Buying and Selling a Coffee Shop

This article was originally published in Barista Magazine OCT/NOV 2024 Volume 20 Issue 4

Buying or selling a coffee business is not just a transaction—it’s a deeply personal and complex journey that blends emotional and financial considerations. Having gone through this process myself, I understand the myriad challenges that arise, from the initial decision-making to signing on the dotted line. To provide a comprehensive view of this journey, I spoke with individuals intimately familiar with the process, offering invaluable insights into what it truly takes to buy or sell a coffee business.

Insights from Jason Blair: A Broker’s Perspective

To shed light on this complex endeavor, I interviewed Jason Blair, a seasoned business broker with Transworld Business Advisors of Portland, Oregon. With extensive experience in the food and beverage industry, Jason represented sellers during my coffee business purchase, providing invaluable guidance.

Jason’s journey into business brokerage began in the restaurant industry, where he spent over 20 years. In 2015, he bought a pizza place, and by 2019, he had sold it and transitioned into a full-time broker, eventually selling eight businesses in 2020 alone. His experience gives him a unique perspective on what it takes to successfully buy or sell a coffee shop.

One of Jason’s key pieces of advice when selling a business is to find a broker you can connect with. “You’re essentially business partners for a year, as it typically takes about 8-9 months to close a deal,” he says. This long-term relationship underscores the importance of trust and communication between the seller and the broker.

Navigating the Transactional Waters

Jason advises sellers to start planning 2-3 years before they intend to sell. “Run your business every day like you’re going to sell it,” he says. This mindset ensures that the business is always in its best possible condition, making it more attractive to potential buyers. This preparation isn’t just about maintaining the status quo—it’s about ensuring that the business is continually improving and staying competitive in the market.

The best time to sell a business is when it’s most profitable. Jason cautions against waiting too long, as burnout can lead to a decline in the business’s performance. “You’re going to get the most money when the business is at its peak,” he says.

Alicia Miner, who owned Urban Coffee Lounge in Kirkland, WA, from 2008 to 2024, understands this burnout all too well. Alicia recalled when she realized it was time to move on: "For well over a decade, there was nothing that I could not handle or take head-on. I would embrace the hard parts because I just loved the rest of it so much." However, the moment came when the challenges she once handled with grace began to overwhelm her. "When the stress from the 'fires' and bumps in the road began to take over the joy and passion, I knew it was time to make a change," she says. Alicia’s passion for the industry was evident, but she recognized that maintaining the business for the sake of her staff, who shared her vision, was not sustainable in the long run. Her advice to other business owners is clear: “Passion is what makes this business, so if that runs thin in you, consider a change.”

Jason emphasizes that having solid financial records is crucial for sellers. “If you don’t have good books, you’re not going to sell your business,” he says. Buyers closely examine the seller’s discretionary earnings (SDE)—the bottom-line profit after adding back non-essential expenses like one-time owner salaries, depreciation, and amortization. Businesses are often valued on a multiplier of the SDE. Data pulled from Transworld’s national coffee shop sales over the last few years confirmed that the average value of a coffee shop is often three times the SDE. This multiplier can vary, but it’s a useful benchmark for both buyers and sellers.

“A Marathon, Not a Sprint”

Once an offer is made on the business, the process moves into the due diligence phase, where buyers scrutinize the financials, legalities, and operations. This phase can last from a couple of weeks to 30 days, depending on the size of the business. “It’s a marathon, not a sprint,” Jason warns. Due diligence is the buyer’s opportunity to uncover any potential issues with the business and ensure that what they’re buying is as it appears.

For sellers, Jason suggests being open to seller financing if they have faith in the buyer. “If you have faith in your business, don’t be afraid to do seller financing. You can get more money through the interest,” he says. However, this approach requires confidence in the buyer’s ability to successfully run the business.

Jason also stresses the importance of maintaining momentum in the sale process. “Time kills all deals,” he cautions, underscoring the need to keep the process moving to avoid losing momentum. Additionally, understanding the terms of your lease is crucial, as “landlords kill a lot of deals.” Sellers must ensure their lease has provisions for assumption or transfer to avoid complications. This can be a critical point of negotiation, as landlords may be wary of new tenants and reluctant to transfer leases without significant concessions.

