Rahim’s Letter 025: How I Nearly Bought A Coffee Shop

A lighter note today vs my most recent letters - I’ve had a fun couple of weeks going back and forth about buying a coffee shop. 

TL;DR - I’m not buying it, but it’s a fun story! 

So, sometime last week, a colleague told me that a coffee shop was up for sale in West Kensington. That’s normally the kind of thing you can just let slide, but I like coffee and I spent some time last year thinking about working part time in a coffee shop on weekends, just because I thought it would be quite fun, so naturally my interest was piqued. 

It was up for sale for offers over £125k, and had a rent of £14.5k per month, which was an interesting enough proposition for me to get more info at the very least. 

We got in touch with the broker, who very kindly sent over a load of information on the business, which I then used to build a little model. 

Now, this model made a few assumptions around COGS and staffing costs, which I learnt are much more than just salaries! From NI to pensions contributions, it can cost a company anywhere from 1.2x - 2x to hire someone, which I certainly hadn’t appreciated when first going into this. 

The big elephant in the room at this point was also that I do not have £125k sitting around to buy a coffee shop, so I’d have to arrange some form of financing as well. 

When putting all this together, there were a few circumstances where it could have worked quite well, but I needed to get clarity on a couple of things from the broker. 

Firstly, there was a rent review coming up in April. Initially, they were a bit cagey about sending me the clause in the lease about that, but eventually they sent it through and it was uncapped, which didn’t fill me with joy given how big a factor the current rent was in the model. 

I also wanted to get a better idea of costs, as I was currently using fairly rough assumptions and that’s no way to take out a large amount of financing. 

So, we had a chat on Monday, and he said he’d send over a load more helpful information. 

He sent over some stuff that actually made the costs seem a lot more reasonable - I plugged them into my model and it was looking quite attractive.

But then, he followed up with a zip file that included the contact details for everyone that had expressed an interest and his comments on some of them. 

Here are the comments, which one do you think is me?

The answer will become clear further down, but in this huge zip file, there were also some Excel sheets that showed that the costs he’d given me over the phone on Monday didn’t include a whole host of other costs that were pretty unavoidable. 

I plugged them into the model, and with financing costs, it worked out to make a profit of about £15k a year. For a lot of hassle and a sketchy set of unstressed numbers, this didn’t really feel like it made much sense anymore. 

They’d also sent me all the calcs in a spreadsheet, but couldn’t send me any bank statements (or any other documentation) where I could confirm them. Again, taking out a not-insignificant amount of finance on a “trust me bro” spreadsheet didn’t fill me with joy. 

And so, the coffee shop was a no go. I sent him back the following email, sign off mostly in jest.

He sent back the following, very apologetic email. 

I particularly enjoyed his sign off and let him know that I found it more funny than anything. 

And that’s the end of that one! 

Have a lovely weekend all :)

RH