Our original idea has always been to start our coffee shop from square one with our own concept and vision… but there was the one time we almost bought a coffee shop. I had no idea where to start in the variables to consider with this decision, but for the short time period this option was available and running through our minds, I gathered some insight for future reference. These basic and introductory points are a good start before buying an existing coffee shop– thanks to the internet, lawyers, and other coffee shop owners.
Before You Buy A Coffee Shop…
Starting your due diligence with these steps in a timely manner will minimize the potential risk that can arise from such a big transaction. This involves being thorough and finding out as much as you can to minimize any unwanted surprises in the future.
1. Meet with the owner. Obviously, and this time is very telling. Ask them questions to get a picture of what you’re getting into; Cafe Ninja’s owner interview template is a place to start. Figure out if this business even matches your vision and business goals.
Be aware that even though the owner is probably honest and well-meaning, you’ll still need to see paperwork and proof of their success in accounting statements. Any selling owner would be prepared with their accounts for at least the previous year, and if they seem reluctant to let you do this, you should ask yourself whether you want to deal with them. Ask them for information on any outstanding debts, and what assets will be included. If there is anything you are unsure of, ask for clarification or ask for your accountant to be present when discussing the issue. Either way, it’s always a gamble buying an existing business because what an owner says, what’s on the tax returns, and what is reality may be completely different. Consulting a trained eye and lots of observing can come in handy.
2. Talk to their landlord. This is the first determinant of whether or not you’ll even be able to obtain the existing space. You’ll need their written consent to have the lease re-assigned, and you can refer to the existing lease to see if the current owner is able to sublease or transfer the lease. Contact the landlord to see what the possibilities and pitfalls are in regards to the lease, which will determine if you can even more forward.
3. Talk to the authorities with jurisdiction, as you would for due diligence buying a shop or building your own. Talk to the city to make sure you’re good to go with permitting. It’s also a good idea to have your health department look at the location before you even sign an agreement with the owner, to make sure there aren’t costly changes you’ll be responsible for to be up to the current code. There could be a lot of risks involved, so talk to each of these authorities to make sure you’re on the right track.
4. Talk to your lawyer to gain insight on any steps you should take before you transfer the lease. If there are red flags, they can draft up a term sheet expressing any contingencies you may have. For instance, you can withhold a percentage of the purchasing price from the owner until a certain time so that they’d be motivated to help you operate, or for any money to offset unanticipated claims. Either way your lawyer will help maneuver around unforeseen surprises so you can be as secure and protected as you can.
5. Check if there are any exisiting liens for the business, or if there are any lenders that the business has any outstanding debt to. It’s important to know that you’re buying the assets of the business, not the stock or liabilities. You can do a lien search on the secretary states website for the company and the owners as individuals. You should also do lien searches for the machinery, and make sure you see the bill of sale for the items. Doing these searches will let you know if any machinery or goods are bought on credit and whether or not there are liable claims which you don’t want to incur.
6. Research, and this can take time. Start by answering questions likes these to really analyze what this decision means for your business. Apply your business plan to this new location and agreement, especially in light of your target market and competition. What does taking on an existing coffee shop mean for your menu, customers, suppliers, etc? Research the location and area, just as you would if you were looking for retail space. Cafe Ninja also provides a Buying a Cafe Checklist to assemble all your research and consider these variables.
7. Take the time to learn the business. “Shadow” the business for at least a month before you make any deals. Talk to the employees, see how the business runs from the back end, and get a feel of the day to day operations. Ask the owner to teach you how the business works. If they want your business to succeed, they’ll take the time to set you up for success. This will also give you a good idea of potential profits and the accuracy of their numbers as you can actually count the customers, foot and vehicle traffic daily, hopefully over at least a month’s time.
8. Formulate a plan of action. A business plan for starting your own coffee shop will look different than buying an existing one. Taking in all you’ve learned from the shop you’re thinking to buy, what is your plan to improve on the business? What is your plan of action in light of all the variables at play? If they were unsuccessful in some areas, what will you do to ensure your success? How will you manage this shop better than the previous owner? Or if they were successful, how will you continue this? Knowing these weaknesses and strengths will help you intentionally overcome previous mistakes instead of repeating them.
9. Set up your business with your entity, operating agreement, and federal tax I.D. This will need to be in place to move forward with your lawyer in the legal paperwork.
10. Take time to do it right. This is essentially why we said no in our short-windowed opportunity to buy a coffee shop, as you can’t do all these steps wisely and carefully within a week. My boss at the time, who is also a coffee shop owner, said it like it is: if they care about your success, they’ll take the time and effort to set you up for success. There’s always pressure to move things along, but you want to make sure you’re building on a good foundation. It’s always worth taking a little extra time, effort and research to do things right, and not have to pay for rash decisions later down the line.
Those the the ten steps I encountered in our short opportunity to buy an existing coffee shop, but I’m no expert, so start here and then continue your research and consult some experts yourself. Either way we realized that after working hard on our business planning over this past year, we want to take the time to make it happen without trading our vision in for someone else’s. We may be young and naive without a clue in what we’re doing, once our shop is up and we’re serving drinks to our community, it will be all worth it.