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My wife and I have been looking at a small cafe in small town that is for sale cheap. Owners are elderly and don't want to run it anymore. It was in operation for 13 yrs and about half that time was leased out. It has been closed for 6 mo. and is for sale for half what it is worth. (25K). It is turn key and includes everything, pots,pans,dishes, tableware, tables, all stainless equipment etc.
Building is 13 yrs old and solid. My wife is a cook supervisor in 100 bed nursing home so knows how everything works.
We have never ran a cafe but did manage a small trucking co. few yrs back. What are some things we need to know about?
We know cost of Ins., lights, food inspector, fire marshal. We applied for loan and if we get it payment will be low enough to take time on it. It seats 50 and has a loyal customer following. Also town is dry but city council is willing to give permission for beer/booze permit.
On such a small amount financed and being commercial property will there be closing costs as with normal mortgage? Any other things do I need to know about?
You might have more success posting in the Economics/Business section. Most agents here are residential, though a commercial person might chime in here.
You should also check with the small business admininistration, they have lots of information and mentoring on getting business up and running. Restaurants take a LOT of time to run and have a very high failure rate. Do you also have the cash reserves to pay yourselves/bills until the cafe becomes profitable. Will one of you keep working and bringing in a salary?
Good luck with this, just make sure you think through the whole business and do a cash flow projection on more than just the cost of running the building.
Can you put 25k together in cash? Seems like you wont have the funds to run the day to day operations if you don't even have that. Yes there will be closing costs but most likely no lender will write a cmbs for 25k.
Regardless of the price, it is a huge mouthful to swallow.
For starters, a place that has been closed for six months does NOT have a loyal following. You MIGHT get some of the former customers (if they are still vertical) for a one time shot. If they don't like it, or you, or that fact that grandpa and granny are gone, they will never come back.
Good advice to have a years worth of expenses saved before you go into business for yourself. Assume the business will generate negative cash flow, and you will need to fund it, and you, for at least a year.
And yes, if you get financing, there will be closing costs. There will be costs for EVERYTHING--most of which are things you won't even see...like permits, for starters.
Alcohol is a double edged sword. It draws people in, but it also draws drunks in. And it means a whole new, higher level, of inspection. If the town is willing to bend, and you need that revenue in your business plan to make it work, get the town's promise in writing. I have NEVER heard of a dry town making an excpetion for ANYTHING, but maybe i am naive.
Running a small business is a huge challenge. Running a restaurant is even bigger. The hours; the suppliers; the customers; the help; the inspectors; etc. can eat you alive...and you don't want to be part of the menu, i assume.
Location: Mokelumne Hill, CA & El Pescadero, BCS MX.
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May I suggest you lease the operation for a year with an option to purchase it. Very little capital outlay to start, a chance to see if you actually like running the business and can turn a profit at it.
As already mentioned, commercial lending is virtually dead for mom and pop. Very doubtful you'll find a lender who'll finance this. Should look into seller financing or other create ways (like parents financing )
Also, check with your state's environmental law - some states make commercial land owners responsible for environmental cleanup. If your state is one of them, make sure the cafe's ground is not contaminated. Especially if it's close to a gas station.
Lease to own mentioned by DMenscha is a good idea.
I would seek out advise from a local Business Broker who specializes in restaurants. They can help you value the "business". Sounds like an "asset sale", as there is no revenue to base the value upon. I'm not sure a bunch of pots and pans are worth $25K. Many operating restaurants sell for less than asset value because the owners just want out. If the real estate is included, that's a different equation though.
A good business broker will know the numbers on whether the surrounding demographics will support the operation, what type of menu to offer, price points, hours, etc. I'd get as much info as possible. Restaurants have a very high failure rate because owners don't do the required planning and research up front. Many cripple along and the owners eventually get burned out and sell.
I'd offer an owner financed deal, with payments deferred until you can start generating revenue. You'll need operating capital. If you have hard assets, especially real estate, a local lender would probably work with you on a small business loan.
