So, you’re looking to buy a coffee shop. Well, you’re in good company. With over 400 million cups of coffee consumed every day in the United States, coffee shops have been springing up across the country for decades now. There are currently over 35,600 coffee shops in operation, and they collectively bring in over $45.4 billion annually.
However, it would be a mistake to assume that, just because coffee shops, in general, are popular, you can buy any coffee shop that happens to be for sale and you’re guaranteed to succeed. Just like any small business, there are a number of interconnected factors that determine success, and there’s always risk involved.
So, how do you choose the right coffee shop to buy? And, how do you set up your new coffee shop for success?
Are you the right person to own a coffee shop?
Before diving into how to choose the right coffee shop, let’s take a step back and ask an important foundational question: do you really want to own and operate a coffee shop of your own?
It’s important to be sure of the answer to this question because even a coffee shop with fantastic potential is unlikely to succeed if the owner is unable or unwilling to give it the support it needs. That’s really the case with any business: if the owner isn’t passionate enough about running the business, it becomes just another job. Then, because running a coffee shop requires so much time and energy, it becomes a chore to keep it going.
Don’t put yourself in that position. Make sure you’re up for the challenge first.
Traits that lead to success
While running a coffee shop doesn’t require an advanced degree or decades of experience in a specialized skill, the following traits will make it far easier to succeed:
- Experience in fast-paced retail and/or food service
- Advanced customer service skills
- The ability to manage and train employees in both “hard” and “soft” skills
- Scheduling acumen
- Basic accounting skills
- Negotiating skills
- A real love for coffee and the cafe culture
If you don’t personally possess all these skills, or they’re not your forte, that doesn’t immediately mean your dream of owning a coffee shop can’t come true. But, you’ll definitely need to hire or partner with one or more people you can rely on to fill those gaps.
What to look for in a coffee shop for sale
If you’re certain you want to buy a coffee shop, then you’ll want to narrow down which of the available shops is best suited to your unique circumstances and goals, and which of those are most likely to succeed.
For a coffee shop, location is one of the most important factors to consider. The bulk of your business will likely come from early morning commuters heading to work, so it’s vital that your coffee shop is set up where you’re going to get plenty of vehicle and/or foot traffic.
Beyond that, it’s also important to look ahead and make sure that local laws and regulations are likely to remain in favor of operating your coffee shop in that location. Is the neighborhood slated for rezoning or other major changes? Is there any reason to believe traffic flow may change significantly in the future? Is the area growing or shrinking economically?
Obviously, no business will survive without customers. For a coffee shop, the real lifeblood of the business is a group of repeat customers who come back day after day and who advocate for the shop to their friends.
From the outside looking in, does it appear the shop has a solid base of loyal, repeat customers that visit on a daily or near-daily basis? Do they serve a demographic you’d like to continue serving, or are you picturing a different crowd? Is there a lot of potential for growth?
As noted, there are a lot of coffee shops. Starbucks — one of the largest and fastest-growing franchises in operation today — is just one of the competitors you need to be concerned with. And, since most of your core customers are bound to be commuters, they’re in a hurry and will tend to stop wherever is most convenient to them.
Are there other coffee shops uncomfortably close to the shop’s location? Are there likely to be more coming in the near future? Has the current owner done a good job of differentiating the shop from competitors? And, if not, is there potential to do so, or would it be difficult or impossible to do?
These days, a restaurant lives or dies by online reviews. So, while a previous owner’s poor reputation online doesn’t automatically curse the location to failure, it can mean a significant effort and investment in rebranding and building a new, better reputation from scratch.
If all of these factors seem positive, you may very well have found the coffee shop you want to buy. But, don’t sign on the dotted line just yet!
Bring together your team of experts
Before you dive any deeper into the buying process, you do well to call on a team of experts who can help ensure you’re making the best decision and can guide you through the sometimes complex business buying process.
When considering buying a coffee shop, this team should include:
- Business broker - The broker’s expertise lies in locating and evaluating business opportunities, and negotiating favorable arrangements for the sale. Try to find a broker who is familiar with the local economy in the area where you’d like to buy, and preferably, who has experience with small food service businesses.
- Accountant - An accountant can be an invaluable aid during the due diligence stage, and they can help the broker establish an accurate valuation for the business so you’re in the best position to negotiate effectively.
- Attorney - It’s always important to have a qualified lawyer review any contracts and documents involved in a large transaction. But, if you can have an attorney involved earlier in the process, you can also rely on their advice regarding legal matters during due diligence and the negotiation of the contract.
Doing your due diligence
Once you’ve settled on a specific coffee shop you’d like to buy, you and your team of experts need to thoroughly research the business’s financial, legal, personnel, and other records as well as any other factors that you can only access once the current owner is aware of your interest in their property. This process is known as due diligence.
Arguably the most important aspect of due diligence is a thorough review of the coffee shop’s financial records. This gives you the best possible view of whether or not this particular shop is worth buying, and goes a long way in determining what is a reasonable purchase price once negotiations begin.
Work with your attorney to determine the coffee shop’s routine cash flow and profit margin. Review the historic costs of supplies, payroll, and other overhead. Take a look at what they’ve spent in the past on marketing, loyalty programs and the like, and compare that to the results they seem to have gained from those investments. Track any seasonal or day-to-day trends that can either be better exploited or better managed to improve profitability.
If there are any serious structural issues with the building itself or foreseeable problems with any equipment that will be included in the sale, you’ll want to know this ahead of time so you can either factor it into your negotiations or walk away.
Work with inspectors, if necessary, to thoroughly investigate the physical property, any equipment within, and any surrounding areas such as walkways and parking spaces. You’re looking for any indication of damage, wear-and-tear, or required replacements or repairs in the near future.
Work with your attorney to verify any loans, liens, or zoning restrictions are clear and up-to-date. Review all the warranties, safety inspection records, leases, and any other legal requirements regarding the equipment you’ll be using every day to serve customers. And, be mindful of any cleanliness concerns or neglect of routine maintenance.
Trained and experienced staff can be a huge plus for a brand-new owner, especially in a customer service-oriented business like running a coffee shop. Take this opportunity to determine if the current staff is transitioning with the change of ownership. If so, take time during the due diligence period to review each staff member’s records and current work so you can decide if you’ll want them on your team post-sale or not.
Does this sound like the right fit for you? If so, let your research begin here at businessesforsale.com. Offering a one-stop shop for aspiring entrepreneurs to search, find, and close their next business deal. Browse through our extensive marketplace of businesses for sale, and purchase your own coffee shop.