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  • #986410
    NPK
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    Hi All

    I’am new to this site, and just after a bit of advice on buying an existing cafe.

    I’am currently looking at a cafe in Melbourne cbd underneath a corporate building, sale price of 59k.

    It has 2 other cafe near it 3min walking distance of this cafe where they sell alcohol/lunch has commercial kitchen etc, whereas this is more primarily selling coffee with muffins, small pre-cooked lunch(does not have a commercial kitchen)

    The broker claim they are doing 8k takings and selling around 25kg coffee per week. Mon-Fri(rent is 2k p/w)

    My main concern is they don’t have any financials to prove they are doing the takings they claim, i have been looking at few cafe’s and even the brokers claim any cafe under 100k i will not find any accurate financials.

    My question is if this is the case how do i know what the business is doing other than taking the brokers word for it?

    Any tips?? I understand it is a cash business but there has to be some way to find out how much the business is really doing
    I have a meeting with the owner this week, your feedback would be hugely appreciated.

    Regards
    Nidhin

    #1157642
    No Limits
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    2k for rent is high considering only 8k “suggested” takings.
    Wages would make up a hefty chunk of expenses too.
    How is there any profit left if only taking in 8k, I assume weekly?
    Other costs like insurance, marketing, packaging, rising suppliers costs for food products will add up.

    All you can do is look at their figures and then discount it by a comfortable margin, and then see if the reward is worth the risk.

    #1157643
    akagrp
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    I find one of the best ways to determine what the average takings are of the cafe is as follows

    1. Ask to see at least 12 months of Supplier Invoices for Coffee & Milk (from that information you should be able to determine what the min traffic is for cafe, as these also allow you to see how frequent they are ordering, if they are a busy cafe delivery of coffee and milk should be regular

    2. Copies of BAS’s for 2 years, see if income declared to ATO is declining from quarter to quarter

    3. Get a friend or family to visit and stay at cafe for a an hour during busy time to see foot traffic – do same at competition

    4. Review the lease – recommend to have a lawyer read it if you are happy to move to next step

    At the end of the day the industry has to realise if they cannot provide the supporting records for the asking price that they will not get it. As most people purchasing a business will seek finance and banks are not going to lend on “this is what I make”

    #1157644
    The Hobbit
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    Ask for BAS returns
    Ask to see income tax returns, cafe and personal.
    Don’t believe anything that is not declared.
    If they won’t supply figures, run do not look back

    #1157645
    Dave Gillen – Former FS Concierge
    Keymaster
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    Ask for BAS returns
    Ask to see income tax returns, cafe and personal.
    Don’t believe anything that is not declared.
    If they won’t supply figures, run do not look back

    Absolutely follow the advice of The Hobbit.

    If you must push on, use their lack of records to seriously negotiate down the price. Tell them that “every single person I’ve spoken to has told me to run away from this deal, and that any other buyers will too without those records, so lower the price dramatically or be stuck with no buyers”.

    Also, do not buy the business until you’ve done this:
    Spend a week in the cafe. A full week. Not an hour. You can then keep a pretty good tally of the takings for the week. Plus, even if the takings weren’t in question you’re staking a lot on this purchase, so if only visiting a few times, you know virtually nothing about the business.

    This way you can get a feel for what the day to day running is like, who your customers are, what the problems are, ask he customers what they like/hate about the place, when are the busiest times, which are the good staff, who makes the best coffee, etc, etc. You can build up a full playbook and will learn more about the business than you will from the books.

    If this is a good business, the seller will welcome you to spend the time there. If they hesitate, or refuse, then they are telling you to your face that it’s a bum deal.

    Hope that helps. :)

    Dave

    #1157646
    Tony Manto
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    Run… run as fast as you can!!!

    Seriously, if you can’t get some type off paperwork, I would not buy it….

    Yes you can make an assumption based on supplier invoice.

    You could also make the condition of purchase that you work in there for two to three months before handing over any money. This way you can see for yourself.

    Bottom line, there are many other businesses you can buy that will show you their paper work.

    #1157647
    No Broker
    Member
    • Total posts: 18
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    NPK, post: 181801 wrote:
    Hi All

    I’am new to this site, and just after a bit of advice on buying an existing cafe.

    I’am currently looking at a cafe in Melbourne cbd underneath a corporate building, sale price of 59k.

