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Cafe business investment for £15,000

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HollyD

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Apr 13, 2020
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Hi everyone can I please ask for you advice and help as I need as much as I can get.

I have been offered to invest £15,000 into a cafe business in the Derbyshire area once this whole things gets back up and running. I know you its best to sit and think about it but they want an answer by next weekend so am asking as many experts as I can until then.

The takeover is between £6,000-£,9,000 per week but I have no idea if that is good? There are currently just a married couple that own it.

Is it worth it do you think? Any help would be really appreciated. Thanks, Holly.
 

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Kid

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The whole "answer before <some date>" seems like a too much of pressure from honest seller to me.
How well do you know those people? Are they trustworthy?

If you want some fundamentals , then look for last few years of revenue, profit on that revenue and see if there is an downward trend.
Also ask "why specifically" they sell.

Btw. is it buying whole business or investing to get percentage of stocks? It doesn't seem to be clear from your post.
 
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HollyD

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Apr 13, 2020
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The whole "answer before <some date>" seems like a too much of pressure from honest seller to me.
How well do you know those people? Are they trustworthy?

If you want some fundamentals , then look for last few years of revenue, profit on that revenue and see if there is an downward trend.
Also ask "why specifically" they sell.

Btw. is it buying whole business or investing to get percentage of stocks? It doesn't seem to be clear from your post.
Hi thanks and oh yes sorry its to go in 50-50 with them so I will own half. I havent seen the books yet but they say it keeps increasing and they have had it just over 4 years.
 
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Arnaud.

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Hello,
I have a friend who want to run a restaurant with someone else. Every time, the question was the same : do you know this other person ? @Kid is right, the important thing is the person. If you know them, you know if they will give you back your money. If it’s a stranger, be careful.
Ok for takeover, but benefits ? Why they needs this money ? What do you earn ? Is the coffee already exist ? Is a new investment ? Please give more details ;-)
 

Royce2

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I would never let anyone buy 50% of my cafe for 15k if it is doing good.
Thoughts to consider.

* What are their expectations for the amount of work/input you will be putting in?
Imagine someone selling 50% of their company and just kicking their feet up while you do the running.

* Why you specifically? Is it because you are family? Friends? That you are pretty and will be a great face of the company? Or just because of your money?

* How will your money be used? Payroll? New stuff? Make a payment? Mafia?

As @Kid said, super quick deadlines show signs of desperation, or to get you to bite the hook faster so you would spend less time on due diligence hoping you miss something. - use that for your advantage

Again, maybe its because they are running low on their cashflow because of the virus and they need money to stay afloat. However, that's my only understanding why they are willing to give half.
 

FrYo

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Apr 15, 2020
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Hello ,
I would advice you to take a look at their financial statement and Cash Flow balance sheet of the whole business on what concerns previous months and years , except that, try to organize a due diligance. But after all don't rush too quickly since there should be no client (or few ) and no mean for you to have a real image of the coffee, what else? you can still negociate if it appears reliable as business .
 

Lucky Lu

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I wouldn't do it. Investing in brick and mortar needs to be a slam dunk deal as well as a passion. If even just one of these things don't apply then just say no. There are smarter plays with £15,000.
Hi! Would you care to elaborate on that? What would be good options with 15k?
 

aeden

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Hi everyone can I please ask for you advice and help as I need as much as I can get.

I have been offered to invest £15,000 into a cafe business in the Derbyshire area once this whole things gets back up and running. I know you its best to sit and think about it but they want an answer by next weekend so am asking as many experts as I can until then.

The takeover is between £6,000-£,9,000 per week but I have no idea if that is good? There are currently just a married couple that own it.

Is it worth it do you think? Any help would be really appreciated. Thanks, Holly.
Have you had a chance to read the Millionaire Fastlane book yet? Just based on what I see above, it seems like it does not fit the CENTS framework. To me it sounds like you may be in for a job masquerading as a business.
 

UnrealCreative

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they want an answer by next weekend
Red Flag. They're broke.

It's not an 'investment' if their location is shut down and they need money by this weekend.

Ask them why they're asking YOU for money, and not traditional sources (Banks, etc.).
If banks aren't giving them what they need then maybe they aren't creditworthy?

Not sure how you'd do this but if you *really* want to get involved, figure out a way to lend hard money as a bridge loan and use their personal assets as collateral?
 

Visionary96

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Oct 23, 2018
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Would personally avoid anything to do with restaurants, cafes and hotels at the moment. Could be years before things get back to normal. Heard the midlands have been hit pretty bad as well but maybe that's just specifically Birmingham though.
 

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AgainstAllOdds

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How much do you think the average Starbucks location makes per year? Answer that question and then click on the spoiler below.

£95,000 per year. 18% of revenue.

It's a tough business.

That combined with the red flags, I'd stay out.

£15,000 for 50% = £30,000 for the whole business. Assuming a 4x multiple (stable small business), this company needs to bring in over £7,500 profit per year after paying employees to be valued at that.

My guess would be that the business is losing money every year and they're looking for anyone to float them for a bit.

Ask for past 3 years tax returns. If the tax return numbers are good and you want to gamble, then gamble. If they're not good, or if the owner's don't want to show tax returns (I'm willing to bet that this is what will happen when you ask), then it means the opportunity likely doesn't exist.

There will be opportunities with the current climate, but always do your due diligence. No tax returns or excuses = no investment.
 

