Do you consider yourself quite the coffee connoisseur? If so, you may have decided to take your love of freshly brewed coffee one step further by opting to take over a coffee shop.
Buying an already established business, in many ways, is a fair bit easier than starting a business from scratch - but it's not without its challenges. That's why we recommend that before rushing head-first into the take over of a coffee shop, you take some time to get to know the business you'd like to take over - by weighing up its strengths and weaknesses.
You should also think about how your own skills align with the role you're signing yourself up for (do you enjoy early starts and expertise in the area of mixing and roasting an array of coffee beans?), as well as whether you have the financing needed to make your project come to fruition.
That's why we've created the guide below, to take you through the key points that need to be addressed when taking over a coffee shop.
Follow our step-by-step process to kickstart your entrepreneurial adventure with ease!
Check out the coffee shop's location and nearby competition
Taking over a coffee shop means inheriting the location chosen by its previous owner, so it's important to set aside time to evaluate it and ensure it aligns with your ambitions for the business.
The first factor to consider is the street on which the coffee shop is based. Ask yourself:
- Is it a busy street that has a healthy flow of passersby?
- Is this flow consistent throughout the day/week or have you noticed peaks at certain times?
- Do the other businesses on the street appear to be operating successfully?
- Do you have competitors on the street, in the form of bistros, restaurants, or other coffee shops?
When gathering this data, don't shy away from approaching local business owners and asking their opinion on the area. This will give you a clearer picture as to what's going on in the area and who hangs out around there - as well as potentially alerting you to any specific challenges being faced by the fellow restaurant, cafe and shop owners.
Pay close attention to the aesthetic of the coffee shop, and whether the colour scheme chosen by the previous owner is effective in helping the coffee shop stand out from its competitors on the street.
Next, look at the accessibility when taking over a coffee shop: is it easy to get there via public transport and are they are any car parks located nearby?
You should also look up whether there’s any upcoming industrial work due to impact the operation of the area. Building work can be detrimental to businesses, as it blocks off certain roads and areas. Noises such as drilling can also deter people from visiting certain places. Similarly, a change to road structure could also have a significant impact on the level of traffic on your road.
Finally, think about the layout for your coffee shop takeover. Is it easy for customers and staff to move between the counter and the main seating area? An outdoor space would also be ideal for the summer, so it's worth checking (if the coffee shop doesn't already a terrace) whether there is enough space for constructing one and if you can obtain planning permission if you so wish to do so.
Assess the existing equipment when taking over a coffee shop
Examining the quality of a coffee shop's existing equipment is an essential part of any takeover. If you don't like what you see after undertaking this assessment then you may decide it's not worth taking over the coffee shop at all, or you may want to re-negotiate the selling price.
Luckily for you, the equipment required for a coffee shop is pretty simple: a professional coffee machine and the knick-knacks that come with it, a till, a chilled drinks and snacks display cabinet and a kitted-out kitchen, as well as tables and chairs for customers.
First, check that the equipment is working efficiently. When doing so, ask the owner for the receipts for each piece of equipment, so you can keep tabs on when there were bought, what model they are, and check whether their guarantees are still valid. Make sure you also check whether any equipment has been taken in for repair and if so, what work was done to it and when.
Coffee machines are particularly expensive. If you feel that the coffee shop's existing one might need replacing, you could factor this cost in when negotiating the price of the coffee shop with its owner.
Get to know the coffee shop's customers and how it operates
Taking over a coffee shop also means getting to know its current customers, whether they be students, young couples, families, or business clientele.
An analysis of the type of clientele will enable you to infer what the coffee shop’s peak hours are or the average spend per head. Using this precious data, you'll be able to build a realistic financial forecast and set up a solid marketing strategy to retain customers (and attract new ones).
When you take over a coffee shop, you will also need to know if the customer base is made up of regular customers or people who just pop in once in a blue moon and whether they're satisfied with the quality of the coffee. You can do this by checking out online reviews of the coffee shop on sites such as Trip Advisor.
Spotting negative reviews might initially come as a nasty surprise, but these opinions will prove invaluable in helping you identify actions to be taken to improve the coffee shop's turnover, including partnering up with a different coffee bean supplier or introducing a new coffee and pastry deal.
As you’re often legally required to retain the existing staff when taking over a coffee shop, it’s really important to build a strong relationship with the manager and the rest of the team.
