Buying a business: Cafes and coffee shops

What is it and are you suitable?

In recent years there has been an explosion in the number of cafés in UK cities. Although many form part of larger chains such as Pret a Manger, Starbucks and Aroma, there is plenty of room for everyone. Continental trends have given rise to an increase in smaller, more specialised café businesses hoping to take a slice out of a multi-million pound coffee cake.

Figures taken from a survey also show that café culture is big business in the UK, with the average Briton apparently visiting a café twice a month more than the French, Italians and Spanish.

So cafés are alive and kicking in the UK. And just because a coffee shop is situated in Britain, it doesn’t have to be like the Bridge Street caf in Eastenders. We take a look at what actually constitutes a café.

What is it?

A café is a hybrid business and generally an urban affair with other variations such as tearooms restricted to tourist destinations or rural locations.

However, life as a café owner can be as varied as you want it to be. It can have elements of a tearoom, bar, restaurant and public house within its four walls. You could also choose a business based around a theme according to your personal and customers’ tastes.

Some cafés only sell alcohol alongside full course meals. Other establishments will sell hot and cold food and/or snacks and occasionally more substantial meals accompanied by coffees, teas, and soft drinks.

The choice doesn’t end there. Many cafés are open in the evening as well as in the day and can be classed as café bars. Whereas some may be purely indoors or outdoors or a mixture of both. Some may even be tied to another facility such as a shopping centre or a sports complex, for example.

Many cafés also offer additional attractions to tempt customers into eating and drinking. This may include computers with internet access, a bookshop, a gallery or memorabilia attached to the walls and facades of the building.

So, there are plenty of decisions to be made when you buy your premises.

Who is it suited to?

The catering industry is made up of a diverse range of people from many backgrounds and the café business is no different.

To run any business you need more than just plain enthusiasm and drive. You will need to be multi-skilled, cope with hundreds of different situations every week and at unusual times of the day. However, there are certain characteristics you will need to have or develop to run your own café.

Steve Nottage, owner of the Coffee Potshop in West Hampstead, who after a year of running his own café is moving into the hotel business, says: “You will experience highs and lows. The lows always come first as it takes a while to establish the business under new management but this is something you will have to deal with. In general you need to be good with people as well as food and have a solid business mind.”

In an industry where you show your face for long periods of the day, communication is the key to success. You should be able to understand and relate to your customers and staff in a friendly and approachable manner, building up repeat relationships as you go along.

Being able to avoid a high turnover of staff in the catering industry is another aspect not to be taken lightly. For this you will have to have good motivation and management skills as well as a high degree of stamina in order to work long and unsociable hours, often when the shop is closed.

Chris Burt, business advisor at Enterprise Plymouth, has seen many people enter the catering trade: “Because you are front of house you need to be outgoing, dedicated to the cause and work long hours after the café has stopped for the day.”

But this is just the beginning. There is far more work to be done than many people think. Although, it is not strictly essential that you hold any qualifications to run a café, you may wish to consider taking courses on general business skills such as book keeping, advertising and planning as well as catering and hygiene classes. These could be of significant help to you if you plan to remain in the catering trade for some time.

Research, rules and regulations

There are many things to consider when purchasing an existing business so dedicate a large amount of your time to all the essential aspects and pitfalls that owning a café can bring.

A good way to do this is to go to the business in question and sample all that they have to offer. Sit down, try the food and drink available, observe the customers and how they are treated and react to the surroundings.

Then ask yourself the following: How are the owners coping and, if you are planning to alter anything, how could you improve things? Are there enough customers coming through the door? Are they the right customers for the area? And, possibly the most important question of all, is this the right location for you and your café?

The most crucial people are your potential customers, so ask them what they think and what they want from a café in their area. Steve Nottage, owner of Coffee Potshop, says this simple and inexpensive method reveals many secrets to potential success.

“We did a lot of research in the local area and asked passers by and local people what they wanted and needed from a café in that location and it proved very fruitful. Then we went to the council and asked if there were any plans to build on and around that site and finally to the bank to propose our plan and borrow a small sum of money.”

The research doesn’t end here: you must investigate your future competitors.

Your range of competition is threefold. It will come from direct competitors such as other smaller, independently owned cafés that either serve food and/or alcohol; larger chain cafés; and also other established food/drink outlets in the surrounding area such as pubs, restaurants and bars.

You will have to think long and hard about the competition around you and whether it could affect your trade. So take some time out to walk around the area at different times of the day. Seeing things from a customer’s point of view gives you a good perspective of what it’s like to select which café to visit. In addition, use the internet to see what the competition is offering and scan the Yellow Pages and web listings for your local area thoroughly.

