Buying Shop - What to Ask

billagirly

New member
Mar 29, 2005
113
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DFW, Texas
The owner of a local coffee shop (and somewhat of a friend of mine) casually asked me if I was interested in buying his shop. He explained that while the shop is on the track to being profitable maybe by fall, definitely by winter, he just absolutely does not have the money to last that long. It's right by a college, and summers are rough due to the students being elsewhere for summer. I've seen how difficult it is to survive at this location during the warmer months, as it has been open for two or three summers, now.

He told me a dollar amount, and it's fairly large. However, it comes AS IS - equipment, roaster, inventory, decor, roasting lessons, even EMPLOYEES - including the owner and his wife, who makes the pastries - and a barista competition winner - So I am planning on arranging a meeting with him pretty soon to ask more questions. I need some help coming up with the right questions to ask, though, because I've got to present this seemingly astronomical amount to my potential investor (we'll call him "Dad") and be able to back up WHY that amount will be worth it for us in the end... so long as it is, which is what I'm trying to deduce with the questions.

So... long story short (maybe I should have done this in the beginning!), what do you ask the owner of a coffee shop you are interested in buying - aside from the obvious overhead questions?
 

AJPRATT

New member
Mar 7, 2007
382
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Atlantic City, NJ
I would ask him about tax returns. I know he is a friend, but don't take anyone's word for it. Only go by what is in writing, what s documented.

Why is he selling? I know what he told you, but what's the real reason? I would also wonder why he is having cash flow issues... is it the business or bad money handling, or what? Hmmm... And remember, EVERYTHING is negotiable and no one ever said that you have to come in at asking price. Maybe he would be willing to do a lease to purchase deal, so you can get a good idea of the operation. Are there code issues or structural issues? DOes it need any work? If it does you could negotiate the price down. I would google "commercial real estate" and there are a bunch of sites that offer good insight.

I would be curious to see what the more seasoned coffee professionals on this site offer.
 

cafemakers

New member
Nov 3, 2004
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billagirly said:
He explained that while the shop is on the track to being profitable maybe by fall, definitely by winter, he just absolutely does not have the money to last that long.

It's losing money and the owner is asking a high price? Time is on your side while you do your homework; money-bleeding businesses get cheaper with time. You might want to look at these previous threads discussing the same topic:

http://www.coffeeforums.com/viewtopic.p ... ght=buying

and

http://www.coffeeforums.com/viewtopic.p ... ght=buying

As I mentioned in the thread immediately above, a "shine and polish" does not necessarily ensure that you can turn an unprofitable business into a winning one. In 2-3 years, that business should be operating at its full sales potential; a few more months will not make any difference, so don't expect any miraculous turnaround in the financial condition.

Unless the shop happens to be one of those rare locations that is a "diamond in the rough" - a situation where despite an ideal location and solid financial/consumer foundation, the business has been so badly mismanaged it cannot turn a profit - I would stay away. The convenience of purchasing a completed and operating shop is not worth the expense of one that has been assembled with irreversible flaws.

Also, what's with the owner and wife wanting a job? It's like saying "we're losing our life's savings on this lousy investment, but it sure would be nice to just work here." Do you really want to take the advice of these business failures? If you decide to move forward with the acquisition, boot them out the door. Their ideas have not worked and you don't want them influencing you or the staff.

I'd probably steer clear of the whole mess (based on the little information available); but in the event that you want to use it as an opportunity to pick up a functioning business cheap and then go through all of the trouble to rebuild it into something profitable, you're holding all of the leverage in the negotiation to get what you want.

Good luck,

Andrew
 

morrisn

New member
Mar 27, 2006
126
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How have they structured their asking price, if it is not making money it should basically be the cost of equipment which has now depreciated. Can you determine why it is not making money, is the overhead to high, how about salaries, or is it just not doing enough business. What could you do to turn it around, for example could you add ice cream or gelato to increase the summer months? I probably would not hire the husband and wife, if they are not making money they are not an asset and you are better off with some fresh faces and energy. You would probly be doing them a favor by buying the equipment and taking over the lease, although they are probably asking more, thats why they call it negotiating.
 

AJPRATT

New member
Mar 7, 2007
382
0
Atlantic City, NJ
I would also seek the help of an attorney. Your attorney is the one person in YOUR corner. Also, possibly the Small Business Development Center in your area which will help you figure out costs and if this is a viable thing for you.
 
Hi,

Think of this opportunity the same as if you were starting a coffee shop. The equipment and inventory are all you should be interested in. The barista winner is in the location and would be yours if your shop is good enough. I would not buy them. Offer only enough to cover the equipment and inventory, aboslutley nothing else. That is what I think.

I absolutely think this shop could make a profit. If the rent is too high that may be the problem, so check into that. College students are the very best demographic that you could hope for and if he is not making a profit it could be for several different reasons.

Does he have live venues? Does he have too many other offerings, like pasteries that are expensive?

If I hired any of his employees it would not be him or his wife, I really can't say exactly why but they are part of the problem not knowing more. The astronomical amount that he is asking is not RIGHT and you should only be bidding on his equipment and inventory and NOTHING else, he does not have anything else. He does not have profit, he does not have goodwill, and he does not have the ability to understand and make a profit.

Since he is a friend (somewhat) of yours you will be able to pick up a possilby prime business for a negotiable price. Negotiate only the equipment and inventory!!!!! That is all! The lease will be the same (hopefully) and the market will be the same, and the employees will be the same. (He cannot dictate what they do) so JUST buy the equipment and inventory. Research what they are worth and pay under what they cost!

If he is losing money there is a reason. Find out why and see if you can do it differently.

Let us know, PLEASE how it goes!!

Cheryl Ann
 
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billagirly

New member
Mar 29, 2005
113
0
DFW, Texas
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Just a quick update...

I have since received a vendor expenses summary, a P&L statement, and a payroll summary for the first quarter of 2007 and expect to get the "full versions" of these (from opening day through now) today or tomorrow.

I have also received more or less of a running business plan and some information about the surrounding area and its planned development.

My only concern right now is how much I would be paying for goodwill... I'm going to have to sit down and research the market value of each individual piece of equipment and take a guess (or get an estimate from the current owner) as to how much he has in inventory at the moment, and then go from there. I'm worried that the asking price is quite a bit more than the face value of the equipment, the inventory, and the furniture/decor/etc that comes with the purchase.
 
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