Cafe Owner Earnings

Hi guys,

For anyone who has worked or knows someone who has worked as a cafe owner operator, can they please comment on average weekly/yearly earnings? From what I have heard, if you buy and work 5-6 days in a cheap cafe (under 150k), your best odds of earnings ranges from 50k-60k after paying staff, suppliers etc. However when brokers advertise these cafes for sale, their figures suggest gross earnings ranging from 80k-120k which doesn't stack up.

If someone can shed light on what we actually end up earning, that would be great.

Thanks

Comments

  • the gross earnings quoted is when your mother and sister all work together with you for free

    • Lol. How true!

    • Aren't the gross earnings… just total takings? Considering COGS and wages are fairly high, I'm surprised if 120k gross earnings translates into 60k net earnings before tax.

    • Well paying your mother and sister is better than paying some random person from the community isn't it? Though I wouldn't work with my mother and sister for anything close to minimum wage. Not worth the stress.

      • I think the operative words there were "for free". A lot of these small businesses are family businesses are family ones where everyone pitches in… and don't show up on the books.

        • Wouldn't they all have to be part owner in the business for that to be legal?

        • @AustriaBargain: Illegal in… terms of minimum wages? They're family members and if it's a halfway functional family, who's going to report under/non-payment of wages? And any pay is going to be under the table anyway because they're family.

    • There is also options to add depreciation into the equation as well as amortisation

  • Even 50-60k would be a stretch

    • This.

      Hospitality margins are incredibly low as staff wages are so high in oz. The proportion of people who actually make money in the industry is probably less than 10%.

    • Agreed. As an accountant when I ask for the financial statements the broker either says the business is relatively new and doesn’t have statements or they send them with so many addbacks that make them look profitable.

  • it is always a lot lower then is actually quoted when buying someones business

    Buying a business is tricky because there is always a reason someone wants to sell and unless that reason is healthy issues/retirement generally it isn't good

    people dont sell successful business unless that are getting well over what it is worth.

    Most Cafe owners probably make in the 50-60k region but for tax purposes everything the own is 'purchased under the business' the only way to really make money on these kinds of small business is from 'cash money' over taxation coupled with high wages and always increasing rent has made it very difficult for small business I've heard that only 1 in 20 survive past 5 years.

    I've always wanted to own my own cafe but the fact is you work 10-12 hours a day and get little reward in most cases…of course location and decor are key

    • Yup. The few people I know who own cafes and made money off them… they make money by doing the hard slog of starting it up from scratch (negotiating lease, doing the fitout, arranging suppliers/franchisor, building a customer base, etc) and then selling it, probably to people like OP, for a profit.

      Actually owning and running the cafe? Eugh. 4-5am starts, work 7 days (if you want to make money), razor thin margins, competing with larger franchises, huge lulls in business depending on location, loyalty programs basically a requirement, etc.

      • The average cafe has extremely high prices for cheap food so im not sure why margins would be low. Sure theres wages and stuff but…look at the price of a "big breakfast" at cafes…easily $10-15 for some sausages, eggs and toast…all of which is super cheap to obtain from a supermarket or supplier…unless of course you buy "premium" and "organic" ingredients…

        Or a cup of coffee costing $5…

  • In Perth people are lining up to pay $4.50 / $5.00 for a coffee.

    More and more coffee places are popping up in the City.

    It must be profitable for so many to come up.

    • AND so many close 6 month later.

      • Yup. A lot of commercial leases come with a rent-free period for the business to start up. A lot of business are viable… until that runs out and they have to start paying rent.

    • I think it's because people like to dream of owning their own.

      Too many business's have closed down in Perth in the last 18 months. Its like a Ghost town.

      I'de hate working 12 hour days for $60k even for 100k doesn't sound like its worth it.

  • When you go through a Section 52, a common theme is understating wages and depreciation, and inflating value of inventory.

    Some are downright illegal by overstating revenue.

    You have to look at their lodged tax declarations. Accountant and bookkeeping reports are easily and routinely fudged.

    • You have to look at their lodged tax declarations.

      Good advice and really the only kind of due-diligence you can do before signing, cafe owners and other small business owners can and will also overstate taxable income on returns if they're planning to sell that far ahead.

      The only real way to ascertain earnings is to have a transition period with a pull-out clause, so you can work in the shop, physically check the level of business and takings, and have an out if it diverges from the disclosed numbers too much.

      • Careful re transition periods, I've known owners to get their family and friends to come during this time and spend large amounts (eg. birthday party, everyone orders a meal, coffee and dessert etc) to show increased earnings.

        • Oh yeah, nothing's perfect - but it's just another way to be safer, especially if the buyer's hands-on working in the business and can at least see if there are suspicious group bookings during the period.

        • I'd always go off at least 2 years otherwise, the price would have to be lower to reflect the lack of track record.

    • good idea. Thanks.

  • What happened to the daycare?

    Please don't try to start a business you're not experienced in, or it will fail.

