From deciding to sell up to handing over the keys to a new owner, the process of selling your cafe could take at least six months – and potentially much longer.
But the better and more comprehensively you prepare for this eventuality, the sooner you can find a buyer and the higher the price you might achieve.
Most cafe owners are hands-on proprietors: cleaning, preparing and cooking food and serving customers day in, day out, typically 5-7 days a week. You probably won’t have much time or energy to spare when it comes to overseeing the sale process.
Appoint a business broker or lawyer experienced in selling foodservice businesses and you can outsource much of the work involved. This includes preparing the business for sale, business valuation, finding buyers and negotiating the sale.
Preparing for sale
Before you put the business on the market, you should make the business as appealing as possible to potential buyers. This means getting the premises clean and tidy (which they should be anyway!) and all paperwork – related to accounts, the lease, taxes, payroll and so on – up to date and in order.
A modest investment could pay off in terms of finding buyers and even the price you achieve. This could involve anything from replacing coffee machines to a fresh lick of paint to refresh the interior.
Beware of going overboard though. The buyer will have their own vision of how they want the cafe to look, so you may lose out financially on an expensive refurbishment in advance of putting the business on the market.
Your broker could digitise and store in the cloud all documentation, granting the buyer access to certain confidential documents once they’re established as a serious buyer and, ultimately, having signed a confidentiality agreement.
Having paperwork accessible, virtually, through a web browser can simplify the process and avoid the risk of documents being lost in transit or mislaid in someone’s office.
Even if you don’t appoint a broker to help you advertise your business and prepare paperwork, it’s worth hiring one – or a suitably qualified lawyer – to at least value the business. Business owners are liable to get valuations wrong – both through lack of expertise and cognitive bias (they often overvalue but rarely undervalue their business).
Your broker will probably multiply net profits by a ratio within parameters appropriate for cafes. That ratio will be influenced by the cafe’s overall appeal – so a long lease or high footfall location might attract a higher multiple, for instance.
They will also factor in the value of the freehold or lease plus equipment like coffee machines, ovens and fridges and any stock, such as dry goods like coffee beans, drinks and so on.
How to find buyers
You can find buyers through relevant trade press, your business broker or real estate agents, as well as online.
Perhaps one of your employees or competitors might want to buy your cafe?
Negotiations and legalities
Once you’ve found a buyer and your adviser has verified that they’re serious and credible, with the means to fund a purchase, you must negotiate a price and the terms of the sale.
You could negotiate a higher sale price by accepting some of the payment in stages. Known as vendor take-back, this also means having to wait for some of the money, which could be problematic if you want to fund another venture or other asset quickly. Moreover, it puts you at risk of a buyer default, although your lawyer can help you put protections in place.
Your broker or lawyer can also draft a non-disclosure agreement to protect you from rogue buyers when it comes to sharing sensitive information.
The initial agreement will be framed in heads of terms or letters of intent. Not legally binding, these terms serve as a framework to finalise negotiations once the buyer has conducted due diligence: an exhaustive examination of your premises, paperwork, reputation and strengths and weaknesses around footfall, demographics and local competition, among other things.
Depending on what this due diligence uncovers, the buyer will either commit to a final, binding purchase of business agreement that closely mirrors the heads of terms, seek to renegotiate terms or even walk away from the deal altogether.
But once the final agreement is signed, both parties are legally committed to carrying out the transfer of ownership and monies in the manner agreed.
If your cafe is leased, as many are, be sure to secure consent from landlords or banks for the business transfer and related property and equipment leases, bank loans and overdrafts. Do this as early as possible in the process to avoid delays.
From getting the timing right to finalising the deal, you can find out more about the process of selling a business with our in-depth guide to selling a business.