Death of a Coffee Shop

[MNBrian]

Hey all,

Just wanted to share something that's been going on with me lately. Truth be told I needed a place to vent for a moment and this forum contains so many amazing people, it just seemed like a good spot to do so.

A year and a half ago my church decided to open a coffee shop. This sounds, no doubt, like I'm heading into dangerous territory but I think I can skirt the line without offending anyone. Point is, we opened a coffee shop as a way to connect with the community and do some good.

I live in Bloomington, MN, home of the Mall of America, so laws around here are a bit painful -- mostly geared towards keeping much larger companies who open stores at MOA in line. This makes it pretty difficult to both get the attention of the city and get them to change laws that are tough on local businesses. The effects are pretty staggering. There's one local coffee shop (not a chain) in all of Bloomington due to the strict nature of these laws.

I sat on the board two years ago when we got the idea to open a coffee shop and was very close to all the hurdles necessary to open this coffee shop called Mugshots. We fought with the city on numerous accounts, mostly relating to parking restrictions, explanations that this was truly intended to be a coffee shop and not a church plant or anything like that, fought over the fire code (the space could comfortably hold 300 standing and 160 sitting but was fire coded for 65). It was a long and arduous process.

Eventually we won the support of the city. We were ecstatic. I had big dreams of helping turn the place into a local music venue, had a sound system installed, heck we even turned one full set of windows into a giant glass garage door that opened and shut with a screen so in the summer you could see and hear the wonderful coffee shop music playing.

When Mugshots opened, it was incredible. Most businesses take 3 years to break even. We were on pace to break even by 2 years, and the best part was the community took to us like a fish to water. A vast majority of our patrons were not from my medium-sized church of 300. Most of the people who became regulars were college kids, hipsters, truck drivers, cigar enthusiasts, chess club masters ect. It was wonderful. We were reaching a community we loved and just showing them love. That's it. No intention on proselytizing or converting them or making them come to our church to give us money. Just trying to be good people who cared about other people.

Now after 1.5 years of being open, the shop is closing its doors due to some BS church politics and money issues that would be scoffed at by anyone with a business degree (such as myself). I've spent nearly every day in this space for the last year, giving them my money and my patronage. Heck, I wrote an entire novel in the space between the hours of 6am and 7am for my weekly writing goals. Seeing this place close, it's totally crushed me.

For the last two to four weeks I've been struggling to find a way for them to stay open, and eventually realized that the decision had already been made to shut it down under the guise of not breaking even after our meager time being open. Before Mugshots, the landlord couldn't sell the space for 3 years. It sat vacant. Now that we've renovated it, the landlord asked that Mugshots serve coffee for an additional two weeks with limited hours (9am-4pm) so he could sell the space to someone else and show them how it works now, and he's confident he can do so because of what the place has become. He himself was a regular at Mugshots, and I got to know him pretty well.

My heart is just broken over this. I'm frustrated. I'm depressed. I feel like this whole ordeal has been a failure despite all the numbers adding up to a success. I'm sad to see it go, this place that I had such a large part in building, and I'm sad that now I might have to find a new place to get coffee and write books. It's hard to really describe how I feel. I've lost pets before and been sad, but this is a different kind of sadness. It's just massively frustrating.

I don't have any questions or considerations or asks as far as this story goes. Mugshots died before any go-fund-me or save the whales campaign could have been created. I just have to mourn the loss of a place that I had found, that I had a part in creating, that connected me to the great people of my own community, and I just wanted to share it with CP because, hell, I'm not quite certain where else I can share it.

So pour one out for Mugshots. Or have a cigar in celebration of a thing that was. And if you've got a place like this near you, go have a cup of coffee and enjoy it. Hopefully I'll find another place like this soon.

 

[MadMonk]

If the landlord is going to try to keep the business going, then that can indeed be looked at as a positive. If it continues to enrich the neighborhood, then although your church isn't involved anymore, it could be said that they did something positive for the community, despite the politics (that are often based on beliefs). Perhaps those in the church that supported the venture can go the extra mile and support whomever takes over. You did good, helped the landlord, brought the community together, etc., and that is what really matters.

 

[jbfurdog]

Great points Mr. Monk

 

[Scap]

Is there maybe something that would cause the church to lose its 501 (c) (3) status if it broke even and then turned a profit?

 

[George Scott]

Brian get some fellow positive thinkers together and buy the business and keep it going! Use your great business sense to put together a plan.

 

[oke&coke]

Brian get some fellow positive thinkers together and buy the business and keep it going! Use your great business sense to put together a plan.

Just thinking this. An established, successful business should be an easy sell, no matter what.

 

[MNBrian]

Definitely considered it. Problem was timing. They essentially had everyone under the impression the coffee shop would remain open most likely, then they had a board meeting and shut the doors 5 days later. During that 5 days most of us involved were in shock, and management (being new and unexperienced) was already informing the bulk of daily customers that the coffee shop was closing, so there was no way to maintain stability.

