buying a small business for investment - good/bad idea?

[Sir Snaz]

HI all,

We have recently had a massively unexpected financial windfall, and I am looking at ways to make it work for us.

We have traditional pensions and investments in place, which we could quite easily add to......but I am really looking at ways to generate a monthly income to cover (or certainly pay a chunk of) our monthly school fee bill!

This has led me to look at alternatives. I have seen the details of a business (cafe) for sale near us, and wondered if you lovely people would opine on what level of earnings you think could be achieved?. so...the details:-

Its in a parade of shops on a main road in a fairly high footfall area of SE London.
A1 use operating.
2 group coffee machine, 2 coffee grinders, soup kettle, toaster, hot chocolate machine, Thuromix machine, electronic cash register, 2 fridges.
25 person capacity.
Operating hours mon-sat 8am-5pm, sun 10am-3pm.
1 perm staff, 2 part time (unsure of salary).
secure, renewable lease, private landlord, 8years unexpired at £16k p.a.
business rates approx £3k (after SB relief)
Current owner is fairly hands-off (4-8hours a week - which is easily do-able)

Current turnover is (apparently) between £3-3.5k a week with (again apparently) Gross Profit of 60%.

The above is just a thought exercise, and I am not married to the cafe/restaurant idea - but the buying a small business is something different and interesting.

Am I completely mad to even be considering something like the above? and if so ...what other alternatives should i consider - property development? franchises?

cheers in advance

[So]

Sir Snaz said:

Am I completely mad to even be considering something like the above?

Probably yes. Unless you like working in a café, which you probably will be when your minimum wage staff call in sick.

If you really must do it, sit and watch the business for hours on end to see how busy it really is.

You're probably better off starting a business of your own.

[dazmanultra]

Whilst I can see on the face of it it seems like a good idea, businesses like this can rarely succeed unless you are working full time in the business yourself. The other aspect where this can work is where your pension owns the property and the business rents it from your SIPP, but that doesn’t apply in this case.

[Deesee]

Looks alright,

Marry up the turnover to the vat returns.

60% gp should give you say 100k

30% staff costs at 180k leaves say 60k

Rent/rates 20k

Utilities/Sundries 5k

35k for you.

Work it cash only.

Don’t work it contactless only.

[p4cks]

The core demographic of coffee buyers are contactless card users though, so the above may not necessarily correlate.

If I know a place only accepts cash then I avoid; I'd much rather tap.

[Sir Snaz]

Deesee said:

Looks alright,

Marry up the turnover to the vat returns.

60% gp should give you say 100k

30% staff costs at 180k leaves say 60k

Rent/rates 20k

Utilities/Sundries 5k

35k for you.

Work it cash only.

Don’t work it contactless only.

Interesting ....but as p4cks askas above ....why cash only? ...especially as the entire world seems t tap now?......is the tap cost significant?......or is it more a cash in hand / tax kind of thing?

[NDA]

What is the cost of buying the business? Or did I miss that somewhere?

[Sir Snaz]

NDA said:

What is the cost of buying the business? Or did I miss that somewhere?

that would help wouldn't it! ....this business is for sale around the £65/70k level ...

[Deesee]

Sir Snaz said:

Deesee said:

Looks alright,

Marry up the turnover to the vat returns.

60% gp should give you say 100k

30% staff costs at 180k leaves say 60k

Rent/rates 20k

Utilities/Sundries 5k

35k for you.

Work it cash only.

Don’t work it contactless only.

Interesting ....but as p4cks askas above ....why cash only? ...especially as the entire world seems t tap now?......is the tap cost significant?......or is it more a cash in hand / tax kind of thing?

No significant costs, probably a bit of a off the cuff comment as such, mainly staff pilfering TBH. If you work it, you can manage it, if you don’t build it in.

I have a couple of clients who have a couple of mini coffee chains, with t/o at similar levels, they work the businesses and per shop see 70k net pa.

Have a look at vat flat rate as well, this should work in your favour.

What’s the sale price /premium?

[EarlOfHazard]

Deesee said:

Looks alright,

Marry up the turnover to the vat returns.

60% gp should give you say 100k

30% staff costs at 180k leaves say 60k

Rent/rates 20k

Utilities/Sundries 5k

35k for you.

Work it cash only.

Don’t work it contactless only.

Is it not cheaper to take card/contactless than cash these days? Also there's less chance of staff pilfering from the tills..

[PMacanGTS]

I think you'd be mad. A better option would be investing the money in a portfolio of startups on something like Seedrs that qualify for EIS/SEIS and get 30-50% back as tax relief. And that's still crazy, but not quite as crazy.

[Deesee]

EarlOfHazard said:

Deesee said:

Looks alright,

Marry up the turnover to the vat returns.

60% gp should give you say 100k

30% staff costs at 180k leaves say 60k

Rent/rates 20k

Utilities/Sundries 5k

35k for you.