Shifting Focus: The Buyer’s Journey

Just as selling a coffee shop requires meticulous preparation and planning, buying one demands a strategic approach. Buyers must not only understand the financials but also be prepared to navigate challenges such as securing financing and assessing the condition of the business. 

Jessica Steffy, co-owner of Square One Coffee in Lancaster, PA, shared her experience of purchasing an existing coffee shop. Her story illustrates the balance between seizing an opportunity and managing unforeseen risks. When Jessica and her partner bought Square One Coffee in 2007, they believed they were acquiring a turnkey operation. “We assumed our main work would be updating the recipes and aesthetics,” Jessica recalls. However, they quickly realized that nearly all the equipment needed replacing, which was an unexpected and costly endeavor. This highlights a key lesson for potential buyers: due diligence should include a thorough assessment of the physical assets as well as the financials.

Despite these challenges, buying an existing business had its advantages. “For us, the big upside of buying an existing business was having a proven customer base with a history of sales numbers to reference and build upon,” Jessica explains. This foundation provided them with a level of stability that is hard to achieve when starting a business from scratch. Having an established customer base and reputation can significantly reduce the risk involved in purchasing a business, but it’s essential to weigh this against the potential cost of inheriting outdated or faulty equipment.

For buyers, securing financing early is a huge benefit. Jason recommends starting the loan process before even making an offer. This proactive approach can prevent delays later in the process. Depending on the buyer’s situation, this may involve finding private investors, securing a bank loan, or applying for a Small Business Association (SBA) loan. Much like a home purchase, a down payment is generally needed, so buyers should be prepared to demonstrate financial stability.

Having a strong team of advisors, including an accountant, business coach, and lawyer, is essential. These professionals can provide critical insights and help navigate the complexities of the sale process. For example, an accountant can help you understand the seller’s financial statements, a lawyer can review the legal documents, and a business coach can help you develop a strategy for taking over the business and making it your own.

Resources for Buyers and Sellers

Both buyers and sellers can benefit from leveraging various resources. Organizations like the Small Business Development Center (SBDC), business accelerators, and industry-specific networks can provide valuable support and guidance. To find opportunities to purchase a coffee shop, keep an eye on platforms like Transworld Business Advisors or BizBuySell for listings and information on businesses for sale.

Both buying and selling a coffee shop can be an emotional experience. For sellers, it’s often difficult to separate the business from the personal attachment they have developed over the years. “Sellers think about it like it’s their baby, but it’s a business transaction,” Jason notes. For buyers, the excitement of owning a coffee shop can sometimes cloud their judgment, making it important to remain objective and focused on the financial realities.

A Personal Perspective

In writing this article, I wanted to be transparent about my own coffee business purchase to help others understand what it can look like. My husband and I bought a coffee company in Portland, Oregon, with three coffee shops and a roastery. We bought the business for approximately a 3x multiplier of SDE. We used a traditional SBA loan that required around a 20% down payment, which we were able to come up with from our own savings and loans from family. We did not end up using seller financing, although that was an option. From offer to purchase, it took about 4 months. Throughout the process, we sought counsel from a lawyer, an accountant, and business advisors made up of family and friends. We had no major issues during the sale process and are so happy we went this route.

Final Thoughts

The coffee industry is built on passion, community, and resilience—qualities that will serve you well in any business transaction. It’s about knowing when to seize an opportunity, when to let go, and how to navigate the complexities of the process. Whether you’re a buyer looking to enter the coffee industry or a seller ready to move on to new ventures, the experiences of those who have walked this path before offer invaluable guidance.

Buying or selling a coffee shop is a complex process that requires careful planning, expert advice, and a deep understanding of the industry. As someone who has been through this process myself, I can attest to the importance of having a clear plan, understanding your motivations, and being prepared for the unexpected. By connecting with the right professionals, preparing your finances, and staying committed to the process, you can navigate this journey successfully. Whether you’re looking to buy your dream coffee shop or sell the business you’ve built from the ground up, remember that preparation and patience are key. With the right approach, you can achieve a successful and rewarding outcome in the vibrant world of coffee.