Café Viability, Compliance and a Three-Year Lease Decision
A former F&B service student wants to open a 24-seat café near a college in Rohtak. She has ₹6 lakh in savings and can get a ₹4 lakh loan at 11% annual interest over three years. The monthly rent is ₹28,000; four staff at ₹12,000 each; utilities ₹8,000; loan EMI ₹13,100; insurance and licences ₹3,000; and other fixed costs ₹4,000. The average bill is ₹180 per cover, and food cost is 32% of sales. She expects 40 covers on weekdays and 70 on weekends, with 26 open days a month. The café will need a fire extinguisher, FSSAI licence, and a grease trap; the landlord will not allow structural changes. She asks whether to sign the three-year lease.
1. Calculate the break-even point and margin of safety, and recommend whether to sign the lease.
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Monthly fixed costs = rent ₹28,000 + wages ₹48,000 + utilities ₹8,000 + EMI ₹13,100 + insurance/licences ₹3,000 + other ₹4,000 = ₹104,100. Contribution per cover = ₹180 × (1 − 0.32) = ₹122.40. Break-even covers = ₹104,100 ÷ ₹122.40 = 851 covers per month, or about 33 covers per open day over 26 days. Expected covers = (20 weekdays × 40) + (6 weekend days × 70) = 800 + 420 = 1,220. Margin of safety = (1,220 − 851) ÷ 1,220 = 30.2%. Forecast contribution = 1,220 × ₹122.40 = ₹149,328; monthly profit = ₹45,228.
On these assumptions the café is viable, but the margin is thin: a 20% drop in covers takes sales to 976, still above break-even, but a 30% drop to 854 is almost exactly break-even. The decision should be a conditional yes, with a three-month review and a rent-free fit-out period.
2. Which compliance and workplace-safety actions must be completed before signing or opening?
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Before signing or opening: obtain FSSAI registration or licence for the café; provide a fire extinguisher and emergency exit clearance; install a grease trap and arrange waste-oil disposal; obtain a municipal trade licence; register for GST if turnover crosses the threshold; keep employee food-handler medical certificates; and get a written lease that allows the grease trap and exhaust without structural change.
Workplace safety: train staff on knife handling, hot-oil burns, gas shut-off, fire extinguisher use, and slip prevention; keep a first-aid box and an emergency contact list; display the licence and insurer details. Because the landlord refuses structural changes, get written approval for the exhaust duct and grease-trap route before spending on equipment. Without that approval, the kitchen may fail inspection and the entire fit-out cost is at risk. Compliance is not a post-opening task.
3. Identify the main business risks and the lease terms you would negotiate.
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Biggest risks: college vacations, when the 1,220-cover forecast may fall by 40% in May–June; food-cost inflation above 32%; staff turnover; and dependence on student footfall. Mitigate with a summer menu for local families, a takeaway window, prepaid loyalty cards, and cross-training so four staff can run a peak shift.
Negotiate a three-year lease with a two-month rent-free fit-out, a cap on annual rent escalation, and an exit clause after 12 months with 60 days' notice. Do not sign a personal guarantee for the full loan; keep the loan and lease separate. Final recommendation: sign only if the landlord approves the exhaust and grease-trap route in writing, the rent-free period is at least six weeks, and the first three months track at least 850 covers. Otherwise walk away.