Thinking of buying a cafe? Think coffee van instead
Updated: Aug 21, 2018
Whilst out and about running coffee vans, one of the most common questions I get is, "Have you ever thought about running a cafe?"
The answer is, "yes". Of course it is - if you love coffee like I do, and like so many people do, chances are you've had some sort of cafe ownership dream at some point in your life.
Wouldn't it be amazing, putting a smile on customers faces every day, running a business in what is no doubt a booming industry, doing something you're passionate about, and having somewhere to invite your family and friends to come in to see you and to enjoy a really good coffee.
And even better, it would be your cafe. You'd do it your way, selling the products you like. How often have you been into a cafe and thought, "They should use a better blend of coffee", or, "I can't believe they don't do poached eggs in this place", or "If I was running this place I'd sack that guy immediately!".
And of course, you might be naíve enough to think that selling coffee is easy, because everyone loves coffee. And, after all, "don't you make, like, $3 profit out of every coffee sold?"
If you've ever found yourself thinking those things, firstly, you're not alone. I've certainly thought all of them myself at some point or another. And I've had them whilst as a customer, as well as whilst being an employee in a cafe. And to be fair, you're not entirely wrong either. Yes, many cafe's do choose a cheap coffee blend, don't think hard enough about their menu, and employ the wrong kind of people. But the final two points, that everyone loves coffee and that your margins are really good, is where the "cafe-owner-hopefuls" can go wrong. And the struggles encountered by cafe owners related to those final two factors, are what lead them fall foul of the first three.
Now, sure, "Cost of Goods Sold", or "the cost of the milk, cups, sugar and coffee beans used to make a coffee", usually does come to about $1. So if you sell that same coffee for $4, then your gross profit is $3.
But, the gross profit on a coffee is only the beginning of the story. Once you consider all of the other expenses incurred in running the business, you realise the picture isn't quite as pretty.
Take a look around the cafe. How much rent do you think they pay here? If the cafe is in Sydney or Melbourne, chances are that more than 20% of the money they make goes directly to paying rent. The coffee machine you've never looked closely at costs over $10,000 to buy. Sure, it's tax deductible, but you still need to fork up the cash for it. The grinder is $1,600. What else to they have? An oven, fridges, microwaves, toasters, blenders. And they don't just cost money to buy, they cost money to maintain. There's tax - one eleventh of every dollar that goes through the till is sent to the ATO as GST. The tables and chairs weren't free. The fancy menus and the signage costs thousands to get installed. The waste will cost hundreds per month to have collected. The electricity to run everything in there, 7 days a week, is really expensive. The point of sale software, as well as the owner's bookkeeper and accountant, costs thousands each year. What else have we got: serviettes, crockery, cutlery, a dishwater, tea towels, uniforms, the cost of the water, gas bills, the list goes on!
Oh, and I still haven't listed the biggest money sucker of them all: wages. And not just wages, but the costs associated with them, like the minimum additional 9.5% of each person's wage that needs to be paid to their superannuation, and the worker's compensation insurance you need to pay each quarter. And don't forget the cost you spend in advertising for that employee to work there, the time and money spent on training them, and the cost and time spent working for them, or paying someone else to cover them, if (read: when) they can't work.
In fact, wages are the number one singular expense line you will encounter in running your cafe. Thats why the best cafes, or at least the cafes that seem to stick around the longest, are the ones where the owner, or owners, or even better - the owners and their family - are always working. That's right, it doesn't come easy. If you thought you could own a cafe and just employ people to run it, forget it. You'll go under before you can say "what's the minimum wage for a 21 year old who works on a casual basis?"
By the way, the answer to that question is, at the time of writing, $25.28, before you apply any penalties. If you need them to start before 6am, or if it's a Saturday, or a Sunday, well, let's just say I hope your cafe is really, really busy!
[Of course, you could always just pay cash to your staff. Unsurprisingly, the Fair Work Act and Tax legislation discourages you from being honest at pretty much every step of the way when it comes to wages, which is why I would estimate that around 80% of hospitality businesses engage in some kind of wage fraud. And before you feel sorry for the workers, and angry towards the owners, consider that often, especially in hospitality, the workers prefer to be paid in cash anyway. But I certainly don't encourage this behaviour. I could go on about this topic for a long time, but it will have to be the subject of another post!]
