Selling a coffee shop in Canada

A good coffee shop has a morning line of regulars who order the same drink every day. Buyers will want to see that those sales are real, that the baristas and the routine carry on without you, and that the machines, the permit and the lease will keep the doors open. Here is what to expect and how to prepare.

What buyers look at first

Most buyers of a coffee shop ask the same questions early. Have clear answers ready before you list:

• Sales and profit. Two or three years of numbers by month, split between drinks, food, bagged coffee and any catering or online orders.
• Daily trade. Transactions per day, the average ticket and the busiest hours, from your point of sale.
• Costs. Coffee, milk, food, cups and lids as a share of sales, and labour as a share of sales.
• People. Who opens, who closes, who trains new baristas, and whether they plan to stay.
• Agreements. Any roaster supply agreement, equipment lease or franchise agreement.
• The space. The lease, seating, any patio, and the health permit.
• Your time. How many shifts you work yourself, and who covers for you.

Buyers will check these during due diligence, so it helps to gather them now. Our list of documents needed to sell a business is a good start.

Proving sales

Ring every sale through your point of sale and deposit everything, including cash and tips you hold for staff, through the business bank account. Make sure the point of sale totals match your bank deposits, your sales tax returns and your tax returns. If a sale is not on paper, most buyers will not pay for it.

Reports by product, by hour and by day help a buyer see what drives the shop. Delivery app sales, gift cards and loyalty programs should show up clearly too. If you work full shifts yourself, list your wage and any personal costs run through the business as add-backs with proof, and be honest about what it would cost to hire a manager to replace you. See making your business run without you.

Baristas and staff

Regulars often come back for the people as much as the coffee. Write down your recipes, drink builds, opening and closing checklists and supplier order days so a new owner can keep the same standard. A short binder or shared folder makes the handover much easier.

In British Columbia, section 97 of the Employment Standards Act says that when a business is sold, the employment of an employee is deemed continuous with the new owner. Talk to your lawyer about how staff move over, and read what to tell employees when selling before you share the news.

Roaster, equipment and franchise agreements

Many cafes get an espresso machine or grinders from a coffee roaster in return for buying its coffee, or lease them from a finance company. Those machines may not be yours to sell. List every machine with its age, condition and service history, say who owns it, and gather the agreements. Check whether each one can be assigned to a buyer, whether consent is needed, and whether there is a payout or minimum purchase left. See transferring contracts and licences.

If your shop is a franchise, the franchisor usually has to approve the buyer and may charge a transfer fee or ask for a store refresh. See selling a franchise business.

The health permit, patio and lease

In British Columbia, the Food Premises Regulation says a permit to operate a food service establishment is not transferable. The buyer applies to the regional health authority, such as Island Health, Interior Health, Fraser Health, Vancouver Coastal Health or Northern Health, for their own permit before taking over. Ask early what they need from a new owner, and keep recent inspection reports and your food safety plan ready to show.

A sidewalk patio usually needs its own permit from the city, and the business licence is often in the owner's name. Ask the city how a new owner takes these over. A good location is much of a coffee shop's value, so the lease matters a great deal. Check how many years are left, any renewal options, whether the landlord must consent to an assignment and whether the use clause allows food and seating. See the commercial lease when selling.

Count coffee, milk, food, cups and other stock at closing, and every gift card and loyalty balance still out. Gift cards are drinks the buyer will serve without being paid again, so they are usually dealt with as an adjustment at closing. See selling a business with inventory and working capital when selling.

GST/HST and PST

Under the CRA's basic groceries rules, coffee beans and ground coffee sold by the bag are generally zero-rated, while drinks dispensed where they are sold, such as a latte or a drip coffee, are taxable. Food heated or served for eating in the shop is generally taxable as well. A buyer and their accountant will check that your till is set up this way, because errors can mean tax owing.

When you sell the shop itself in an asset sale, GST/HST can often be removed with the section 167 election on Form GST44 when a registered buyer acquires all or substantially all of what is needed to run the business. In British Columbia, PST generally applies to taxable equipment such as espresso machines, grinders and fridges, but not to goodwill. See taxes when selling a business.

A worked example

Questions to take to your lawyer and accountant

• Should this be an asset sale or a share sale?
• How do my manager and baristas move to the buyer?
• Can my roaster and equipment agreements be assigned, and is anything owing on them?
• What will the buyer need from the health authority and the city, and how long does it take?
• Will the landlord consent to the assignment, and will I stay liable after it?
• Is my till charging GST/HST correctly on drinks, food and bagged coffee?
• Can we use the section 167 election, and how does PST apply to the equipment?

For more, read what your lawyer and accountant do. Running a bakery or a full restaurant instead? See selling a bakery or selling a restaurant. This guide is general information, not legal or tax advice for your situation. Questions about listing with us go to hello@sellmybusinessdirect.com.