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  1. #1
    Junior Member
    Join Date
    Mar 2007
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    17

    Need Advice on some Numbers

    I'm nowhere near the point of having my own coffee business, but I still like to look around and see what's available for sale in my area. I came across a coffee shop in a wonderful area that also is very high in tourism, especially in the summer months. The owner is retiring and is offering "generous financing" to the right buyer. They are also willing to stay for a month to train and transition the new owner. The business doesn't just sell coffee, it also does homemade specialty soups, salads, sandwiches and bakery prepared on-site. The space is 1,225 square feet at $1,500 per month rent. There are 9 part-time employees. The asking price is $159,000 (downpayment of $59,000 with seller financing the rest). The annual receipts are $202,200 and cash flow is $63,884. I would love it if someone could help me "read" these numbers. Tell me what I should be looking at to see if this is a good deal or not. Thank you in advance for all your wisdom - I wouldn't make a move without looking for advice on this board first.

    Mary

  2. #2
    Senior Member
    Join Date
    Jan 2007
    Location
    Salt Lake City
    Posts
    1,044
    Tax returns past 3 years, for the business, and the owner's personal if they are paid as an employees. Detailed P&L statement for past year... does it match with tax returns? The Cash Flow number is meaningless without perspective.

    Is this buy the "business"?? What is the current lease? How much time left, how much per month? Can you renegotiate with the Landlord? Why not?

    Having done much number crunching in the past, honestly, if the selling price is less then $500K, it's probably not a business worth adopting.

    I would be wary.
    John Piquet
    caffe d'bolla
    Salt Lake City, UT
    caffedbolla.com

  3. #3
    Senior Member
    Join Date
    Jan 2007
    Location
    Salt Lake City
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    1,044
    in addition....

    If primary business is in Summer months, what happens if the weather is horrible that particular season? Can you have a profitable business on local only traffic?

    To be blunt, it sounds like a failing business that isn't worth squat and the owners want out. At best, it is probably worth the $59K they are asking up front. If it were worth more, they could command more. It's better for you to be disappointed than broke.

    Remember, whatever they are asking is exaggerated, and the entire scenario says, "just keep walking".
    John Piquet
    caffe d'bolla
    Salt Lake City, UT
    caffedbolla.com

  4. #4
    Junior Member
    Join Date
    Mar 2007
    Posts
    17
    John,

    Thank you for your candid response (you said it - I'd rather be disappointed than broke). I'm taking your advice - I'm going to research this place with a lot of skepticism and pass on it if it doesn't look absolutely legit.

    Mary

  5. #5
    Member
    Join Date
    Mar 2007
    Location
    Asheville, NC (Little Paris of the South)
    Posts
    68
    Hi Mary,

    Even if a business is losing money it can be turned around to make a profit if the right management is instituted! If this is a Coffee Shop business then the equipment is already in place to do this.

    Numbers are just that, numbers. Have you been a customer of this shop? Summer months are certainly not the best numbers of a coffee shop. Are their only customers tourists? Is it possible that you could develop a loyal local customer base? Is it in an area that locals would frequent?

    I am from Asheville, NC and there are a few areas that I would consider toursit only, (like near the Biltmore House) but not many. And even those that are aimed only at tourists would be viable if marketed to the adjacent area heavily. Perhaps this has never been done satisfactorily?

    Coffee shops do not do well in general during the summer months. This is actually a plus for this business! If you could develop a loyal customer base this may be a GREAT location! I would certainly consider it heavily!! Ask for the profit margin in PERCENTAGE!!

    Size of shop looks good, rent looks good. Cash flow is not a real indicator, income would be better, and profit margin the best indicator. Ask what the profit margin was for the last few years.

    To me this looks like a real oppourtunity, but I would do all the research needed to make sure and I would certainly lower the price as the owner is too eager. Many people are not cut out to be owners or mangers and this, on the surface, sounds like a very good oppourtunity. Enlist others in your area that will not steal it away from you to give their opinion.

    Don't dismiss it yet!! I have a good feeling and you should investigate further and see what you discover.

    Cheryl Ann
    HAPPY CHICK CAFE
    Keep doing what you're doing and keep getting what you've got!

