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  • #966607
    Aikibizcoach
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    After reading a couple of recent forum posts relating to starting a café, I invited one of my financial planning clients who is also a café owner to talk to me about the good and the bad of owning and operating a café. She has operated two cafes at different times over the past 15 years – the first in a Brisbane suburban shopping centre and the second in a commercial / industrial precinct in Tweed Heads.

    Her general comment about all cafés is that it’s a labour intensive business. For her it meant 12-hour days, five and a half days a week, plus bookwork and paying bills. Intense competition kept prices and margins fairly low, so selling in volume and controlling costs became very important. Customers expected prompt service, impeccable hygiene, high convenience and visible value for money in a market where their ‘average spend’ was only a few dollars. Customers tend to buy as individuals at a café. They don’t buy as families as they do at fast food outlets. So there are more transactions to process for each hundred dollars of revenue earned.

    Customer flow was not even throughout the day. It was busy at breakfast and morning tea with the biggest peak at lunch. Insufficient staff at peak times meant queues, hurried service, short cuts, a strain on quality and dissatisfied customers.

    The highest gross margin was on food prepared in-house e.g. sandwiches but such food preparation was labour intensive. The other problem was portion control and wastage. Every extra slice of ham on a sandwich or piece of beetroot dropped on the floor was profit gone.

    She ran her first café as a partnership with her daughter and it worked well as a family business. They employed a casual when needed but kept their external wage bill to an absolute minimum. She had the opportunity to vary the menu and introduce some higher gross profit food lines. Importantly, there was no delivery service attached to the café.

    With the second café she inherited a delivery service. With her daughter now married, she ran this operation by herself with one fulltime staff member. In contrast to the Brisbane café, she made very little money. She cited several major reasons for this. Firstly, it wasn’t a family business, hence her wages bill including on-costs was too high – her employee was making more than she was. Secondly, gross profit was significantly eroded because her employee, in a genuine attempt to please customers, always exceeded the standard portions by e.g. giving an extra spoon of pasta and putting too much filling in sandwiches. Thirdly, the delivery service ran at a loss. The mistake she made was not to charge for delivery and not to impose a minimum order amount. As a result, she found herself driving 20 minutes round trip to deliver a bottle of milk and a newspaper (both notoriously low profit items). Finally, she had almost no opportunity to vary the menu. In a commercial / industrial precinct, demand was high and inflexible for processed food e.g. pies, sausage rolls, chips and cakes – all supplier purchased and therefore low gross profit.

    Licensing varies from state to state and, in all cases, local Council regulations regarding health and food safety must be complied with. A cost that she didn’t contemplate at the beginning was the high cost of power needed for cooking, heating and refrigeration. Buying old equipment to set up cheaply proved in hindsight to be a false saving. Newer, energy efficient equipment would have delivered significant savings in power costs over time.

    Her final word to anyone contemplating this business is to check out the competition thoroughly. Competitors include all cafes, all coffee shops, franchised fast food outlets with café facilities, bookshops with coffee facilities and mobile food vans that are found in numbers on every commercial / industrial precinct.

    Her story is a reality check for those contemplating a café startup. I am grateful to her for her candidness.
    Best wishes
    Gary

    Gary Weigh, Brisbane-based
    Business Coach, Financial Planner and Aikido Enthusiast
    For more free biz information and tips, visit my site at
    http://www.aikido-secrets-to-calm-success.com

    #1019663
    FletcherTax
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    Gary, thank you so much for sharing this with us. I think all businesses in different industries can value from this very candid post.

    #1019664
    Jake@EmroyPrint
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    Great post Gary … Very informative!

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