    It has 2 other cafe near it 3min walking distance of this cafe where they sell alcohol/lunch has commercial kitchen etc, whereas this is more primarily selling coffee with muffins, small pre-cooked lunch(does not have a commercial kitchen)

    The broker claim they are doing 8k takings and selling around 25kg coffee per week. Mon-Fri(rent is 2k p/w)

    My main concern is they don’t have any financials to prove they are doing the takings they claim, i have been looking at few cafe’s and even the brokers claim any cafe under 100k i will not find any accurate financials.

    My question is if this is the case how do i know what the business is doing other than taking the brokers word for it?

    Any tips?? I understand it is a cash business but there has to be some way to find out how much the business is really doing
    I have a meeting with the owner this week, your feedback would be hugely appreciated.

    Regards
    Nidhin

    Hi Nidhin,

    I would personally be asking to see his BAS statements for the last 2 finical years, also by law your broker should be providing you with a section 52 which is
    like a profit and loss statement put together by the vendors accountant.
    On the figures you quoted on this forum i would not go anywhere near a cafe taking 8k with rent of 2k a week i can assure you, you will be making a mistake.

    lets break it down 8k takings a week you work on 100% mark up so automatically 50% of your takings will go back in to stock that will leave you 4k. pay your rent then your left with 2k a week to pay wages, power, gas, overheads, then your left in the minus. DON”T TRUST BROKERS.

    #1157648
    StevenBettles
    Member
    • Total posts: 3
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    Hi Nidhin.

    If they don’t provide a Profit & Loss and a Section 52 (Vendor Statement), I agree run a mile away.

    Regards
    Steven Bettles

    NPK, post: 181801 wrote:
    Hi All

    I’am new to this site, and just after a bit of advice on buying an existing cafe.

    I’am currently looking at a cafe in Melbourne cbd underneath a corporate building, sale price of 59k.

    It has 2 other cafe near it 3min walking distance of this cafe where they sell alcohol/lunch has commercial kitchen etc, whereas this is more primarily selling coffee with muffins, small pre-cooked lunch(does not have a commercial kitchen)

    The broker claim they are doing 8k takings and selling around 25kg coffee per week. Mon-Fri(rent is 2k p/w)

    My main concern is they don’t have any financials to prove they are doing the takings they claim, i have been looking at few cafe’s and even the brokers claim any cafe under 100k i will not find any accurate financials.

    My question is if this is the case how do i know what the business is doing other than taking the brokers word for it?

    Any tips?? I understand it is a cash business but there has to be some way to find out how much the business is really doing
    I have a meeting with the owner this week, your feedback would be hugely appreciated.

    Regards
    Nidhin

    #1157649
    No Limits
    Member
    • Total posts: 44
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    If you do go to the meeting, it would be good to get feedback on what their claimed figures are.
    Ask the important figures and then calculate it later to see if it adds up.
    Is the business even claiming to be making money?
    Then again, for a sale price of 59k, you can’r really expect too much….

    Find out the lease details and history, very important.

    #1157650
    DavidThomas
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    • Total posts: 265
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    Agree with everyone on this, Run away.

    Even if they could supply detailed financials, I’d still be extremely cautious. Running a cafe is probably the hardest small business in the world and will require pretty much all your awake hours every day.

    #1157651
    Jake@EmroyPrint
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    I agree completely with what akagrp has mentioned. The best way to determine this is to look at what they are ordering from their suppliers.

    It’s very common for businesses in the hospitality industry not to declare their entire takings (my family used to own 2 restaurants).

    However, the thing they need to understand though (and which is why we declared all takings) is even if you are then able to unlawfully reduce your tax, you are going to lose out when you try to sell the business.

    So bottom line is, if they haven’t declared everything, their business is never going to be worth as much for selling. So that will give you plenty of leverage to negotiate them down on price.

    As for running a cafe in general, you will most likely work with reduced staff for the first year or few, to help reduce the wage burden. So be prepared to work incredibly long days, have absolutely no social life and spend any free time you have sleeping!

    #1157652
    No Limits
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    • Total posts: 44
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    DavidThomas, post: 181979 wrote:
    Agree with everyone on this, Run away.

    Even if they could supply detailed financials, I’d still be extremely cautious. Running a cafe is probably the hardest small business in the world and will require pretty much all your awake hours every day.

    Jake@EmroyPrint, post: 182046 wrote:
    As for running a cafe in general, you will most likely work with reduced staff for the first year or few, to help reduce the wage burden. So be prepared to work incredibly long days, have absolutely no social life and spend any free time you have sleeping!

    And you’re paying for the “privilege” to do this?
    This is the closest thing to insanity or self harm there is.

    Check out the alternatives first if it’s financial rewards you are after.

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