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  • #1188176
    Oink
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    I have done almost exactly what you are setting out to do :)

    As another person said, consider starting from scratch, that’s what I did and have spent way way less than $200k. My café is in a suburban/residential area that has good demographics (high median house price, mix of retirees who’ve paid their house off and young professional couples with young families). I took over a shop that had been vacant for three years… As a result my rent is approx 3% of my turnover (yes you read that right;). I had to do the expensive stuff (grease-trap, full kitchen, plumbing) and I’ve still spent less than $100k… probably less than $75k….

    Yes its a bigger gamble as the business is not established, however the reward can be much greater. Coffee is huge business as you obviously know, but if you can find a newly gentrified area or an older area without an existing café you could really kill it:)

    My advice is to play to your strengths, hire people who can fill your gaps in knowledge. Coming from a professional background (as I did) you’ll be amazed by the experienced and passionate staff you can find in hospitality, will to work for what is (comparatively) low pay.

    My other advice is keep your wife working… having a wage coming in will really keep the pressure off.

    Happy to answer any questions you have…

    #1188177
    cafe_guy
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    Wow, Oink :) thanks for the great advice and encouragement as well, from someone with first hand experience and with a similar story to mine.

    Starting from scratch certainly does open the options right up (there are only a limited number of cafes for sale in areas where I’d like to be, but more than a few shops for lease…). 3% of turnover for rent would’ve been a huge head start for you, and ongoing if they don’t hike it unfairly. I’m guessing you have that covered in the agreement.

    The $200k figure I mentioned was just a rough upper limit, I plan to stop making excuses and get stuck into a business plan. The reason I’ve held off is that I believe if I’m buying an existing cafe the plan should be based on its particulars, and of course I haven’t found ‘the one’ yet. So to me it’s a bit of a catch-22. If I were to start fresh, then that’s a different story.

    Appreciate the offer of asking questions, you can be sure I will.

    #1188178
    chopesandbro
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    great thread.

    does any one know if a 5 year lease is the industry norm ?

    I’ve been offered a few and said no. Now I’m getting follow up that they may be prepared to offer me 3 x 3

    It’s really hardball dealing with agents over leases. Than strangely when I can talk with the owner its all suddenly more accommodating.

    Is this just me or does everyone go thu this ?

    #1188179
    Oink
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    I’m not sure what is typical but my lease is a 5 + 5 :)

    How are you going café_guy?

    #1188180
    chopesandbro
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    5 years is industry standard as it protect the landlord fully.

    3 x3 is (imo) best for business. ..but not the landlord.

    Its a minefield …given rent is the number one overhead.

    Its amazing how much u negotiate down a lease….which to me sets off alarm bells at just how much your agent/ landlord was quite happy to rip u off to start with and if given that.

    Are they ppl I want to deal business with for half a decade with !?!

    #1188181
    cafe_guy
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    Oink, post: 221979, member: 55922 wrote:
    I’m not sure what is typical but my lease is a 5 + 5 :)

    How are you going café_guy?

    Hi! Sorry for the delay. Things are stalled, but not completely stopped. I’ve emailed agents for info on for-sale cafes and so far received nothing but “it’s already sold” on one of them. BTW can you please explain the lease terminology, though, e.g. 5+5, 3×3, etc. :)

    edit: Also, I had pretty much ruled out ‘industrial’ cafes as not being “right” for me. I didn’t want so much a take-away place where you could grab a coffee, but does anyone have pros/cons? There are several for sale nearby between $35k-$70k..

    #1188182
    Oink
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    So for mine, I got a 5 year lease with an option for an additional 5 years. I guess it means that I can get out at 5 years if I want, but if I want to continue they can’t give it away… There is also some stipulation in there around a rent review at the 5 year mark (I also have increments built in) I can’t remember the exact detail though.

    #1188183
    NickKaro
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    5 + 5 means it is a 5 year lease with an option for an additional 5 years (generally you will need to exercise the option within a few months of the end of the initial 5 year lease). You can always pack up and walk away at the end of the 5 year period, but it provides some certainty that you will have the lease for at least X period of time if you exercise the option.

    3 x 3 is similar, except you have an option for an additional 3 years by the end of year 3 and then year 6.

    For my clients we generally attempt to negotiate as many options as possible to provide certainty that the goodwill built up and expense being put into the place is worthwhile.

    Regards
    Nick

    #1188184
    chopesandbro
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    • Total posts: 23
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    I’m negotiating the commercial lease minefield atm.

    Ive read several now. But once I say no way its amazing how quick they can review and change a deal that was at first there best deal eva !

    A lot want all your financial earnings details too.

    For me that’s not on …I just walk away when I read that.

    All the leases are geared to favour the owner not the business.

    And thats ok…if you look around. ..plenty of empty shops. In fact thousands to choose from!

    The right deal will happen…so don’t worry about it taking time.

    #1188185
    cafe_guy
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    NickKaro, post: 222127, member: 12942 wrote:
    5 + 5 means it is a 5 year lease with an option for an additional 5 years (generally you will need to exercise the option within a few months of the end of the initial 5 year lease). You can always pack up and walk away at the end of the 5 year period, but it provides some certainty that you will have the lease for at least X period of time if you exercise the option.

    3 x 3 is similar, except you have an option for an additional 3 years by the end of year 3 and then year 6.

    For my clients we generally attempt to negotiate as many options as possible to provide certainty that the goodwill built up and expense being put into the place is worthwhile.

    Regards
    Nick

    Thanks for the info. 5 years sounds way too long, but I can see why landlords would push for longer periods.

    chopesandbro who exactly wants your earnings info? And yes you’re right there seem to be plenty of businesses, in my case cafes, up for sale, many of them claiming urgency in the sale.. I’m wondering how many are legit, and also how many of the urgent sales are for ‘family reasons’ as they claim :)

    #1188186
    NickKaro
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    Whilst it may seem to protect the landlord – the main reason 5 year leases became the norm is to protect the tenant from carrying out fit-outs and bringing lots of trade, only to get kicked out or rent increased on new terms being negotiated.

    Tenants that wish to end a lease early are often not pursued if the premises can be re-let reasonably quickly and if not, compensation is generally not for the whole lease term but rather the time it takes to re-let.

    Obviously care should be taken but the point being, 5 years is the norm and it isn’t really for the landlord’s benefit.

    #1188187
    jamin
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    I agree with Nick. It’s all about resale value, a longer lease is more valuable to a buyer when the time comes to sell. No time left on lease = no value

    an ideal cafe lease is usually a longer lease broken down into options (like 3 x 3 x 3)…but Nick is more qualified than me to comment on that…

    #1188188
    chopesandbro
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    cafe_guy, post: 222135, member: 70754 wrote:
    chopesandbro who exactly wants your earnings info?

    You can often be asked to agree to provide your weekly earnings, monthly balance sheets and your annual balance sheets to your land lord or managing agent in a commercial lease.

    I’ve also read leases where the land lord wanted a monthly bank account statement and required me to provide monthly evidence of a certain amount money being readily available at all times ( in this case it was 30k).

    Unsurprisingly, that shop remains empty.

    everyone’s business is different. A 3x3x3 lease would be ideal for myself. In fact I would be prepared to give away other requirements .

    Parking rights are another drama to be considered in leases. I was close to signing one last week till I sought clarification about parking spaces.

    I was told all spots belonged to adjoining business and my customers could and would be towed for parking out side.

    Walked away from that lease too :)

    actually I’m now looking at timing and thinking I’m lucky not to have signed up as a few key economy bench marks has me thinking Australia might not be a great place to open a new business next year.

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