How to Sell a Cafe
Currently in Australia, there are more cafes for sale than any other business and there is more cafes for sale than there are buyers on the market. So if you are selling your cafe, it’s important to consider the buyer’s point of view and ensure you stand out from the crowd.
How to Value a Cafe Business
The most common method of valuing a cafe is by using the earnings multiple method. This means establishing the net profit (EBITDA) and multiplying it by a number (usually between 1.2 to 2.5) –
This means a 7 day cafe making a net profit of $100,000 per year would be valued between $120,000 to $150,000.
A 6 day cafe making a net profit of $100,000 per year would be valued between $130,000 to $170,000.
A 5 day cafe making a net profit of $100,000 per year would be valued between $150,000 to $200,000.
How is net profit calculated? Net Profit = Revenue minus expenses. It is also expected that a fair wage is deducted for a working owner. Many business brokers and private sellers tend to not account for the wages of a working owner in an attempt to make the advertising more enticing – unfortunately, this only
How do you value a cafe which is not making a profit? If the cafe is losing money, we have to start looking at the fair market equipment value and the lease. Although, it is extremely unlikely a business will be sold for much without a profit, regardless of the amount you spent on the equipment and fit-out.
Things Cafe Buyers Look For
- Consistent Revenue
- Good Lease Terms with rent in line with turnover (no more than 15%, ideally less than 10%)
- Good location with minimal competition
- Well trained staff which will likely stay on after the business is sold
- Clean shop which presents well
- Equipment which is well maintained
How Long Does it take to sell a cafe business?
It usually takes 6 to 12 months to sell a cafe business. The time it takes is mainly based around the asking price and location of the business. It’s not uncommon for businesses that are overpriced to sit on the market longer for 12 months, only to sell for less than what they would have gotten if they had been priced correctly from day one.
Documents to prepare
- 12 months Profit & Loss Statement
- Last 4 BAS Statements
- 12 Months Bank Statements
- Records of Daily Cash Received (if available)
- 12 Months Z Readings
- Supplier Invoice Statements
- Rosters (including staff pay rates)
- Copy of the lease
- List of Equipment
Should You Use a Business Broker or Sell It Yourself
If you decide to sell the business yourself, you should be well prepared that dealing with buyers can take a lot of time and effort. On the other hand, using a business broker will mean you can continue running your business while someone else handles the business sales process on your behalf.
I'm the owner of Business Brokers Sydney and have many years experience in the hospitality industry having owned cafes before becoming a business broker.
Feel free to call me for a free consultation if you are looking to sell your cafe.