  6. #6
    Senior Member
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    Jan 2007
    Location
    Salt Lake City
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    As cafemakers noted in another thread, have a professional do the business evaluation. It will be impartial and much more comprehensive.
    John Piquet
    caffe d'bolla
    Salt Lake City, UT
    caffedbolla.com

  7. #7
    Junior Member
    Join Date
    Mar 2007
    Posts
    17
    Cheryl Ann,

    I appreciate your encouragement! I started by calling the broker who is trying to sell this business. He said that due to an arrangement that the sellers have with the previous owner, they want to keep everything very private until I sign a confidentiality agreement. I've worked for enough corporate attorneys to be able to read this type of agreement and decipher its language. The broker did tell me which town the shop is in, so I started to investigate. There are only 5 coffee shops in this town - I narrowed them down until I found the one that's being sold (the language on their website is exactly the same as the language in their ad on the brokerage site). From what I've found on the web and through Dun & Bradstreet, they seem to do okay. The majority of their business is from locals. They're very popular with the lunch crowd - they serve soups, sandwiches, salads, etc. They're located near a farmer's market so on Saturday's their business is booming. I'm going to visit the business and see how it feels. It's a very small town, but up and coming and starting to grow and progress. The shop has 9 part-time employees - I would think they have a lot of business to employ all those people. They also have art displays from local artists and live music maybe one night a month.

    I won't know all the specifics until I sign that confidentiality agreement. I'm currently taking an entrepreneurial workshop through the Small Business Administration. I asked my teacher about this agreement and she said it's very common to be asked to sign one. Sellers don't want all of their personal business displayed to the whole world. At least I have her as a source of information - and of course, this board : )

  8. #8
    Junior Member
    Join Date
    Mar 2007
    Posts
    17
    John,

    Approximately how much would an independent eval. cost?

    I know........price of independent eval. - $_____; not losing your pants in a business deal - priceless.

  9. #9
    Member
    Join Date
    Mar 2007
    Location
    Asheville, NC (Little Paris of the South)
    Posts
    68
    Hi mary,

    Absolutely get an independent evaluation, but remeber they are going to do their evaluation based on the location and current operations. Can you improve on the shops performance and how?

    Hard work is ahead of you to determine viability and also to improve on the current profit margin, the most important part of any business, even one that you LOVE!

    Do visit and see how you feel. That is what you will be dealing with if it becomes yours!! The majority of the business is from locals? But summer are the best months? That seems at odds with the coffee industy!

    Also remember, part time employees can be added or deleted as needed to make a business profitable. So maybe that will be a factor to look at that the current owner was not willing to do.

    Do pay for an independent evaluation. But do not take their word as the bottom line. Ask for other opinons as you have done here and coupled with your personal evaluation of the location go to seasoned professionals in small business in your area.

    I will say this. I have prepared a business plan and submitted it for reviewal to my local Small Business Development Center here in my area. They are not comfortable with my industry standards and I have only used them at 50%. I have predicted 110 cups of sales for 7,000 demgrahpically correct possible sales (that will pass by my coffe cart daily) when only 2,000 are necessary for this amount of sales according to indutstry standards.) Mine is an untapped market and they are VERY unsure of the National Coffee Drinking Trends report and reports from the Special Coffee Association which I think are great standards to promote a coffee based business. This area has seen three Starbux opened recently and still they are hesitate to look at industry statistics. Untapped markets make people nervous. And I am talking about local professionals. So remember that when considering their opinion.

    I have the luxury of being a new market in an untapped area and although that is GREAT for sales it is also an avenue that prospective investors can be greatly unsure of for obvious reasons. I, however, am sure of my numbers and industry averages are only an avenue to support my projections which I anticipate to be much greater than just 50% of industry standards!

    Just a little thought from me.

    Cheryl Ann
    HAPPY CHICK CAFE
    Keep doing what you're doing and keep getting what you've got!

  10. #10
    Junior Member
    Join Date
    Apr 2007
    Location
    Eastern Washington
    Posts
    2

    Just Do It!!!

    I would encourage you to just sign the confidentiality agreement (these are not only common, they are pretty much the rule - as you could imagine if you were the one selling) and start getting as much information as you can. In the end if you choose not to buy you are one step closer to your dream. But just dreaming about it gets you nowhere.

    You are in a particularly good position from the standpoint of investing... Consider: most people who invest in a company never get to really inspect the company they will be investing in. So you can not only have access to the financial records, but you can actually sit in the shop and watch the place, talk to every single employee and talk to real customers.

    But in the end you just need to get all the info, not just speculate about what all the info is.

    Anyway thats my two bits...good luck.

    P.S. If the company really has an honest positive annual cash flow of 60k its probably doing all right.

 

 
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