A friend of mine, a successful owner of a few coffee shops, once told me what brought him to this industry. Years ago, he was sitting at one of the ubiquitous coffee shops in New York, having a small escape from his cubical and enjoying his mid-morning cup of coffee. Sitting in a comfy chair, he was watching the owner chatting with his regular clients, whom he seemingly knew by name, while working on their drinks. The owner obviously enjoyed his job and looked pretty happy. Taking another sip of a – by then cold – coffee, my friend realized at that moment that the whole idea of going back to his cubicle in his grey suit and tackling his never-ending pile of reports was never going to be exciting for him. Actually, his thoughts were slightly more colorful, but you get the idea. In any event, the idea of becoming a business owner and realizing his aspirations, ideas, vision and creativity while having a better lifestyle suddenly sounded very appealing.
Let’s face it, latte art is more exciting than TPS reports. Just like my friend, you may have also finally decided to say goodbye to your cubical and dive into the exciting world of entrepreneurship and coffee brewing. After all, even the tiniest coffee shop affords more freedom than a cubicle. However, while the anticipation feels nice, your head is likely spinning trying to figure out a million of different things.
Drinking coffee is intrinsic to the human spirit – even the Brits are coming around to the idea. Hence, becoming an owner of a coffee shop is a very popular choice for both first-time and experienced business owners. The secret of this popularity is not complicated. It is relatively easy to learn how to manage a coffee shop – no prior industry experience is typically required; it’s not that difficult to learn about coffee; no special knowledge is required to buy a shop; and it is a common go-to destination for many people, the popularity of which only increases. The industry offers high margins and less capital expenditure as compared to some other industries.
I recently wrote an article about the future of the coffee shop industry (if you didn’t read it yet, please do, it’s a great read: What’s Brewing In The Coffee Shop Industry) in which I covered the main features of a successful coffee shop.
In addition, here are a few ideas that can help you to move a few steps closer to your goal:
- Shall I set up my coffee shop from scratch or buy an existing one?
It is much easier to draft a mindless corporate report from an existing template, and launching a business is no different. Starting a business from scratch is difficult and involves numerous risks. You need to market your business and build a loyal customer base. You need to find competent and reliable employees you can trust. And perhaps most importantly, you need to find a way to make money. In the entire history of business, the only entrepreneur who can run a loss-making business indefinitely is the government.
While not good at many things, the government is good at tracking others’ failures – the U.S. Department of Labor notes that more than 50% of newly established businesses go out of business within the first five years, and less than 35% survive for ten years. So why take on this risk if you can acquire a concept already proven by somebody else? Don’t reinvent the wheel – buy it. As Stephen Friedman, the former chairman of Goldman Sachs, said, not everyone can be the first with a new idea, but there is no excuse for not copying a good idea quickly.
A well-established and profitable business already has attributes which are essential to survival, in particular:
– It has already proven that it is a survivor,
– It already generates both cash flow and profit
– It has Goodwill – customers, reputation, employees, web presence, etc.
All these elements significantly decrease the going concern risk for a new owner and increase the likelihood of you forging a new Starbucks empire.
- Do I need to have a special license to be a coffee shop owner?
While licensing is a state-by-state matter (or even town by town sometimes), there is generally nothing tricky in licensing coffee shops. An owner typically needs a general business license, an EIN, a retail sales tax license, health permits and a food safety class (which might have different levels depending on which kind of food an establishment serves), a certificate of occupancy, and insurance. Depending on what you currently do for a living, you may find a coffee shop needs fewer licenses than you do!
- How can I finance this purchase?
If you are not currently the envy of the bonus pool, fear not. Most businesses are acquired nowadays primarily with SBA loans. Currently, there are a plenty of SBA lenders who will provide funding to finance the purchase of a coffee shop. The SBA itself requires a 10% down payment, and different lenders might have slightly different requirements. In any event, you might be able to stake your claim to entrepreneurship for less than your boss put down on his car. Rates can be variable or fixed for the whole duration of a loan depending on the lender. At the date of this article, the maximum interest rate an SBA lender can charge is prime plus 2.75%, which equals 6% at the date of this blog. The duration is typically 10 years, but if the purchase of real estate is also involved, the term might be longer.
- How can I be sure that I am buying what the seller says I am buying?
There is only one answer to this question – do your due diligence. As Ronald Reagan once said, trust, but verify. Research the industry and understand the risks, ask the seller questions and review documents and look for professional help. Ask the seller why she is selling her business, what is the turnover, what are the terms of the lease, how is the local competition, what are the competitive advantages, how does she advertise and what kind of clients is she targeting, and what is her vision on the future growth of the business? Ask to review at least 3 years of historical tax returns and the latest interim information. Do your valuation to make sure that the final selling price reflects the fair value. You want to be sure you understand all aspects of the business before you buy it. And if this sounds a little but daunting, just remember, it cannot possibly be worse than what’s waiting for you in your cubicle.
- What are the advantages of being a coffee shop owner?
Coffee shop ownership can provide plenty of benefits and complement every aspect of your life.
- Rightly managed coffee shops are very profitable. Americans love their coffee, call it what you will – taste, habit, addiction, obsession. Coffee is culture. And the market keeps growing.
- You will know everyone who lives or works nearby. As well as their dogs and children. As well as many details of their lives… some of which you don’t necessarily want to know; either way, your social life will be vastly improved over the office water cooler.
- Lots of room for creativity.
- The coffee industry is very interesting, but at the same time it is not too difficult to learn.
- Lots of potential to grow a business through either volume or by adding locations.
- Sense of accomplishment.
- You are your own boss.
Of course, there are many more questions that need to be answered before you are ready to pull the trigger. While we are emerging from a pandemic, it is a good time to do your research, find the business you love and become an owner. That way, when world is open again, you will be standing at the door and welcoming your clients to your very own coffee shop.
About Comer Business Brokers
Comer Business Brokers, LLC, is a full-service business brokerage firm with locations in Fairfield County, CT and the Raleigh, NC metro area. CBB services the entire state of Connecticut, Westchester County, NY, and the Research Triangle area and the Central – Eastern part of North Carolina. Owner and founder Irina Comer has more than a decade of experience in mergers and acquisitions of all types and sizes. Prior to starting her career in the business brokerage industry, she spent 10 years at PricewaterhouseCoopers advising local, national, and international companies on transactional issues, including valuation, diligence, structuring, and positioning. After obtaining her MBA from New York University’s Stern School of Business, Irina worked with the mergers and acquisitions division of Bank of America Merrill Lynch.
Comer Business Brokers is a recognized industry leader when it comes to coffee shops and coffee roasters. If you want to value, sell your business or are lookin to buy a business, Comer Business Brokers can help you to structure a deal that makes sense and close efficiently and with confidence, all while maintaining the strictest confidentiality of your personal and commercial information. Give us a call today; the first consultation is always free.