In this article, we explore how not going the free-on-loan route was worth more than $40,000 for Sally when selling her cafe.
Sally: A forward-thinking cafe owner
Fourth Wave Cafe’s Sally Zu was looking for a great coffee partner. She came to one of Sydney’s best roasteries. She came to P&R (no relation to any real entities) roastery. The coffee was great, the team was passionate and they understood the challenges she will face today and tomorrow. She believed in their values of digital and sustainability.
As much as she liked them, she also wanted to ensure she got value for her money. Catchy McFee from the roastery explained to her that they did things a little differently. They don’t do free-on-loan machinery because:
- Nothing is free. Sally will be paying for it
- When her volume increases due to being an excellent entrepreneur, she will still keep paying the same $ per kg
- She will not own her equipment and will be paying for a roastery to own that equipment
- Even after years of successful operation, she will be paying the same effective amount per kg because she will always be paying for the equipment through the bundled coffee price
- She gets to choose the quality and level of her equipment
- If she ever sells her cafe, the money she receives will be less
- If the business ever fails, she will have an actual asset (equipment) to sell and pay off her debts
Sally thought this through and crunched some numbers. She realised that the free-on-loan offered by another roaster was not so free after all. She called Catchy McFee back and they started a long and successful relationship.
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Sally’s friend Joe
Sally’s friend Joe, who started Old Skool Coffee & Food, was also looking for a coffee partner. He went to the trendy and innovative roastery that Sally went to. He liked what he saw. However, he couldn’t understand why they couldn’t give him free-on-loan equipment. Chum and Brumb (no relation to any real entities) Roasters offered him free-on-loan equipment with the coffee. While P&R’s coffee price was the same after accounting for the equipment finance payments to Today & Tomorrow Finance, he wanted his equipment to be free. He didn’t want to buy equipment. He was frustrated that P&R’s wouldn’t do for him what Chum and Brumb would happily do for him. “I can’t do that to you”, Catchy McFee had told him.
He signed up with Chum and Crumb.The coffee was not as good and the support was lacking. He felt he was missing out on the innovative things P&R were doing. He never liked talking to Sally as he couldn’t stand hearing about all the exciting things she had access to. He told himself Chum and Brumb might not be as cool but at least they give their clients free-on-loan equipment.
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Time to sell
After four years, they both wanted to take some time off and spend it with their families. They both had built busy cafes with great reputations and strong teams. They wanted to sell the cafes and enjoy the fruits of their hard work. Their cafes were almost identical with same lease terms and similar suburbs. They both put them on the market and within two months they had sold the cafes to great new owners.
Counting their beans
Joe was over the moon that he got $360,000. He was going to buy the RV he always wanted so that they could rent out their house and travel around Australia for two years as they had always wanted. He would invest the rest of the money and they would be well set for the coming two years. He went to Sally’s house and told her about his plans. Sally was happy for him. She and her family were going to travel through Europe for a while before she decided on her next project. She asked him, so how much did you sell it for? $360K! Joe said with a beaming smile.
360K!?! Sally asked with a horrified look that Joe would never forget. “How much did you sell yours for” Joe said as his heart sank. “$401K” Sally said, nodding her head emphatically. She almost wanted to scream, I told you so!
“Why the difference of $40K!?” Joe still couldn’t understand. Sally got him a cold Nitro Can and sat down said: “You paid $40,000 for that free equipment”
Next steps
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