Privately owned specialty coffee shops are ubiquitous and their number is constantly growing.

In the US alone, there are some 19,000 privately operated coffee shops, classified under the SIC code 5812 and NAICS 722211. They generate over $11.1B in total annual sales. Yet an average coffee shop is definitely small business – with annual revenues of $1,500,000 and a staff of just 9 people.

Coffee shops can be very profitable, recession proof businesses. A well-run business focuses on its local target market, satisfies the tastes and offers the unique atmosphere to develop a loyal customer following.

Successful franchises have come forward by capitalizing on the “affordable luxury” appeal of specialty coffee drinks and the ambiance that draws the customers in.

Business value drivers for coffee shops

While starting a coffee shop is relatively easy, running a successful business is more challenging. Here are the top factors that affect what your business is worth:

  1. Location. Coffee shops are gathering places, so the best location is where your target customers like to get together.
  2. Quality and variety of coffee drinks offered.
  3. Cost of goods including the wholesale coffee costs.
  4. Competitive differentiation, such as additional on-premises food and beverage offerings, retail coffee and tea sales.

Business valuation techniques for coffee shops

Coffee shops sell quite often, so you can estimate your business market value using valuation multiples based on private coffee shop sales. The most accurate valuation  multiples are:

  • Business selling price based on its revenue plus inventory.
  • Business selling price based on the annual discretionary cash flow plus inventory.

Valuation Multiples and Business Selling Prices

Many small coffee shops are owner-operator managed. For such an operation, the Multiple of Discretionary Earnings business valuation method is a great choice.

You can determine what your coffee shop is worth based on its earnings and a number of key financial and operational performance factors. What’s more, you can also see how these factors affect your business value – and what you can do to increase your business worth.

One Comment

Andy Berard says:

Very interesting article on Coffee Shop valuation. I am a small coffee roaster in Colorado in need of further education and knowledge. Thanks.

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