Twelve questions to ask before you make an offer on a café

A good seller is happy to be asked hard questions. A seller who is slow to answer, or answers a different question, is also giving you information.

These are the twelve things I would ask before putting in an offer, grouped by the risk each one protects against. Each maps to a check in the scorecard.

Is the revenue real?

1. Show me 12 months of POS reports next to the bank statements, month by month. Where do they differ, and why? Everything else depends on this answer. See don't pay for revenue you can't prove.
2. Give me daily transaction counts and average ticket from the POS for a typical week and the busiest week. Customers times spend times trading days should land near the stated revenue.

What does it really cost to run?

3. What is the rent including outgoings, when is the next review, and is it fixed, CPI or market? See why rent above 15% of revenue kills most cafés.
4. Can I see supplier invoices and stocktake figures for the last 12 months? Food and drink should sit around 28 to 32% of sales.
5. Who is on the roster, what is each person paid, and what does the owner actually do each week? Ask for payroll records. This is where the owner's unpaid hours show up.
6. Show me prime cost by month for the last year. Which months were worst, and why? See prime cost.

What is the profit, really?

7. What is profit after a market wage for the owner? Which costs are being added back, and can you prove each one? See the add-back that flatters almost every café listing.
8. What hours does the owner really work, and which of those jobs would I have to hire for? At 60 hours a week, you are buying a job.

Can I keep the site long enough?

9. How many years are left on the lease including options? Are the options mine to exercise, at what rent, and will the landlord confirm it in writing? See lease term versus payback.

What is the price based on?

10. How did you arrive at the asking price, and which comparable sales support it? See what multiple should you pay.
11. What would profit need to be for me to be paid back in three years, and where would that extra profit come from? This turns a vague price discussion into a concrete one.

What costs are hiding?

12. Can I see the equipment age list and service records, and what does the lease say about make-good? Has it been quoted? Failing equipment and an unpriced make-good clause are costs that never appear in the P&L.

How to use the answers

Write the answers down. Mark each one as proven, claimed or refused. A proven answer you can price. A claimed answer needs evidence before you rely on it. A refusal is a decision the seller has made for you.

Then run the numbers with what you can prove, not what you have been told.

Before you commit to anything, have an accountant review the financials and a lawyer review the lease and contract of sale. The questions above help you find the problems, and they do not replace professional advice.