Now, before I crush your dreams of cafe ownership too much, here are three ways to make sure you don't get yourself into the rut of owning a cafe where all the money that comes in the door is sucked up by your expenses:
1. Run the cafe yourself. Work as many hours as you can without paying staff. Only hire staff you desperately need (like a chef if you can't cook), or that will add a lot to your business. You'll be forking out a lot for them, so make sure they are worth it. But either way, get ready to work 70 hours a week yourself.
2. Hire your family. Your children are a good source of cheap labour! They might also be the only ones that will let you rip them off in the name of love. Tell them the cafe is their inheritance, and it will hopefully make them feel less exploited when their alarm goes off at 5am every day.
3. BUY A COFFEE VAN INSTEAD!
If you look at all of the reasons that I've detailed as to why a cafe isn't the easiest way to make a living, then now listen to my reasons as to why the humble coffee van has all the answers! Here are six reasons why the answer to your "coffee business dream" rests on four wheels:
1. WAY less of an upfront investment. If the cafe was $200,000, the coffee van could be as little as $40,000 (for a second hand van). The repayments on your loan won't cripple you, or you might even be able to buy it outright. Signage is going to be far cheaper, and you don't need to outlay a whole lot on your initial stock or in preparing the business for launch. You can essentially start making money not long after you get the van.
2. Much cheaper equipment maintenance costs. Your coffee machine will be smaller than the one in the cafe, and aside from a possible pie warmer or blender, you won't be doing much other than coffee. That means you don't have so many expensive appliances to maintain. And your power bill is, well, you don't have one - just a generator to maintain and refuel. You also don't need heaps of storage space, or fridges or freezers, to keep all your stock in. Everything is very neat and simple, and easy to maintain.
3. NO RENT! Because you just drive around selling coffee. Or if you run a drive thru site, like some of our vans do, you'll pay far, far less rent than what you would pay if it was a cafe set up. Sure, you have vehicle-related expenses, like rego, insurance, maintenance and fuel, but this is minimal compared to a typical cafe's rent.
4. You aren't expected to be open 8 hours a day, 7 days a week. This is a big thing, and one often overlooked by the un-savvy business shopper. You only get one life, so don't spend it all at work! Most coffee vans work 6 days maximum, and far less hours than the cafe owner does. Our coffee vans typically trade for less than 30 hours per week. Your lower overheads make it possible to still make a decent living without flogging yourself 7 days a week.
5. You're mobile! It could take a few weeks to realise you're working in the wrong spot, or in the wrong area, but the beauty is, you can drive your van somewhere else! Has a new cafe popped up in one of the industrial sites you used to do well at? That's a shame, but at least you can relocate elsewhere. Imagine if a new cafe opened up two doors down from where you'd just dumped your life savings into a cafe. It happens all the time, and often there's nothing the cafe owner can do about it.
6. NO WAGES! Just you on your own, as a sole trader. Pure bliss. And the best part is, you'll do a much, much better job in the long term than any employee you hire because, as every business owner knows, you've got to have skin in the game to really care. And if you need a helping hand along the way, no doubt you can find someone. And of course a sole trader can hire someone else to help, as long as you pay them the correct wage. But when it's mostly just you, you have no wages, no headaches and no worries!
Finally, before making any leap from business shopper to business owner, do your research! Speak to accountants and financial advisers, and don't buy anything without getting the complete picture on what it will cost you, and what it will make for you (this includes coffee vans).
And, next time you walk into your favourite cafe, take a look around and see if you can see all the hidden costs that the owner has to spend to keep the place running. Take note, also, of the stressed out look on the owner's face (is that a real smile or a "hospitality smile"?). That might answer some of your questions about the menu or the staff choices. Then check your watch. If it's after 10.30am, consider this: most of our Van Wild Coffee owner/baristas are home from work already, money banked ;)