    Cafes generally require the owner to manage the store, and/or be the chef/barista. And if you're not fully experienced in either of those roles, don't even bother.

    A financial accountant doesn't sound like a role like a busy stressful cafe, and needing to deal with the general public so much!

    Exact same job thoughts here - please read the comments. Are these 2 business ideas the most popular or something?!

    • Brilliant sleuthing Spackbace! And yeah - OP is an accountant with CPA training and…. no service industry experience much less cafe experience.

      OP: No - just…. small business is not as easy as it sounds or seems or whatever is making people gravitate towards it so much. There's a lot of survivorship bias - all the small business owners you talk to? Yeah, you're talking to them because they're the lucky few who've managed to stay in business. You're not going to find the ones who tried and failed, because they're not in business anymore.

    • Appreciate your cheeky comments mate. To be honest, we have money to invest but its so hard to make a decision.

      • A cafe is not an investment unless you have the requisite experience and skills and knowledge to start one up and flip it. Otherwise it's just a money-pit.

        Honestly, loan-sharking is probably a better idea and safer in comparison (and that's still notoriously risky, but at least there's some chance you'll make your money back).

        Edit: To not be totally negative, it feels like you're not happy in your current career and want a change. The best (and proven) way to do this is to have a hobby (Youtube videos, Photography, Freelance [anything]) on the side, gain some experience and start charging money for it, and then if it's viable, transition to doing that instead of your full-time job completely.

      • I work in the coffee industry and it is extremely cut throat. The market is terribly saturated and unless you heavily invest to make your cafe look the bees knees you probably won't survive. You need to be extremely marketable and 'instagram-able' to give them an incentive to visit you in the first place and not the 4 other coffee shops on your street.

        • Food truck has a better chance ..

          Just turn up where in demographic area with most Ozb members

          sell lunch + coffee combo

        • @phunkydude:
          It'll take too long to serve… Takes a long time to process all the coupon, vouchers, gift cards and cash back.

        • I work in the coffee industry and it is extremely cut throat.

          Sounds like the sort of thing that would make it hard to sleep at night.

        • @Baysew: Sleep? For this kind of small business owner? Ha!

          No seriously, they're usually up late doing accounts, and then up very early the next morning to grind coffee, etc. It's basically a 4am-10pm kind of job.

      • CPA accountant asking Ozbargain for investment advice, where do you work?

  • Read this thread

    https://www.ozbargain.com.au/node/332679

    and if still interested do a barista course and decide on your point of differentiation to the 100s of other competition - i.e video game consoles/arcade machines in the shop for free , good food etc.

  • If it was that easy to run a cafe, everyone would be doing it. Every yahoo thinks they can sell 50c beans for $5, and most businesses fold within the year.

  • I have owned numerous cafes/ restaurants and agree the only way to make money is to set them up and sell or flip an poorly run one. You won’t make anything on food all you profit is in the drinks, if your not a chef/ barista or very passionate workaholic don’t do it.

    • The average cafe has extremely high prices for cheap food so im not sure why margins would be low. Sure theres wages and stuff but…look at the price of a "big breakfast" at cafes…easily $10-15 for some sausages, eggs and toast…all of which is super cheap to obtain from a supermarket or supplier…unless of course you buy "premium" and "organic" ingredients…

      Or a cup of coffee costing $5…

  • Why do all coffee shop owners drive BMWs

  • Many years ago a friend that owned a fish and chip shop gave me $300 to spend at his shop over 2 weeks. I wasn't going to complain, it's free food, anyways he did this with a few people and we started wondering if he had lost his marbles. Long story short, he was trying to boost his overall sales so the prospective buyer/s would see this as a really profitable business.

  • I've been around the Fish n Chip shops for 50 years. They are a gold mine, but you are chained to it for 7 days (unless industrial estate), the goal is finding someone you can trust to run it so you can have some time off. That inevitably never works when they realise the amount of cash available, and start skimming the till.

  • I'm in the industry. Have been.
    Had my own place as well.

    Valuing and assessing business is a mind field.. My piece of advice is always run it by an accountant.

    Even if the accountant has no business or Cafe expeircne, they will. Be able to work out profits based on turnover, cogs and wages on the back of a napkin

    My back of the napkin way to work out how much the place is profiting is simple and easy.
    Once you do it a few times you can almost do it in your head.

    Coffee at 30 dollars per kg.
    80 shots per kg as an example.
    200ml of milk is 30c
    A barista gets paid $28 per hour.
    How many coffees per hour do they need to sell, (all day) to just cover his or her wage.

    And to work out net profit, simplified

    Net turn over x 66% minus rent, minus wages, minus utilities minus miscellaneous

    And this will give you a good idea

    • Barista and $28??

      You fail right there.

      Know 100s of Baristas working under $20.

      So an instant fail in your maths right there.

      • Hahaha, thanks for the laugh

        Are you still in high school?

        Suggest you google the following words
        Minimum wage
        Super (and no that's not superman)
        Casual loading
        Annual leave
        Work cover
        Weekend penalties

        Seems like you've got no idea about real world