Is opening a coffee shop a good investment?

by | Nov 30, 2020 | Open a New Cafe | 0 comments

increase cafe sales: tried and tested strategies for 2021

Looking for tips to increase your cafe sales? To increase cafe sales, you can: hire friendly staff, train your barista, expand your menu, introduce loyalty offers, offer free sampling, do social media marketing, set up an engaging website, upselling, loyalty programs,...

How to price a cup of coffee in Australia?

 If you are looking to know how to price a cup of coffee, is your intention really just to know what is your cost? Of course, you want to calculate the revenue that a cafe business will bring you. To efficiently price a cup of coffee here in Australia, these are...

HOW TO START A COFFEE BUSINESS IN AUSTRALIA?

Looking to start a coffee business in Australia and don't know where to start? How good would it be to get advice from an experienced coffee owner? You’ve landed the right place: in this post, we'll share with you which steps we took to create not only our own coffee...

What is the cost to open a cafe in Australia?

If you plan to open a cafe soon, the following question has surely crossed your mind: how much money do you need to open a cafe in Australia? Obviously, the costs might vary a lot, especially if you compare buying an existing business with starting your own café from...

Make your cafe successful in 2021

Many people start a coffee shop thinking that it will be an easy-to-manage lifestyle-driven business. It surely CAN become that, if you know what you are doing. But just having a cool name and offering cheap breakfast combo options is not enough to stand out. So the...

How to open a cafe with no experience in 2021

Do you fancy a career change? Opening a cafe is the choice of many people that are looking into starting a new small business, especially for the daylight, morning healthy lifestyle it provides. Although it might seem easy to manage at first, starting a coffee shop...

How Important is a Good Coffee Supplier for Your Coffee Shop?

When it comes to running a coffee business successfully, choosing the best coffee suppliers is incredibly important. These coffee suppliers are known to be the unsung heroes of your business and play a vital role in the growth and development of success. Coffee...

How to Start a Business: 8 Steps to Open a Coffee Shop in Australia

Are you planning to start a new business? Is the idea of opening a coffee shop in your mind? If yes, you might be searching for a proper step-wise procedure for opening a coffee shop in Australia. Search no more. This guide will provide complete guidance on starting a...

La Marzocco Linea Mini: home-barista coffee machine review

BUY LINEA MINI The Linea Mini is a coffee machine that bridges the at-home and commercial markets. Whether you’re looking for a coffee machine for your coffee shop, starting a pop-up coffee shop, or just refining your coffee-making skills at home, it’s a handy...

Coffee Wholesale Operator

Salary and Remuneration: TPV = $60K p.a (incl. supperannuation) + Bonuses Full time including: Sunday, Monday, Tuesday, Wednesday and Thursday Part time: negotiable. Are you a Barista looking for the next step up within the coffee industy? Do you have an...

One of the most pressing questions we hear from people we know around the coffee industry that plan on opening a cafe is this: “I want to invest my money in a business, is opening a coffee shop a good investment?”

Well, that is a tricky one! There is a number of things that can impact how good of an investment a coffee shop will be. This is a small list, just to start:

  • Location
  • Staff Wages
  • Rent
  • Cost of goods
  • Actual revenue
  • Menu items
  • …and the list goes on

If you are starting a business from scratch, it is pretty hard to predict some of these numbers, especially if you have never operated a cafe before. So, when opening a coffee shop, we always recommend buying an existing business and working from it over starting a business from scratch. We have actually written a whole article on it, if you are interested you can click this link to read it.

So, considering you are buying an existing business and starting from at least a break-even point (which could take up to 2 years when opening a cafe from scratch), in our opinion, the trick to make sure your investment will be profitable lies in the moment you are buying it.

Gain when you buy

There is a number of things you can look for (and also look at) when you are analyzing a business to buy, making sure you venture in opening a coffee shop will result in a great investment. You need to look for hints that you can buy a cafe that is currently not performing at its best (so you can negotiate a lower purchase price) and has good potential to be flipped and start to make much more money.

You should be looking for things such as:

  • Location: is the cafe located at a high traffic spot? Do you see lots of people walking past it? Is there parking spots in front of the location? Is it close to supporting businesses that might help you get more clients, such as hospitals or bank branches? We actually have a whole post just on “Location”, click here if you want to have a look.
  • How is the service? Is it efficient? Do you see things that you can improve to get more clients coming in?
  • Relationship with the customers: how is the relation with the customers at that venue? Is there any room to improve? How?
  • Menu: how is the quality of the menu items? Is the menu too big, making the venue lose money? Or is it too small, making it lose sales? Do you have any idea on how you could do better?
  • Pricing policy: how’s the pricing compared to the competitors in the region? Is it so high that scares people away? Or too low that makes the place look cheap and cuts the business margins?

Look for things you think you could do better. Look for a place that has room for improvement and that you feel confident you could turnaround. Then make an offer.

It is always a good idea to consult a business broker to make sure you are buying a business that is aligned with your needs. If you are lost, we recommend talking to these guys here.

Opening a coffee shop: let’s talk numbers

Of course, before you open a coffee shop you want to know how big your margins can be. Now, this is what the main numbers of an averagely managed cafe usually look like:

Based on a coffee shop that sells $300k/year

  • Rent represents 15% of the revenue;
  • Wages represent 35%;
  • Cost of goods around 35%;
  • Utilities a maximum of 1%;
  • Taxes around 23% (if a sole trader).

Yes, the math is right. You are left with -9% of net profit. In this example, that would be loosing $-27k / year. 

Make opening a cafe profitable: here is the trick 

Now, here is the trick: let’s say you went ahead with our advice plus a good broker and instead of opening a coffee shop from scrattch you managed to acquire a business with great potential for $50k. Then you work the business and manages to increase the revenue from $300k to $500k/year.

Here is what will happen:

  • Rent won’t change, so it will now represent 9% of your total sales
  • Also, and since you are working on the business because you want to flip it, so you get a salary, let’s say you manage to get your wages to represent around 25% of your revenue.
  • If you do a good job negotiating with your suppliers now that you are selling more and, consequently, buying bigger quantities, you can get your cost of goods down to 31%.

In the end, now, you will be left with 11% of 500k, which amounts to $55k. How does that sound?

Doing a very conservative analysis, after 1 year of working the business, you will now be able to sell it for more than twice the amount you paid, or $110k. So you get you $50k back, plus $65k extra on the sale, plus the $55k new profit you did in the year.

You went from $50k to $165k in one year! That sounds like opening a cafe is a good investment, doesn’t it?

It is a lot of work, though

It does sound good. And I have to say, these are real numbers from a cafe we’ve owned and sold years ago. But you need to know this: it takes a lot of work and real commitment to making opening a coffee shop a good investment.

So get ready, roll up your sleeves, and let’s get working!