buying a business

refuzion · 3 Jul 2009 at 21:10

My family brought a high street cafe in 06. Biggest mistake we ever made. Few pointers though:

1) Go through the accounts with some one who knows what they're talking about.
2) Food will cost more than you think it will.
3) If it is a builders/greasy spoon/'can i have a full english love?' type of cafe, your customers will be very fickle and won't respond to change well. We changed our menus so they were clearer and actually cheaper only to receive complaint after complaint.
4) Realistically, you would have to work in the business day-to-day to turn and sort of reward for yourself.

Just a couple of things that came to mind. If you'd like any more info let me know.

frosty03 · 3 Jul 2009 at 22:32

Dont buy yourself a job. You want a business, not a job.

Why are they selling a seemingly profitable business? It is either not making as much, or making a loss, and is reflected in the price. OR There is something you dont know about, eg a starbucks opening up next door 3 months from now....

semi-pro waster · 3 Jul 2009 at 22:53

I'd be asking several questions before getting any closer. Why they are selling the business? What are the accounts like? How have they calculated the goodwill? Is there planning permission for something else near either competing with this business or that will make it simply irrelevant in the near future?

And then a few questions of yourself personally: do you have the knowledge to run this cafe? If you are going to work there then are you appropriately trained in food hygiene etc? Are you happy to work (very) long hours to make it profitable? Is this something you want to do? Buying a business isn't something that is usually advisable to do on a whim.

Finally you will need insurance and you may want to look at making the business a limited company (even if you are the owner and sole employee) for the simple reason that you will have your liability limited to the amount invested rather than the unlimited personal liability of a sole trader or the joint and several liability of a partnership. However get advice properly on this point as it affects your tax situation as well as the legal issues.

Anewbe4u · 3 Jul 2009 at 22:57

refuzion said:
My family brought a high street cafe in 06. Biggest mistake we ever made. Few pointers though:

1) Go through the accounts with some one who knows what they're talking about.
2) Food will cost more than you think it will.
3) If it is a builders/greasy spoon/'can i have a full english love?' type of cafe, your customers will be very fickle and won't respond to change well. We changed our menus so they were clearer and actually cheaper only to receive complaint after complaint.
4) Realistically, you would have to work in the business day-to-day to turn and sort of reward for yourself.

Just a couple of things that came to mind. If you'd like any more info let me know.

Why was it such a huge mistake?

Duff-Man · 3 Jul 2009 at 22:57

AHarvey said:
Summary

Asking price:
£29,950

Turnover:
£85,395

Net profit:
£67,263

Employees:
run by husband & wife team with casual assistants on Wednesday & Saturday

Err... That doesn't add up.

Turnover = £85,400
Rent + rates = £15,200
... leaving £70,200

Net profit £67,250 so that leaves only £2950 unaccounted for.

...So, they pay for their gas, water, electricity, staff and of course FOOD costs with, what? £2950 per year? I don't think so. Even if you ignore utilities and staff costs and assume that the discrepency is only due to the cost of food, do you really think that a cafe can sell food with a 2900% markup?!

Get a professional to have a look at the books; there's no WAY a profitable business would sold for less than 6 months profit.

Duff-Man · 3 Jul 2009 at 23:00

AHarvey said:
Summary

Asking price:
£29,950

Turnover:
£85,395

Net profit:
£67,263

Employees:
run by husband & wife team with casual assistants on Wednesday & Saturday

Err... That doesn't add up.

Turnover = £85,400
Rent + rates = £15,200
... leaving £70,200

Profit is £67,250, so that leaves only £2950 unaccounted for.

...So, they pay for their gas, water, electricity, staff and of course FOOD costs with, what? £2950 per year? I don't think so. Even if you ignore utilities and staff costs and assume that the discrepency is only due to the cost of food, do you really think that a cafe can sell food with a 2900% markup?!

Get a professional to have a look at the books; there's no WAY a profitable business would sold for less than 6 months profit.

Cybermyk · 3 Jul 2009 at 23:09

First thing I'd do is stand near the front of the cafe for a day and speak to the locals about it. Get some ideas about what they'd want to see on the menu while you're there.

Look for local suppliers etc. then I'd look at the books.

Housey · 3 Jul 2009 at 23:10

Based on the numbers outlined it doesn't stack up and businesses of this nature are more often than not an utter can of worms, not least when you staff them and have to deal with tills, sickness, mates rates and all the other crap that occurs when you involve low paid employees. The overheads will be much more than outlined, there are more than likely hidden issues (hygiene, kitchen kit, environmentals etc.) and probably a number of things you are not being told. Currently I wouldn't invest in this sort of business if I was using someone else’s funding let alone own. Banks at the moment put businesses of this nature in their "avoid at all costs" box too, so if you are seeking funding at this level you'll more than likely fail.

With your obvious lack of experience and in the current climate I would suggest you park the idea or take it as a good opportunity to gain knowledge withouth putting capital down this time around.

sidthesexist · 4 Jul 2009 at 06:25

Jonny69 said:
Business rate here is £11K PA for a medium sized shop according to a shop owner I was talking to, one of the highest in the country. Don't know where you are but £1K is pretty low. That figure was from ~2006 too.

AHarvey said:
lease has 5 years remaining, rates of £1648 (small business rate relief means they pay only £1099) a year.

Doctor_Zhivago · 4 Jul 2009 at 06:38

AHarvey said:
and its the only one in a busy market town.

What is the name of this market town?

osc89er · 4 Jul 2009 at 09:57

Listen to Duff man and Housey and everyone else

A Chinese takeaway in Britain would be delighted to take 70% gross profit ( turnover minus materials). The net profit would then be much lower due to rent and taxes and staff.

This cafe is claiming net profit of 78%. They are lying.