Location: When you take flak it means you are on target
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$25K AND it includes the building? Where is this? If you don't want it I might!
Just setting up a Subway franchise will usually run you $75K. What do commercial buildings cost where you are? A three unit storefront in my town will run $255,000 to $750,000 depending on location, and if you are talking about most any large city put a "1" and a comma in front of those numbers.
So what's the story? Exactly how many meals do you expect to sell? Have you done a demographics study? Have you done a survey of what the people in the area eat and what they want to eat? What is the "trade area" analysis? Do you even know what that means? (No offense, but success in business depends upon knowing these things - that's why 95% fail - you can't just guess.)
My rule of thumb on commercial properties (I own several) is they MUST be in the primary trade zone for the market. What that means is there is always a block or two that is the "center" of town, where most of the business and customers happen. If you aren't in that zone you will lose 90% of the business opportunity. Unfortunately those prime areas cost big $$ - because that's where the money is to be made. You can do well by anticipating future growth areas, but that's too detailed for this discourse.
My second rule of thumb is you MUST OWN YOUR BUILDING FREE AND CLEAR (or nearly so, $25K is OK). If you have a big rent or mortgage "nut" to crack each month the only person who will make money is the landlord or the bank - and in 95% of the cases you will go out of business within 5 years. It's just a fact. Sooner or later business falls off or there is a recession or Wal-Mart moves in, whatever. If you own the building you can reinvent your business to fit the demographics and local needs, otherwise you are out.
Look at any trade zone where you live. The businesses that last year in and out are the one's who's grandparents bought the buildings back when they cost $5,000 - and the places have been gold mines ever since. Such places can still be found and through much hard work you can leave such a location to your heirs. But you gotta own the building!
$25K AND it includes the building? Where is this? If you don't want it I might!
Just setting up a Subway franchise will usually run you $75K. What do commercial buildings cost where you are? A three unit storefront in my town will run $255,000 to $750,000 depending on location, and if you are talking about most any large city put a "1" and a comma in front of those numbers.
So what's the story? Exactly how many meals do you expect to sell? Have you done a demographics study? Have you done a survey of what the people in the area eat and what they want to eat? What is the "trade area" analysis? Do you even know what that means? (No offense, but success in business depends upon knowing these things - that's why 95% fail - you can't just guess.)
My rule of thumb on commercial properties (I own several) is they MUST be in the primary trade zone for the market. What that means is there is always a block or two that is the "center" of town, where most of the business and customers happen. If you aren't in that zone you will lose 90% of the business opportunity. Unfortunately those prime areas cost big $$ - because that's where the money is to be made. You can do well by anticipating future growth areas, but that's too detailed for this discourse.
My second rule of thumb is you MUST OWN YOUR BUILDING FREE AND CLEAR (or nearly so, $25K is OK). If you have a big rent or mortgage "nut" to crack each month the only person who will make money is the landlord or the bank - and in 95% of the cases you will go out of business within 5 years. It's just a fact. Sooner or later business falls off or there is a recession or Wal-Mart moves in, whatever. If you own the building you can reinvent your business to fit the demographics and local needs, otherwise you are out.
Look at any trade zone where you live. The businesses that last year in and out are the one's who's grandparents bought the buildings back when they cost $5,000 - and the places have been gold mines ever since. Such places can still be found and through much hard work you can leave such a location to your heirs. But you gotta own the building!
The price includes the lot and building and all contents. It is located in a very small town of 500 but has mostly farmers coming from a 30 mile radius. It is 1 block off hiway on main. It was built new in 1999 with funds donated by the community so they would have a place to eat in town.
The farmers in this area are fairly well off and several have oil pumping on their property. The town has mostly retired people living here with nice homes. I know a person that used to do all positions at cafe when open and plan on talking with her on in's and out's of operating it.
The last 5 yrs it was leased out 4 times by people wanting to make a fast buck and did not know how to cook wisely. So the cafe council and owners just want it sold or plan on auctioning it off piece by piece.
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