Researching existing coffee shop/roaster - need opinions

[JavaJunkie]

Tell me what you guys think about this business that I've been looking into. They are a coffee shop and also roast their own coffee on-site. Here are the numbers I was given:

In business since 1992
1 Full-Time; 10 Part-Time employees
Revenue: $441,675
Cost of Sales: $192,851
Operating Expenses: $229,680
Cash Flow: $69,444
FF&E: $44,000
Inventory: $1,000
Asking price: $169,000 - downpayment of $59,000 with seller to finance the rest at 8.5% for 3 years with 10-year amortization.
Lease terms: expires June, 2008 with two three-year options.

This place was rated one out of the nine best coffee shops in the city by our local newspaper/critic.

Does this seem to merit looking into further? Does the price seem a little high to you guys?

The reason listed for selling is "other business interests" - why would anyone sell a profitable business?

 

[ElPugDiablo]

You need to look into why COGS is so high especially since they roast themselves. If you can lower it to the industry's average of about 33%, then it is very worthwhile to pursuit this further. How much is rent? The lease is a bit on the short side, can you re-negotiate the lease with landlord.

Best of lucks.

 

[JavaJunkie]

Rent is $1,256 per month for 1,400 square feet. I should have mentioned that this isn't just a standard "coffee shop" - apparently they have a pretty extensive menu. They serve breakfast and lunch. Their food has been given a lot of high reviews. Could that be why COGS is so high?

 

[ElPugDiablo]

Rent is $1,256 per month for 1,400 square feet. I should have mentioned that this isn't just a standard "coffee shop" - apparently they have a pretty extensive menu. They serve breakfast and lunch. Their food has been given a lot of high reviews. Could that be why COGS is so high?

Even with food, the cost is still too high. Do you know how much is annual wages and salary? Rent is pretty good. Can you get tax returns for the last 3 to 5 years. You need to know if the business is trending up, down or even, and why. You also need to know how did they come up with the 69k cash flow.

Oh, what kind of roaster?

 

[John P]

I agree. COGS is way out of line. I roast very premium coffees here (CoE, Best of, etc.) and I still run at about 31% or better.

Never believe any numbers until you see the paperwork. I would ask for past 5 years tax returns, and go over them with a fine toothed accountant before giving a seconds more thought to it.

I wouldn't buy a shop with a roaster unless you are already an experienced roaster. Top 5 anything doesn't mean much on an "in town" thing.
How are they recognized by their peers nationally?

$159K business generally isn't worth buying. I'd be extremely skeptical.

 

[crema123]

Hello. This is interesting - how is COGS calculated in this case? I always add Direct Labor into the COGS, however many people do not. I suspect this guy is putting DL into COGS???

If he's running with COGS at ~45% including direct labor, then I don't think that's a bad number. Of course if not, then yes, there is something very strange going on.

 

[ElPugDiablo]

If direct labor was added to COGS, then I think operation expenses of $230K is too high.

 

[John P]

Also is Cash Flow cumulative? Is this monthly or yearly? Or is it over several years? If cumulative is it really only $5750 per month? Or is there $69K carryover cashflow from one year to next, which would leave $130K++ after 2 years?What is actual ending balance of their monthly accounts?