Controversy surrounded the original purchase, made in May last year, when the council's executive committee, chaired by former Mayor Kevin Winters, purchased the Museum Cafe for $260,000.
The purchase was funded by debt and would incur at least $27,000 in interest payments.
The price included buying out a seven-year lease from the previous owner, former museum director Greg McManus' wife, Liz.
Critics of the purchase said the decision should have been made by all councillors.
Councillors Glenys Searancke, Mark Gould and Mr Sturt then laid a complaint with the Office of the Auditor General, but the purchase process was subsequently cleared.
Supporters said the cafe was bought at less than market value and the money would be recouped in slightly more than two years.
But Mr Sturt said those councillors were wrong and the council had bought a lemon.
"From day one I knew those figures were incorrect. It was a business the council should never have been involved in as we were in direct competition with other cafes in town.
"As we suspected, income and expenditure was included in the retail sales figures of the museum which was why they looked so good.
"With such a poor return on the investment we may as well close the doors," Mr Sturt said.
The report received by councillors stated that earnings (before interest, taxes, depreciation, and amortisation) for the nine months of this financial year were $39,133, compared with a budget of $69,750.
Mr Foster said the shortfall was primarily caused by wage costs being significantly ahead of budget.
He said revenue was expected to be $10,000 under budget at the end of the financial year, but the gross margin remained on track with budget.
"At the current rate of earnings, it would take just under six years to achieve a full return on the funds the council invested to purchase the business, lease and chattels, compared to the business case estimate of approximately two and a quarter years.
"However, a number of measures to improve the cafe's overall financial performance are currently being reviewed, including staffing levels, opening hours, product wastage and pricing," he said.
Rotorua Mayor Steve Chadwick said the council was taking a wider look across all current operations and would be assessing whether they should continue to be involved in running businesses like the cafe.
"The progress report on the cafe's current financial performance confirms what many of us thought at the time when the business was purchased,"the mayor said.
"However, we've moved on since then and I'll ensure such important decisions will in the future be made by only the full council."