Another more savvy and personally-advantaged individual will no doubt buy the place and still save him/herself the first year of profit loss due to customers thinking they're coming to mugshots once the school year starts back up, but I wasn't financially in a position to buy it in the 1 week window, and extending it two weeks wasn't enough time to keep it either.

They really nailed the coffin by doing it that way. Had they given the church more time, I think a solution would have been found quickly, one that perhaps entailed joint ownership in some form. It became clear their intent was to close when the announcement was made, infuriating as it may be.

 

[George Scott]

There are some politics behind all of this, it just doesn't pass the smell test!

 

[MNBrian]

There are some politics behind all of this, it just doesn't pass the smell test!

Yep. There were.

The stated reason for closing was not enough financial runway to handle the additional year and a half needed to break even, and they used skewed numbers (summer finances in a coffee shop next to a college campus) instead of the expected 20-30% growth they experienced the prior year starting in September when school opened. The quickness with which they closed also leads me to believe they knew it'd be more financially viable in September and knew if they didn't close in August they wouldn't have a case for closing.

 

[Scap]

Did the church decide to close?
Or is the LL forcing y'all out?

When I read the OP, it sounded like the church was pulling the plug. Now, it doesn't sound like that.

Just trying to make heads and tails out of it. Also, I agree with GS....epic fail on the smell test.

 

[MNBrian]

Did the church decide to close?
Or is the LL forcing y'all out?

When I read the OP, it sounded like the church was pulling the plug. Now, it doesn't sound like that.

Just trying to make heads and tails out of it. Also, I agree with GS....epic fail on the smell test.

Church noticed in May that Mugshots was causing the budget more trouble than they had originally anticipated. They were covering shortfall (normal business practice) on a monthly basis. The church established an "emergency team" to meet weekly and discuss what to do about the problem. The church, staff, and elders made it sound like the result of this would NOT be Mugshots closing. The emergency team presented before the board of elders at the church, saying financials were bad, and here were some options to fix it potentially, but all of these options would take time (go figure, most businesses take 3 years to break even AND this was originally discussed when we decided to open it), which then voted in a near landslide to close Mugshots. 5 days later, closed.

Smelly.

Somebody wanted it closed and presented tenable arguments to the rest of the board. And they did it in such a way to make it impossible for a member of the church to step up and jump in and finance the deficit to tide them over.

It'd take at least a week to manage a business plan and present it to a bank for a loan, and then likely a few days to clear underwriting. Especially when you're looking at a loan for probably $100,000+ to ensure you had runway for a year or more. The monthly deficit ranged from $15,000 a month in the hole to $5000 a month in the hole, so still too much for my own family to step up and do on our own or even potentially for a few families to cover that shortfall in 5 days.

 

[Scap]

Who is on this emergency team?
Church members or an outside party?

 

[bfreebern]

$5000 to $15000 monthly in the hole, is pretty significant.

 

[MNBrian]

$5000 to $15000 monthly in the hole, is pretty significant.

Completely agree. But in terms of a new business, it's also within reason and the expectation was that $3,000 to 6,000 a month would be contributed by the church. Reasonably speaking the last few months had been $10,000, $8,000, and $7,500 respectively. They also had a large space, and had considered partnering with a roaster to take up some seating (similar to how Dunn Bros does) which would have lowered coffee costs significantly, and represented an additional and consistent $2,000 in monthly income for the space. Not to mention the space would still double as seating and form a long term partnership. Another option was getting financial assistance from other churches. These weren't pipe dreams either. They were conversations that were ongoing and even phone calls that happened prior to the elder board meeting where businesses were ready to pull the trigger. None of this, however, seemed to hold weight in the elder board's minds.

Edited to add: That's still not including an expected 20-30% increase in business in the Fall. It seemed to me they were 3 months from meeting the deficit expectation and another 9-12 months from breaking even and turning a profit.

Who is on this emergency team?
Church members or an outside party?

Church members with "business" backgrounds. I know the members. Not sure that I'd call any of their backgrounds "business" related.

 

[bfreebern]

Completely agree. But in terms of a new business, it's also within reason and the expectation was that $3,000 to 6,000 a month would be contributed by the church. Reasonably speaking the last few months had been $10,000, $8,000, and $7,500 respectively. They also had a large space, and had considered partnering with a roaster to take up some seating (similar to how Dunn Bros does) which would have lowered coffee costs significantly, and represented an additional and consistent $2,000 in monthly income for the space. Not to mention the space would still double as seating and form a long term partnership. Another option was getting financial assistance from other churches. These weren't pipe dreams either. They were conversations that were ongoing and even phone calls that happened prior to the elder board meeting where businesses were ready to pull the trigger. None of this, however, seemed to hold weight in the elder board's minds.

