Tuesday, 3 April 2012

established business or blank space??

if you don't take risks, you'll never move forward.
Alrighty, I know many of you have been holding out all day for this. So as promised we now have the exciting topic of.......drumroll..... the pros and cons of buying into an established business as compared to moving into a blank space.

First off is taking over an existing business. With this you get the benefit of walking into a premises with all the equipment and general processes in place and therefore also the potential of making money from day dot. This means no taxing that precious brain of yours with issues like DA applications, logos, layout, plumbing and yada yada. The major downside of this approach is that it costs. Expect to pay a decent amount for goodwill (the intangible value of a business) as well as for the fixtures and fittings. Ensure you look at all the business financials to determine if you are paying the right price. The other bumma of an established cafe is that you will find it harder to stamp your own feel and aesthetics into the place which a lot of the time is a big part of the excitement when opening a cafe/restaurant.

A slightly cheaper alternative to the one above is to find a business that isn't doing so well. Sometimes you can pick up a bit of deal doing this, especially if the owner is looking to vacate or get out of the lease. You can then offer a nominal amount for the business - say $10k and you still get to walk into $30-40k worth of equipment. Obviously try to understand why the previous business flopped. Can you make it a success or is the place doomed to failure.

Lastly, theres the option of moving into a blank space. You have the freedom to design and the fit out the shop as you please and yes you get all the headaches of dealing with the council, electricians and carpenters that go along with it. Designing your own cafe from scratch can be hugely exciting, attempt to not get caught up in the euphoria of your shiny new bank loan and the many ways to spend it. Before you can say 'david copperfield' you're over budget and only half way through the fit out process, doh! Do get plenty of quotes/timeframes from contractors and triple check your calculations. Include time spent working on the business with no income rolling in. If you decide to go this route, negotiating a rent free period with the landlord is a must - approvals from the council can take months to process.

Personally, I have lots of ideas for how I want my cafe to operate and look like. Therefore I will be creating it from scratch but in a property that was previously a cup cake shop so it already has a decent fit out in terms of kitchen equipment and storage.

The couple of links below will help you out if you're thinking about this sort of stuff. There's an incredibly boring but easy to follow explanation of calculating goodwill and a link to the NSW Trade & Investment website which actually has a surprising amount of useful information for small business including legal compliance info. Happy reading!

Valuing a Business

NSW Gov - Business Locations

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