Buying a cafe: what to check before you make an offer

Cafes are among the most common small businesses for sale, and among the most varied: two cafes with the same turnover can have very different profits, depending on rent, wages and how many hours the owner works. This guide covers the checks specific to cafes. Read it alongside our general due diligence guide.

Verify the takings

Takings are the starting point for everything else, so check them from more than one direction.

• Point-of-sale reports. Ask for daily, weekly and monthly sales reports from the till system, ideally for at least a year so you can see seasonal patterns.
• Bank deposits and BAS. Sales in the till reports should be consistent with deposits in the business bank account and the sales on the Business Activity Statements.
• Your own observation. Spend time in and around the cafe on weekdays and weekends, mornings and afternoons. Count customers and note the average spend.
• Cash. Be cautious about any claim that takings are higher than the records show because of unrecorded cash. You cannot verify it, a lender is unlikely to count it, and it may signal other problems.

Check the costs that decide profit

In a cafe, a small change in a few costs makes a big difference to what the owner takes home.

• Cost of goods. Coffee, milk, food and packaging. Ask for supplier invoices and compare them with sales.
• Wages. Review the rosters and payroll. Weekend and public holiday penalty rates can make weekend trade far more expensive to staff than weekday trade. Check which award covers the staff and that they are being paid correctly, because underpayments can become your problem.
• The owner's hours. Find out exactly how many hours the owner works and in what role. If the profit relies on the owner working as a barista six days a week, decide whether you will do the same or pay someone to.
• Rent and outgoings. Compare the total occupancy cost with turnover, and check how the rent will change at the next review.

The lease

For a cafe, the lease and the location are much of what you are buying. Ask your solicitor to check the term and options, rent reviews, outgoings, the permitted use (does it allow the menu and trading hours you want?), make-good obligations at the end of the lease, and any relocation or demolition clauses. Find out early whether the landlord will consent to assigning the lease to you.

If the cafe uses footpath dining, check whether the outdoor seating permit is in the business's name and whether it transfers. Losing outdoor seats can change the numbers.

The coffee supply agreement

Many cafes have an agreement with a coffee roaster that supplies the espresso machine, grinders or other equipment, sometimes with a fit-out contribution, in return for a commitment to buy a minimum volume of coffee over a set term. Before you buy, find out:

• whether the agreement can be transferred to you, and whether the supplier must consent
• the minimum volumes, prices and remaining term
• who owns the espresso machine and grinders
• what it costs to end the agreement early if you want to change roasters.

Equipment that is supplied, leased or financed is not the seller's to sell. A search of the Personal Property Securities Register against the seller's details will show registered security interests over the equipment.

Equipment and fit-out

List the equipment included in the sale and check its condition, especially the espresso machine, refrigeration, ovens and dishwasher. Ask for service records. Replacing a commercial espresso machine or a cool room is a major expense, so factor equipment age into your offer.

Council registration and food safety

Food businesses must be registered with, or notify, the relevant local council or state food authority, and are inspected for food safety. Ask the seller for the current registration and the most recent inspection reports, and find out whether the registration transfers or whether you must apply in your own name. Check what food safety supervisor or training requirements apply in your state. ABLIS on business.gov.au lists the licences and registrations for food businesses by location.

Location and trade

Visit the area as well as the cafe. Look at foot traffic at different times, nearby offices, schools and transport, parking, and the competition within walking distance. Check with the local council for planned developments, roadworks or changes that could affect trade, for better or worse.

Staff

Ask who works in the cafe, in which roles, how long they have been there and who is likely to stay. A good head barista or cook who stays through the handover is worth a great deal. If staff transfer to you, the Fair Work transfer of business rules decide which entitlements carry over. Agree in the contract who pays for what.

Questions to ask the seller

• Why are you selling, and how long have you owned the cafe?
• How many hours do you work, and in which roles?
• Which days and times are the busiest and the quietest?
• What has changed in the last twelve months: prices, suppliers, staff, competition?
• Is there anything the landlord, council or a supplier has raised that I should know about?
• How long will you stay on to train me, and will you introduce me to the regulars and staff?