EVMaso

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Hi! Would you care to elaborate on that? What would be good options with 15k?
Wow with 15K you can do a lot. You can put that towards improving yourself (new online skills for instance) and go that route, you can put it towards a downpayment on a property that will cash flow, use it as runway while you start another hustle, there's too much. These all seem like better moves than investing in a cafe that probably has little upside outside of typical cafe profits.
 

minivanman

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It's clear why it is a no-brainer NO to me. Do NOT have a business with a partner if your goal is to make a profit. If you are in it for fun, maybe.... with the right partner. I always had my core business that made my money...... and then I had other businesses, some with partners..... did I need those businesses to eat? Nope, they were for fun only. And at first, it had to be both ways. My partner must not be using that business to make money to eat. And I always stayed away from food style businesses...... but even today, I dream of opening a shake shack. We were at a shake shack yesterday and I just love them $$$$ It has been open for 61 years. Actually the name of it is the Malt Shop.

Later in life I've had businesses with people that was depending on that business to eat but only because I was helping them..... it wasn't really an investment of money to me, it was me helping them.

Make your own business, don't make your business a pain in the @ss that you have to share with others who might not have the same goal as you in 1 or 3 or 7 years. If the cafe is doing so great, why do they need such a small sum of 15000?
 
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HollyD

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Apr 13, 2020
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Hi guys thank you soo soo much for all your advice I truly appreciate it!!!!! I agree with everything you say. The couple are an uncle and aunty of one of my best friends so I know them to be honest.
But I agree I don't think it is for me after getting lots of advice over the last 2 days which is a shame as I reallly want to do something and invest and make money. I reallly want to start making my own money but cant rush it in this climate now I am aware! Thanks again, Holly x
 

Zcott

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Another good question was how long do other cafes last in the area? Do new ones spring up and close a few years later with a few that remain? MJ mentioned this in his book using a pizza restaurant(I think?) as an example, but I've seen it too where I, live just outside Portsmouth, with new cafes opening up every year only to be gone the next.

It might be possible that the area just doesn't need another cafe. Although your friends uncle and aunt might be wholesome in their intentions, the longevity of competition in an area is something to look out for.
 

100k

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I wouldn't do it if I were you.

Tell them to do 1.
 

Shazelle

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Apr 13, 2020
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Hi everyone can I please ask for you advice and help as I need as much as I can get.

I have been offered to invest £15,000 into a cafe business in the Derbyshire area once this whole things gets back up and running. I know you its best to sit and think about it but they want an answer by next weekend so am asking as many experts as I can until then.

The takeover is between £6,000-£,9,000 per week but I have no idea if that is good? There are currently just a married couple that own it.

Is it worth it do you think? Any help would be really appreciated. Thanks, Holly.
Hi Holly Im just down the road and Staffordshire. I've ran cafes and I have clients who do too. I would strongly recommend that you don't do it. Here's why. All the existing businesses who survive this are going to work really hard at getting customers in. It's going to be a crowded market, with low customer confidence and probably one of the last things to come back online. Profits are likely to be scant. If you want to discuss in more detail please message me through my website creativestudio.rocks.
 

QuantumLeap

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Dec 25, 2018
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I wouldn't do it b/c of the time pressure i.e. You don't really have time to do your due diligence properly.
And also I would ask them what the money was for. If it's for an AI-powered brewmaster 5000 I would probably go with it if not then F*ck it.
 

Dianne Cohen

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Sep 7, 2018
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My husband has been building restaurants for as long as we have known each other. It is a difficult business. Unless you know the business well and are experienced in this particular niche, I would stay away. You don't know enough about the business. I agree with everyone else about the pressure for an answer next week. How does he justify wanting the answer by next week?

I would see the financials for the last 3 years. Often businesses show a big increase in the year before they want to sell.

Good Luck. I hope you do what is best for you.
 

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Walter Hay

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I have relatives who bought a small cafe that appeared to have a lot of locals as regulars, and some passing trade. They lived not far away so they were able to stroll past and look inside every day or two while thinking about it.

The price was not high, so they foolishly did minimal due diligence. They got a big surprise when they discovered how high their costs were. Not only that, but they also found that they had become slaves to the business, with very little free time. They lasted a year.

Currently I live in a beautiful rural area where the main industry is tourism, and tourists from the big smoke flock to the 3 small townships in the area every weekend. They are well catered for by dozens of coffee shops.

Every month or so one of those coffee shops closes down. There are always dreamers ready to lease the premises and open the business again.

Think long term and you will look for a more sustainable business type.

Walter
 

Visionary96

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Oct 23, 2018
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I have relatives who bought a small cafe that appeared to have a lot of locals as regulars, and some passing trade. They lived not far away so they were able to stroll past and look inside every day or two while thinking about it.

The price was not high, so they foolishly did minimal due diligence. They got a big surprise when they discovered how high their costs were. Not only that, but they also found that they had become slaves to the business, with very little free time. They lasted a year.

Currently I live in a beautiful rural area where the main industry is tourism, and tourists from the big smoke flock to the 3 small townships in the area every weekend. They are well catered for by dozens of coffee shops.

Every month or so one of those coffee shops closes down. There are always dreamers ready to lease the premises and open the business again.

Think long term and you will look for a more sustainable business type.

Walter
I live in a small-ish town in in the South West of England and it always amuses when someone opens another coffee shop. There must be at least a dozen on our main high street, yet Starbucks is always the busiest, all the time. They usually survive a year and then close down. I cannot grasp how these people's minds work when they can clearly see the pattern. I put it down to the 'I love coffee so I'll just follow my passion and start a coffee shop. What can go wrong?!' mindset. Amusing but sad at the same time.
 

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