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19/09/2013

The Importance Of Due Diligence When Buying A Café

1277878_24146173The following article was contributed by BusinessesForSale.com.

Buying a business is one of the most exciting investments you can undertake. It also has the potential to be one of the riskiest. However, there are steps you can take to minimise any risk and they are described as 'due diligence'. This involves finding out as much as possible about the business and the key is to be thorough in your investigations. Many aspects of due diligence are the same, regardless of the kind of business, such as determining whether the finances are in a healthy condition, but there are some features which are specific to the catering industry.

Premises

Most café businesses operate under a leasehold agreement, which would mean you would take over the lease rather than buying the building. You should contact the landlord to discuss terms, such as the length of the lease, and ascertain the size of any bond you would need to provide. Additionally, you must reassure yourself of the suitability and soundness of the premises and ensure that there are no civic plans, such as building a new shopping area or road, which might adversely affect the café. Check whether the building has had all the required hygiene inspections and meets safety
regulations by examining the certification. 

Finances

Any reputable businessman would be prepared to let you examine the company’s accounts for at least the previous year so that you can be confident that it is a going concern. If they seem reluctant to let you do this, you should ask yourself whether you want to deal with them. In addition to examining the books, you should ask the vendor certain questions:

  • Are there any outstanding debts?
  • Has the level of trading changed in any way recently, such as with a drop or increase in takings?
  • What assets will be included?

If there is anything you are unsure of, ask for clarification or ask for your accountant to be present when discussing the issue.

Other Assets And Staffing

Once you are certain of which assets are to be part of the transaction, make sure that they are fit for purpose. For example, confirm the condition of any kitchen equipment and the furniture in the customer area. If staff are to remain with you, check the terms and conditions of their employment and their areas of responsibility, as well as acquainting yourself thoroughly with the wage bill as an actual figure and as a percentage of overall costs. 

Additional Information

There are several other issues which have a bearing upon the desirability of the business. For example:

  • What is the produce supply like? For example, is it good quality and what arrangements have been made regarding regular deliveries and payment for the goods?
  • Is the vendor planning to open a rival business nearby?
  • How many hours does the owner work to maintain the current level of success?

You should also ask the owner why he has decided to sell.

Whether you are experienced in the catering sector or not, you should ask the owner to let you observe the running of the business, or even help out. Any time spent on due diligence will ultimately be a worthwhile investment.

This article was contributed by BusinessesForSale.com, the market-leading directory of business opportunities from Dynamis, the online media group also behind FranchiseSales.com and PropertySales.com

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