Work it cash only.

Don’t work it contactless only.

Is it not cheaper to take card/contactless than cash these days? Also there's less chance of staff pilfering from the tills..

Covered that off one above

[NDA]

Sir Snaz said:

NDA said:

What is the cost of buying the business? Or did I miss that somewhere?

that would help wouldn't it! ....this business is for sale around the £65/70k level ...

So it's roughly turning over £150k a year with a Gross Margin of around £90,000?

Have you seen the numbers in more detail in terms of what net profit it's making now?

It sounds slim on a £70k purchase price - but would like to understand the numbers a bit better.

You would have to assume the absolute worst case when buying - no growth, cost of a freshen up etc etc and then see how it looks.

The alternative would be to invest in a business you understand and be a director of that business and have a hand in controlling it with your experience. My business (for example) is media - I'd happily put cash into a sector I really understand - a media owner, a media agency etc... but not a café. Whilst I understand P&L's and cashflow, I've never been in the food and beverage business and wouldn't understand the dynamics. But I do know that restaurants and cafés are going in and out of business all day long. £70k is a chunk of change to gamble.

[Stella Tortoise]

Why bother?

Just spend a little bit of the winfall on school fees, far less hassle.

[Sir Snaz]

Stella Tortoise said:

Why bother?

Just spend a little bit of the winfall on school fees, far less hassle.

the remaining 6 years of school fees would pretty much wipeout the windfall .....so want to make the windfall work rather than just burn t

[Lemming Train]

Sir Snaz said:

HI all,

We have recently had a massively unexpected financial windfall, and I am looking at ways to make it work for us.

We have traditional pensions and investments in place, which we could quite easily add to......but I am really looking at ways to generate a monthly income to cover (or certainly pay a chunk of) our monthly school fee bill!

This has led me to look at alternatives. I have seen the details of a business (cafe) for sale near us, and wondered if you lovely people would opine on what level of earnings you think could be achieved?. so...the details:-

Its in a parade of shops on a main road in a fairly high footfall area of SE London.
A1 use operating.
2 group coffee machine, 2 coffee grinders, soup kettle, toaster, hot chocolate machine, Thuromix machine, electronic cash register, 2 fridges.
25 person capacity.
Operating hours mon-sat 8am-5pm, sun 10am-3pm.
1 perm staff, 2 part time (unsure of salary).
secure, renewable lease, private landlord, 8years unexpired at £16k p.a.
business rates approx £3k (after SB relief)
Current owner is fairly hands-off (4-8hours a week - which is easily do-able)

Current turnover is (apparently) between £3-3.5k a week with (again apparently) Gross Profit of 60%.

The above is just a thought exercise, and I am not married to the cafe/restaurant idea - but the buying a small business is something different and interesting.

Am I completely mad to even be considering something like the above? and if so ...what other alternatives should i consider - property development? franchises?

cheers in advance

As always with these threads, if the business is doing so well and making money, why is the current owner selling? Figures can be easily manipulated with some creative accounting and unsurprisingly this often tends to happen when the business is failing and the owner wants out.

[Wilmslowboy]

You are mad, unless you plan to work in it for next to no wages...the streets are littered with sub scale businesses barely breaking even - mostly relying on the hard (often unpaid) efforts of the owner.

My wife (and her friend) owned a small retail business for 2 years (children’s clothes shop)
£200k turn over/ £90k margin

Yet some how it cost us £45k over the 2 years - (they took zero out of it in terms of wages) ended up selling it for £15k (stock value).

[Sir Snaz]

Lemming Train said:

As always with these threads, if the business is doing so well and making money, why is the current owner selling? Figures can be easily manipulated with some creative accounting and unsurprisingly this often tends to happen when the business is failing and the owner wants out.

my spidey sense is not just tingling...it is downright throbbing, and not in a good way! - hence me asking the question

which opens up the additional question....what could i do to generate decent returns thats not trad investments ......I do not mind putting graft in at all, but I am working full time .....

[Sir Snaz]

Wilmslowboy said:

You are mad, unless you plan to work in it for next to no wages...the streets are littered with sub scale businesses barely breaking even - mostly relying on the hard (often unpaid) efforts of the owner.

My wife (and her friend) owned a small retail business for 2 years (children’s clothes shop)
£200k turn over/ £90k margin

Yet some how it cost us £45k over the 2 years - (they took zero out of it in terms of wages) ended up selling it for £15k (stock value).

thanks for that, its always good to get a first hand account. Out of interest, did your wife and her biz partner buy that biz? or did they start from scratch?

[anonymous-user]

I think you have to treat a cafe first and foremost as a lifestyle decision. Money is a bonus.

I used to mentor cafe/shop ventures, and a good initial step was to put the prospective buyer on a market stall or a barista pinny for a day or two. No quicker way to learn if you have a taste for it.