If your café, as you buy it, is not in the style or trend you are looking for but the location is suitable and you are set upon buying it, then change it to your customers’ and your personal taste. You may, if the café has neglected this area, choose to plan a stronger advertising strategy to reach out to a larger audience. This can prove vital for such an image-based industry and can involve numerous techniques on an ongoing basis.

This can include anything from placing leaflets or sample menus and flyers in local offices, information centres, shops, pubs, libraries and handing them out in the street to placing an advert in the local paper, the Yellow Pages or Thompson’s when you first buy the café.

Anything free is a bonus, so consider local press and free publications that are targeted to local households. Get included in a ‘Good Food’ guide, spend some cash on an opening night that will attract press coverage and reviews, or maybe organise theme days or promote cafe soirees with drink promotions. You could also hire out the premises for birthdays and private parties.

Rules and regulations

To run an establishment that involves food, catering for the general public, certain standards in your café will have to be met. Your local council will be able to point you in the direction of an environmental health officer (EHO). The EHO will, at the early stage of your business, ensure that the operation conforms to statutory regulations, thereby avoiding costly refits. They will also investigate accidents at work involving staff and the general public, health and safety complaints and provide information to businesses and members of the public to increase general awareness of health and safety.

In addition, there are certain regulations you must abide by. These include food premises (in order to register your café with your local authority), food safety, hygiene and temperature, financial laws such as requirements on food VAT charges – as well as a licence if you wish to serve alcohol. You will also be restricted to alcohol being served only with a substantial meal.

Typically when buying an existing café, you will not need to concern yourself with regulations such as the number of fire exits and seating/size requirements as you may already be covered. But remember – it is essential that you check with your local authority that you are abiding by the rules as the previous owners may have neglected to do so.

How much does it cost?

The main expense in buying an existing café will be purchasing or leasing a property in a viable location as well as kitchen space and a dining area large enough to make the venture profitable.

Paul Graydon, business marketing manager at HSBC believes the average established café costs at least £100,000, depending on size and location. If you are taking over an existing lease, it will be considerably less. Either way, make sure you have enough money for the all the extras that you’ll need. Compare this with our guide on how to start a coffee shop from scratch.

Basic Equipment

• Till point with Visa, AMEX and Mastercard facilities. This may result in an ongoing cost for small businesses as credit card companies charge approximately 2.5 to 5% for every transaction (find out more about till costs on our epos till system page)
• Industrial sized refrigerator
• Sandwich case
• Dishwasher
• Microwave
• Fresh meat cabinet
• Six burner range
• Heated or refrigerated merchandisers
• Electric water boiler (find out more about boiler costs on our commercial boilers page)
• Coffee/Cappuccino machine
• Essential domestic food appliances include mixers and processors, kitchen equipment such as cutlery, crockery and glassware.
• Furniture
• Ongoing costs: Food and drink supplies, insurance, gas, electricity, telephone bills, advertising, staff salaries and the appropriate licence to sell alcohol.

How much can I earn?

The café industry is popular, with more and more players are entering the market. Larger chains are constantly attempting to increase their market share. In addition, Starbucks, Pret a Manger and Aroma coffee shops have nearly half of the market between them and close to 400 outlets in the UK alone.

In theory, if you’re offering something different in price, service and reputation to the competition, you will make money. Steve Nottage, owner of Coffee Potshop in West Hampstead, says: “It is a very profitable business. Just look at the major players such as Pret a Manger, Costa and the rest who are all doing exceptionally well but even they are located next to each other. There is a lot of trade and so they share the benefits as well as leaving enough room for smaller outlets.”

However, be realistic and remember that profit – even in a booming industry such as leisure – isn’t guaranteed at any level. John Mckiernan, owner of Moonbow Jakes coffee shop in London, warns:

“The downside is that in certain locations the bigger players are running the small shops at a loss. But people will always need to eat and drink, so if the location is suitable you will make money.”

Tips for success

Businesses succeed due to careful consideration; planning and research, an understanding of who it is you are selling to and how you sell your goods and services. So before anything investigate all the ins and outs of your potential café:

• Know the market that you’re focusing your business on and others will come along naturall
• Find a good location and if you are making money, think about the potential expansion opportunities
• Look very critically at your potential decision to buy a café and be honest with yourself
• Don’t expect people to queue up from day one. It will take time, hard work and constant attention
• Price your food and drink for your particular market and don’t be afraid to increase prices. If the market and the quality of your product is right then you will succeed
• Make the customers feel at home and listen to their comments, ideas and constructive criticism
• Seek out as much free advice as possible. Go to banks, your local enterprise board, similar businesses and discussion groups and seek out a good accountant who won’t charge you the earth.