Made the big decision to sell your coffee shop? Or perhaps you’re making plans for a year or more down the line when you do want to move on.
Whether you’re nearly ready for retirement or
Preparing for sale
Before you put the business on the market, it’s wise to get the business premises, the processes and paperwork in the best possible shape.
There are obvious things like ensuring your accounts and other important documents are up to date, easily retrievable and that the premises
However, you could take more radical action, depending on the investment of time and cash involved compared to how much the business’s attractiveness to prospective buyers is enhanced. This could involve anything from replacing or upgrading coffee machines to repainting and fitting new carpets if things are looking a bit shabby.
It’s not worth doing anything too drastic. The buyer will have their own ideas so there’s no point wasting time finding new coffee suppliers or spending thousands on a makeover.
A suitably qualified broker can set up virtual data rooms, to which you can upload all relevant documentation. The buyer’s access will be restricted according to what information you are ready to disclose.
With everything accessible, virtually, all in one place, it makes the process faster and more efficient – and the buyer less likely to walk away in frustration.
“When valuing something, you can break it down into a couple of parts: capital (equipment) value and its income earning potential,” says Angus Nicol, a former financial planner and founder of Oz Café Exchange, on BlackMarketRoasters.com.au
“Valuing equipment is pretty simple. Basically, it is just the purchase price minus
Add to this the value of
“So long as you have your lease set up correctly and you can prove your financials, you can then work out what that income stream is worth,” he continues. “Once you find out what that net profit is after wages, rent, all expenses, tax, fees etc, you then annualise it – by that I mean
Profits will be multiplied by a certain ratio – “between 1.5 and 2.5” for a cafe or coffee shop. “The better the café, the higher the multiple,” says Nicol. “The longer the lease, the cooler the marketing, the more opportunity for growth, the higher the multiple.”
How to find buyers
Ways to find buyers include:
- Through business brokers or real-estate agents
- From among family, friends or employees
- By advertising in the local newspaper or trade publications
- Through word of mouth
- Through this website
Negotiations and legalities
Upon finding a buyer you must negotiate a sale price and the terms of the sale.
You could negotiate a higher sale price by accepting a portion of the payment in stages – known as seller financing – although this means waiting for some of your money and exposing yourself to the risk of a buyer default (although your solicitor can help you put protections in place).
Get the buyer to sign a confidentiality or non-disclosure agreement before you divulge sensitive information. The initial agreement will be set out in the non-binding heads of terms. Only when the buyer has completed due diligence – an in-depth inspection of your business, from books and records to the premises, equipment and how it operates day to day – will you then draft the final, binding sale agreement.
Based on the heads of terms the sale or purchase agreement will be more detailed – perhaps 20 pages or so – and include warranties and indemnities you’ve agreed with the buyer.
It cannot be overemphasised how important it is to get a competent solicitor experienced in reviewing warranties to guide you through the process.
Many coffee shops are leased. If this applies to you then don’t assume that securing consent from landlords or banks for the business transfer and related property and equipment leases, bank loans and overdrafts will be quick and easy. Seek these consents as early as possible to prevent delays.
Selling a coffee franchise
If you’re selling a coffee franchise then check your franchise agreement for terms relating to selling up – such as the franchisor having the first right of refusal. Chances are, the franchisor will have a clear transition plan in place.
However, “if the franchise agreement is silent on the issue of sale, you can still ask the franchisor to agree to the transfer” as “the franchisor’s consent is not required,” according to franchising lawyer Jane Garber-Rosenzweig.
Once you have a buyer lined up, however, they’ll probably have to meet the same selection criteria that you met, according to the Franchise Council of Australia.
Appoint a franchise lawyer
A franchise lawyer can help you:
- Review your franchise agreement
- Review the lease, if applicable
- Liaise with the landlord and oversee lease transfer
- Liaise with the franchisor
- Draft the contract of sale
The franchisor can help you value the business by sharing the prices achieved by similar franchise territories sold recently. The longer you have left to run on your franchise agreement, the higher the price you can reasonably set too.
Transfer the lease
If the franchisor holds the lease then they must either reassign the licence agreement or draft up a new one for an approved buyer. If
Be prepared to pay a number of fees and other costs, including:
- Business broker fees
- Accountancy fees
- Legal fees
- Landlord’s costs, unless the buyer agrees to pay tax on any capital gains accrued
- Transfer /sale fee to the franchisor, either fixed or as a percentage of
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