Valuing a Coffee Shop
Valuing a business often confuses everyone involved, however there is a simple approach to what is generally taking into account
You can break it down into two parts = Earning Potential & Equipment Value
So long as you have your lease setup correctly and you can prove your financials, you can then work out what that income stream is worth.
Profit = How much money is left over at the end, after everyone else is paid.
The first step is to work out what the net profit is after rent, outgoings, wages and salaries, cost of goods, expenses, fees etc. The next step is to annualize the amount which means to find out what the profit is for a year.
This annualised profit amount is then multiplied by a magic number. This number is called the multiple and differs from business to business. It means how long the buyer wants to get their money back from the business.
Knowing your business and knowing what you need to have in place to get a better price for your business is very important
Here are a few key points to help you make sure you are ready for selling your coffee shop, and for any questions that might be asked from prospective buyers.
Where do you fit in the market?
Are you in a good location?
Is the business reliant on the owner?
Where do your customers come from?
What systems do you have in place
What are your weekly sales?
How much coffee do you sell a week?
What is your weekly profit?
Where do you see growth?
If the net profit is $100,000 per year and a buyer wants get his money back after 2 years, then the multiple will be 2 and the income valuation of the business will be about $200,000.
Coffee Shops typically have a multiplier between 1.5 and 2.5. The better the café is the higher the multiple.
The longer the lease, growth opportunities, customer base, position, social media marketing results in a higher multiple.
Annual Net Profit x Multiple = Income Valuation
Valuing your Coffee Shop’s equipment and stock
List all the equipment you have in your café and then put a value on that.
Valuing equipment is pretty simple, it is the purchase price minus wear and tear.
Remember to take into account what it would cost to replace the equipment.
List all the stock in your café and put a price on that, including coffee beans, drinks, dry good, etc to give a guide on how much stock value you are holding.