The Basics Of Valuing A Cafe & Common Mistakes
After an appraisal call with a client earlier today, I wanted to quickly post this to give you some help around the thought process of valuing your business.
As I have mentioned in previous posts, many people that we work with are concerned about keeping the sale of their business confidential.
One of the biggest factors in selling without too many people finding out is making sure that your business is not on the market for any longer than it needs to be; price plays a big part in this.
Sounds obvious, right?
Pricing the business correctly is something that we find people often struggle with.
When you get this wrong, there are several ways that this can hurt you, and all of them cost you financially.
Basing the valuation of your business on what you paid for it is a flawed method, and here are a couple of examples of why that is:
The cafe owner that I spoke to earlier today had owned her business for three years.
During the time that she had owned the business, the sales, profits and expenses had all increased more or less in line with each other.
With that in mind, it’s understandable that she thought the business might be worth a similar amount to what she paid for it, but here is what was overlooked.
The current market is very different to when she bought the business three years ago; there are differences in buyer confidence, competition, number of businesses on the market and so on.
The lease had not been renewed, meaning that it was less than half the length of the original term and only had two years left.
The suburb had seen about four new cafes open and, whilst this business is holding its own, the lack of redecoration during the time of ownership meant that the shop is looking a bit tired in comparison to some of its newer rivals.
When we discussed the figure that they had been trying to sell for, I was interested to know how that number had been worked out.
The asking price had been based on what they needed to achieve for the business as well as what they had originally paid.
Both of these reasons are completely valid and can be achieved
BUT….
You need to work backwards and make sure that the numbers stack up; if they don’t, then you need to do some work on them before you list the business.
By starting with the end in mind (like any good plan), you can work towards getting the figure that you want or need for the business.
The process of thorough preparation will also make sure that you have a clear idea of the current valuation and, if there are issues holding the value back, this process will highlight them.
Is Your Cafe Worth What You Want For It?
IT IS POSSIBLE to get what you want for the business if you plan and prepare properly.
Many people think that in order to get a quick sale you need to get the business advertised as quickly as possible and start generating inquiries; this could not be further from the truth.
Think about the sale in a similar way to setting up your cafe: how good would your lunch service be if you just rocked up and opened the doors at 11:45 am with no prep done?
I am sure we have all had days where we have been smashed and underprepared; I have one particular Mother’s Day that has scarred me for life! Not a good feeling, right?
Try to look at the sale of your cafe in the same way; the better prepared you are, the smoother the sale will go, and the chances of you getting the return that you want increase significantly.
Obtain Further Information On The Value of Your Cafe
We have created a Facebook community for cafe owners and industry professionals to share the best tips, tricks and insights to selling cafes.
Get exclusive access to live Q&As, actionable advice, and an amazing community of like-minded hospitality professionals.
I would love you to join our growing community.
The group is all about helping cafe owners to sell in less time and for more money. Watch this space for more tips, advice and battle stories about selling cafes.
If you would like to learn more about preparing your cafe for sale, then why not book in a call with us. On this 45 min call, we will cover the following with you:
- What the current market value of your cafe might be.
- The steps you need to take to prepare for the sale.
- What the market is like at the moment.
- How to make sure that your cafe stands the best possible chance of selling.
There is no charge for this call, and there is no obligation. At the end of the call, if we think that we can help you, we will let you know how we work, and if we don’t think we can help, we will give you some advice about alternative options.
Either way, you will come off the call with a much clearer idea about the potential value of your business and what you need to do next to achieve a sale.
Click on the link below to book a time that suits you best. Once you have selected a time, you will be taken to a form that has around 10 questions about your business that will help us to get a better understanding and save time on the call.
