Need help in cafe start up: Start new or Buy existing?

[pmcom]

Hi,

I am planning to open a cafe with up front fund about 50K and I am faced with 2 option to consider.

First is to start from scratch, find a location, negotiate a lease, site design and construction, apply for permits, purchase equipment and so on. This option, beside consuming considerable amount of money, I assume it would take a couple of months or even more before my first day accepting customer.

Second option is to shop for similar businesses which have at least similar equipment such as coffe machine and display shelves, do due dilligent, negotiate the deal, transfers all paperworks and permits and I think I would be able to open the cafe alot sooner than the first option. I may need to do a make over but I can do it along the way after the cafe open.

I have seen cafes/takeaways for sale on several Melbourne inner suburbs for about 50K, do you think 50K would get a good decent cafe or could it stretch even more if I start from the ground up as of the first option? I know that coffee machine and all sort of equipments needed are very expensive but I would consider second-hand equipment as I would get second-hand equipment as well if I bought a cafe instead.

I’m not sure if my though is spot on, my main concern among heaps other is the time gap between my first step to the first day the cafe open, the longer would mean more money dripped for living without any income.

I also experience that several business brokers I encounter with, (I believe there are also good brokers out there who I haven’t found just yet), are unable to help much in giving advice beside offering busineseses they have for sale. Is it a good idea to look for a professional advisor who can work along side by me?

I know it is a very long question, anyhow, I really appriciate all though, advice and experience that you can share.

Regards,
pmcom.

[SmallBusinessWorks]

HI pmcom,

I help people start cafe's every couple of weeks and have 3-4 clients going through the same dilema as you currently.

In my experience to fit out a cafe from scratch you would be doing very well to do it for under 50k although maybe possible, generally my clients are paying 80-200k to fit out their cafes obviously depending on the size of premises, style and equipment required.

You have to look very carefully at what you are trying to achieve, in what suburb and what your "model" will be, unfortunately most cafes have a short lifespan with the owners either getting frustrated at the hours and pressure of the business or just outright failing financially.

Not all cafes are the same for example a cafe in an industrial area is different to one in port melbourne not just in food served but also customer service style, decor and hours. Do your homework and visits 10s if not 100s of cafes, sit and have a couple of coffees, if you find some you think look like the way you would run your business visit on different days and times to see the different market segments they are servicing.

In my experience everyone thinks cafes will be easy and fun to run, while this can be true and there are even cafes out there that make a lot of money there can also be long hours, never ending staff problems and tough financial pressures involved.

[Golfing Director]

Hi pmcom

Alan is correct you should budget between $80-$200K to establish your own cafe. So definitely the cheapest method would be to consider buying an existing cafe. You need to ascertain why that business is for sale and it will almost certainly not be for the reasons that the sellers give you!

On my website I have an email series that you can subscribe to, 6 emails over 6 days with lots of great information for a cafe startup. Click on this link http://www.sydneycommercialkitchens.com.au to subscribe.

Whatever you decide, the best food businesses are run like the way franchises run [current figures suggest that 90% of franchises are successful].

Of course it is not just systems that will help you succeed. Location, menu and ambience all play a significant part as does how much capital you have to back the business.

[Business Coach]

Hi

Standard fit out costs will vary between $500 to $900 per square metre for standard material fitouts. This does not include equipment or furniture.

Couple of issues to consider;

• Business start ups often go over budget 35% to 50% within a few months of commencement
• Are you running the cafe or will you be hiring employees
• Any cafe you could buy for under $50k will have slow growth or even be trading at losses
• Consider 2nd hand equipment to get started
• how many cafes are in the area you are looking at
• Why will you cafe be better than the others

Cafes are extremely hard to run well and I recommend that you speak to a business advisor/coach rather than a broker. Get someone that has experience in running a business to help you through the first hurdles.

Eg; Your advertising budget will need to be at least $3000 year, your recruitment and hiring processes will take another 5% to 15% of your revenue to pay all the taxes and costs of having employees, and your safety/cleaning aspects of a cafe will set you back at least 20% of your revenue.

Make sure you do as much research as you can on the industry and running cafes before you invest hard earned money.

