of that vision is often 'how the cafe will look' and how 'my cafe is different' so they invest a lot of money into marketing or the products.
There are a few common contracts that cafe owners will sign to get their business off the ground and running, so you need to check these and make well informed decisions whether it will impact you buying the cafe for sale.
- Equipment leases - is all the equipment own outright by the business or are their leases or loans against them? There can be multiple expensive items in a cafe for sale such as coffee machines, fryers, ovens, stoves, kitchen equipment, chairs, tables, fridges and so on. You need to have an understanding of how they were purchased and how they are included in the sale.
- Suppliers - When you buy a cafe for sale, you will find there are a number of agreements with suppliers. There may be minimum levels that have to be ordered every month, such as coffee beans, milk, coffee cups, napkins, takeaway bags and so on. How much is the order requirement? Are there custom cups in a warehouse that have to be drawn down? There could be thousands of dollars sitting here 'waiting to be collected' so check with each supplier what the agreement is, and what is expected of you, as the buyer of the cafe for sale, going forward.
- Employees - What agreements are the employees on? Fulltime, partime, casual? Are the correct award wages being paid, are the superannuation, PAYG and tax instalments all up to date? Are there current employment agreements? Are family members working in the current business, will they stay on after the cafe is sold, or will you need to find new staff?
- Are you buying a franchise cafe for sale? If so, make sure you look at the franchise agreement and disclosure documents. You want to know what you are committing to. This is a big area, so always have a professional work with you when buying a franchise for sale.
Though not necessarily a contract, it is important to also check on the license of the cafe for sale. Each state has a different board that oversees food, health and safety standards. Check to see if they have been reviewed and if there are any issues.
"Approximately 15,000 businesses in the food industry need to hold a Food Authority licence to operate in NSW." Food Authority NSW.
Also check with the local council, such as NSW on the zoning of the cafe, if it has outdoor seating and the allowed capacity to ensure it's meeting current standards.
Looking to Buy a Cafe for Sale in a Capital City?
With over 2,000 cafes for sale on Bsale, you have a lot of options to choose from. Here is breakdown of the cafes for sale in capital cities to help get you started on your search.
Final Thoughts
Buying a cafe is an exciting adventure. It's a good idea to have experience in the hospitality industry so you know what you are getting yourself into. There are more cafes for sale than any other type of business, so you have a large selection to choose from. Making sure you have a solid understanding of the cafe you are looking to buy, as well as the area and competition is important. There has been an increase in AI technology that cafe owners can adopt to help improve their services and ultimately profitablity, a number of these strategies could be applied to the cafe you buy.
If you need assistance in choosing a cafe for sale reach out to a business broker. Register for Bsale Alerts so you can be notified when a new cafe is listed for sale.
Originally published: 24/08/2017. Updated June 2024.
Tags: cafes cafe for sale buying a business hospitality
About the author
Vanessa Lovie
CEO Bsale Australia