Edited to add: That's still not including an expected 20-30% increase in business in the Fall. It seemed to me they were 3 months from meeting the deficit expectation and another 9-12 months from breaking even and turning a profit.

Ok, that makes more sense. It seems that someone on the board, wasn't ready or committed to put up with what it took to run the business, especially for a congregation of 300.

 

[mmburtch]

$5000 to $15000 monthly in the hole, is pretty significant.

I'm in the build out phase of a coffee shop right now and those numbers seem pretty high to me. They indicate that the enterprise is either over leveraged (debt), over staffed, paying too much rent or not getting the customers through the door. My super pessimistic forecast has me losing about 5K, but only in month one.

Your story makes it sound as if the landlord is getting back a functional coffee shop. Did he purchase all of the equipment? There's something else going on for the owners (church) not to have tried to sell a turnkey business. Closing the doors without selling leaves them on the hook for any capital improvements they made to the property and a bunch of equipment that is probably worth less than 75% of it's original value and even less to an equipment reseller. I'm thinking somebody discovered this for profit business was going to cause some major problems for the non profit owners and cut the cord as quickly as possible.

 

[MNBrian]

I'm in the build out phase of a coffee shop right now and those numbers seem pretty high to me. They indicate that the enterprise is either over leveraged (debt), over staffed, paying too much rent or not getting the customers through the door. My super pessimistic forecast has me losing about 5K, but only in month one.

Your story makes it sound as if the landlord is getting back a functional coffee shop. Did he purchase all of the equipment? There's something else going on for the owners (church) not to have tried to sell a turnkey business. Closing the doors without selling leaves them on the hook for any capital improvements they made to the property and a bunch of equipment that is probably worth less than 75% of it's original value and even less to an equipment reseller. I'm thinking somebody discovered this for profit business was going to cause some major problems for the non profit owners and cut the cord as quickly as possible.

They were definitely paying more for labor than any average shop, and the sq footage of the building was also much larger than an average coffee shop startup. And their product cost was in the artisan spectrum far more than a normal place would have been willing to stretch, but a lot of those decisions were based on a consistent influx from the church and their willingness to cover shortfall.

The coffee shop was established NFP as well so that shouldn't violate any of the church bylaws or threaten their tax status. We definitely thought through and had lawyers review those aspects. But to me the answer of "why not sell" instead of just taking the loss comes back to someone wanted it closed. The equipment remains for the time being and is up for negotiation, but these guys aren't business minded. They don't realize or don't care that a business (even one in its first year operating at a loss) still has value which can be sold as a single unit. I think honestly they were afraid of someone in the church stepping up and buying it because it'd make them look bad.

Whoever does purchase the property will likely host a restaurant or coffee shop in the same location, likely with smarter business sense and severely lessened costs. I'm pretty confident in that.

During this 2 week limited open (so the landlord can find a new renter), I've seen no less than 6 meetings between the hours of 8am-4pm with most tenants being extremely interested (for good reasons.. the whole space was renovated).

 

[MNBrian]

I'm in the build out phase of a coffee shop right now and those numbers seem pretty high to me. They indicate that the enterprise is either over leveraged (debt), over staffed, paying too much rent or not getting the customers through the door. My super pessimistic forecast has me losing about 5K, but only in month one.

Your story makes it sound as if the landlord is getting back a functional coffee shop. Did he purchase all of the equipment? There's something else going on for the owners (church) not to have tried to sell a turnkey business. Closing the doors without selling leaves them on the hook for any capital improvements they made to the property and a bunch of equipment that is probably worth less than 75% of it's original value and even less to an equipment reseller. I'm thinking somebody discovered this for profit business was going to cause some major problems for the non profit owners and cut the cord as quickly as possible.

And they were over-leveraged for certain. After buildout and initial startup costs, they were sitting at 600k in the hole. But again, theoretically this was all in the budget and everything went along normal expectation lines until a few months ago when all went south far too quickly. Their reasoning when I asked directly in closing the doors 5 days after the board decision? They don't want to pay any more in. Because that's what you do when you are 600k in. You stop selling the product you have in stock and shut the doors and sell everything in a fire sale. Yeah. That'll help.

 

[MNBrian]

To clarify, an argument can certainly be made for closing... but to me the equivalent is buying an NFL team, and then when the year is about to start and someone asks for money for jerseys you say "WHAT? That was NOT part of the deal. I thought those were included? We're shutting it down and selling for half the price."

It's just not a sound business decision. When you open a new business, you need to be committed to running it to break-even or you shouldn't have invested anything in the first place. If break-even isn't coming after 3 years, sure... sell it. But seriously, for people who said they understood what it meant to lose money for 3 years and then break even... they sure seemed to think that three years would be full of butterflies and sunshine.

 

[mmburtch]

And they were over-leveraged for certain. After buildout and initial startup costs, they were sitting at 600k in the hole.

How the hell did that ever look good on paper? I'm looking at about 130K and that includes about six months of operating costs.