[rjs398]

I think buying an existing cafe is much better idea than setting up a new one. The advantages of buying an existing business are rather more than disadvantages. The advantages of acquiring an existing business
rather than creating one from the ground up, includes
1. Less Risky
2. Proven Concept
3. Existing Customer Base
4. Predicting Future Growth
4. Reduced Need for Working Capital
5. Existing Suppliers
6. Capital Raising is easy

[mcboom]

I started www.trufflesmelbourne.com.au from scratch and sold after three years. Trying to fitout a cafe from scratch for $50k will be a challenge. If you do decide to go down this path make sure you do your research. Location is critical. Count the foot traffic passing by your proposed location at all times of the day on weekdays and weekends. Speak to other business owners in the area, you will find that most people are quite helpful.
Running a cafe is very demanding on your time but can be very rewarding at the same time. Hopefully you have friends/family you can rely on as trying to do it by yourself is near on impossible, especially with staff not showing up etc.
If you are buying an existing business do your due diligence carefully. Most cafe owners will inflate their takings during the trial period. You also can't trust the book as cafes are 'cash' businesses.
Good luck and if you need any help/advice just ask !

-Marc

[pmcom]

Wow,

Thanks for all your feedback guys. Your thoughts have given me a lot things to consider further.

Yes it is true, it is nearly impossible to start a cafe from scratch as little as 50K but on the other hand it is also too optimistic to be able to purchase a well established cafe with the same amount.

My first thought was to purchase a rundown cafe and turn it back around by adding some fresh ideas to the food and the set up which not yet common besides as always, location, location, location are the first three important things to consider for a cafe.

Those ideas are still being searched. Do you think it is a good idea to serve a specialty coffee? I got the idea from this article. Sorry if the article reflect too strong opinion.

Franchise looks like not a suitable idea for cafe about 50K as they already have well established name so their prices are also way above 200K mark both for new establishment and buying from previous franchisee.

[mcboom]

Serving good coffee is critical and could make or break your cafe !

[The Cafe Ninja]

Hi all, just to let you know that my book is now finished and available for purchase at my website.

[PlantationCoffee]

pmcom-

firstly congrats on venturing out into the cafe industry, it is most certainly a challenging yet very rewarding work.

I'd like you to think of a few things before you choose between franchise / independent. This is coming from me personally who has around 6 years experience in the industry and also now operate my own roasting & supply facility. what some of my experience has picked up for me is what you'l hear in the coming lines.

first identify where the location of your intended cafe fits into as there are a few different kinds of cafes

-mainstream take-away cafe - usually as good as a coffee cart serving coffee to office workers on their run in / morning tea break.

-food outlet + we sell coffee too - pushing more food to dine in and takeaway customers with coffee as a bonus and usually using mainstream coffee.

-boutique coffee place with nice food - office worker trade during the week with some people ordering lunch during the week and mainly there for saturday and sunday breakfast crowd where youl get packed out and make a name for yourself

The thing is if it fits you to have a franchise then by all means go by that
but if you really want to make a name for your self then my opinion is you need to gear yourself to be one of the boutique cafes.

Nifty little plates of food will be a must , but more importantly a seriously good supply of excellent coffee , there are suppliers out there but theyre not all the same. Id go with an independent roaster who can custom blend or provide you with boutique/specialty quality coffee , essentially this has to do with how well it is roasted (not how many tonns) and how freshly is it available ( not coming from a storage facility).
Then only can you combine this together as a great breakfast/lunch place with great coffee.

The second great advantage of being and independent boutique cafe is that repeat value of your customers is going to be a lot higher than if you were any other ordinary kind of outlet.Think of it this way - people coming into your place all the time because - your food is good , tasty ,not that expensive ; your coffee is superb.

This industry has moved far away from the old skool soap suds cuppocino's , instead this industry's very much focused on the fine art of latte art.

The demographic that take a deep interest in sipping on fine coffee and a tasty turkish ciabatta are the upper middle class bugoise , driving around in their stylish euro city-mobiles. Most importantly is that these guys mostly work at an office somewhere and are wealthy enough to spend a lot of money at the various cafes around town.

- i hope this helps you someway or other.

cheers
Shaf
Plantation Coffee Roasters
P.S. If you'd like some info in what to look for in good coffee and how to steam milk properly id be happy to advise.