Buying a coffee shop in a bustling area could certainly prove to be a fruitful investment, but like all business purchases, due diligence is required, to minimize risk.
Very likely, if your purchasing process involves any kind of loan from a financial institution, due diligence will be required at multiple steps of the process. The detail of due diligence however, lies in how different types of properties will have unique nuances that make the process unique. In this article, I want to outline five tips to consider, when evaluating the feasibility of buying a commercial, coffee shop business.
1. Evaluate your own experience
Before you embark on the mission of gathering all necessary items required for your bank, business partners, sellers, etc, you first need to evaluate your own experience, specifically as it pertains to commercial coffee shop ownership. Every type of hospitality / food business has its own unique characteristics, and you need to feel confident that you (or your team) have what it takes to excel. Some of these experience criteria could include:
- Experience in fast-paced retail or food service
- Exceptional customer service skills
- Scheduling acumen (for shifts)
- A real love for coffee and the cafe culture.
Coffee is truly an artisan business, and true connoisseurs are picky about what they drink. By identifying your previous experience, strengths and weaknesses, you can evaluate how likely your new coffee business will succeed (or maybe fail). The food industry as a whole, requires meticulous attention and planning, and lack of experience in this world can end up being much more detrimental than anticipated. That could be a massively expensive mistake to take on.
2. Evaluate Locality
Location is critical to the due diligence process of finding an investment property. Surely, you’ve taken into account some of the more popular locality topics such as foot traffic volume and nearness to residential communities, but what about the 5-10 year expansion plans of the city? Is there ample parking? Do people in that area even park- or do they walk everywhere? What about the crime rate or competitors in the shopping center right across the street? There’s no perfect solution when it comes to evaluating feasibility of location, primarily because each location, property, and buyer type is different, but you should go into your feasibility testing with some concrete ideas of what to look for (and what to avoid). If you’re not sure which questions to ask, our preferred commercial real estate agent team at BizPappa are happy to help, just drop us a line at firstname.lastname@example.org
3. Evaluate online presence
Third on our list is the importance of having a solid online presence- but I’m not just talking about one for yourself, I mean checking to make sure that the coffee shop you’re buying already has a community online. Digital marketing is huge, and social media marketing for real estate is just one of the many ways that businesses are able to maintain clear communication with their customers. If you’re purchasing a coffee shop that has been around for a minute, there’s a good chance that they have an online community on platforms like Facebook, Instagram, Twitter, and Google Business. Do some research and identify the value of that digital community- you might find yourself with a bigger pot of gold than expected. Just be sure to include those digital profile assets in the agreement when purchasing, as they won’t be always included upfront.
4. Evaluate Financials
This is the elephant in the room, mostly because every single blog, realtor, website, will hark on how important it is to evaluate existing finances. It REALLY is that important. For coffee shops, keep in mind that there are a lot of modular pieces of equipment (for shipping and storage purposes) so be sure to evaluate how those are performing- financially. Machinery on it’s last set of wheels could be a costly replacement for you as a new business owner, so it’s important you collect those financials from the current owners, prior to committing to anything. Financials are a complex topic, and I do not suggest anyone pursue a commercial real estate purchase without consulting with professionals. If you’re new to this buying world, I suggest reading articles like this one (relevant link) that go into more depth about finances, as well as reaching out to financial experts. If you need references, please reach us at email@example.com and we can get you in touch.
5. Evaluate Personnel
Lastly, you will want to spend some time assessing the current coffee shop personnel. While some business owners prefer to hire all new staff, others will keep the existing ones, but it’s important to assess the performance and quality of each option. In some cases, you might be required to keep some staff from previous ownership, which in fact might be a good idea, as experienced employees will be most familiar with the area, equipment, and more. If you’re a new business owner, having experienced employees can also help you get a better understanding of how business is usually conducted (which you can digest at your own discretion), as well as important bits of tribal knowledge such as which nights of the week are the busiest, and crowd behavior on important dates like ball games, concerts, etc. Taking the time to assess existing personnel (or the possibility of replacing them), is something you, as a pending business owner, should be very mindful of.
In general, buying a commercial coffee shop business is similar to other type of food & beverage purchases, but you should take the time to really learn about how the coffee shop culture (and industry) operate, as well as where and how they best flourish. If you need assistance with this process, we have a team of partnered agents that can help. Please contact us at firstname.lastname@example.org