The coffee shop's staff is integral to the success of the business, so take time to review how the team operates in both serving customers and preparing food and hot beverages.
Suppliers play a huge role in the daily life of a coffee shop, so make sure you cast a close eye over those with whom the coffee shop owner currently works with. Find out:
- Who they are
- What commercial terms have been negotiated with them
- What the frequency of delivery is
Once you know the answers to these questions, you can choose to continue the same relationship with them or try to re-negotiate terms so they align more with the way you want to operate the business.
If you think there's a demand for artisan coffee within the area that's not currently being met and the coffee shop is working with a supplier across the country, for example, you may decide to cut ties altogether and enter into a new contract with a local supplier.
Examine the financial performance when taking over a coffee shop
The next step in our guide on how to take over a coffee shop is to check out the numbers. For this, you want four key nuggets of information:
- How has the turnover evolved over the last 3 years?
- How profitable is the coffee shop?
- What is the working capital requirement?
- How much cash has the coffee shop generated?
1. The evolution of the coffee shop's turnover
To begin, you should check out the turnover.
If it's on the up, that's a great sign. It's then time to find out what the causes of this increase are, and whether this trend is likely to continue.
If the turnover has dipped, however, you'll need to dig a bit deeper and ask the right questions before taking over your coffee shop, including:
- Is it due to an external economic factor that has impacted all coffee shops or is the company losing momentum?
- Is it a temporary decline or a lasting trend?
- What are the causes: has there been a change in consumption habits or maybe a new competitor has opened close by?
2. The coffee shop's profitability
Every entrepreneur wants their business to be profitable, but achieving profitability depends on a whole host of factors and you will to have a look at those when taking over a coffee shop.
First of all, examine the cost of coffee beans and ingredients and the gross margin generated by the sale of beverages and snacks: is it stable? Is it increasing? What are the reasons for this? How do you expect this to develop in the coming years?
Next, look at the overheads, including the payroll. Are costs under control? Can you reduce certain expense items? Is the staff's salary competitive in comparison to what rival coffee shops are offering or should you consider increasing it?
Next, assess the EBITDA margin:
- How has it evolved in recent years? Why has it changed?
- Is profitability in line with the industry average?
- Does the company have sufficient margin to grow the business?
- What level of margin can be expected in the coming years?
- What actions can you take to increase profitability?
3. Working capital requirements
For a coffee shop takeover, the analysis of the WCR will mainly consist of:
- Analyzing the former owner's stock policy to identify whether it's possible to release cash by reducing inventory
- Review the commercial terms negotiated with suppliers to verify the likelihood of extending payment deadlines to free up cash
The objective, as you will have understood, is to try to reduce the weight of working capital to reduce the funding requirements.
4. How much cash does the coffee shop generate?
The last (but certainly not least) factor to consider is the cash generation of the coffee shop being taken over. Here, you'll want to ask yourself the following questions:
- Has the company generated or consumed cash over the last 3 years?
- Is cash flow stable or variable from one year to the next?
- Is the cash flow sufficient to renew equipment on a regular basis?
- What trend should be anticipated for the coming years?
Writing the business plan for the takeover of a coffee shop
The final step in our guide on how to take over a coffee shop is putting together a business plan to ensure that your venture can be profitable and secure funding.
The business plan of a coffee shop is made up of two major components:
- A financial forecast that aims to highlight the expected profitability of the business and the initial financing requirement.
- A written part that presents, in detail, your project, the team, your business strategy, and your medium-term objectives.
The business plan is the document with which you will try to secure financing from your bank or potential investors, so you need to make it impeccable.
If you are not used to writing business plans, a good solution would be to use online business plan software.
There are several advantages to using specialized software:
- You are guided through the writing process by detailed instructions and examples for each part of the plan.
- You can be inspired by already written business plan templates
- You can easily make your financial forecast by letting the software take care of the financial aspects for you.
- You get a professional document, formatted and ready to be sent to your bank.
If you are interested in this type of solution, you can try our software for free by signing up here.
Now that we're at the end of our guide, we hope you have a better understanding of how to take over a coffee shop with confidence. If you have any questions at all, please don't hesitate to get in touch with our team.
Also on The Business Plan Shop
- Coffee shop business plan template
- How to start a coffee shop
- How to optimise the profitability of a coffee shop
- How to write the business plan for a coffee shop
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