expert advice needed

[Pnay]

hello all,

I would like to know what the current coffee shop owners think of this business I plan on acquiring. The asking price is a little over 4x the adjusted net (38% of gross sales, is another way of looking at it.)

The shop has a lot of potential. More advertising, additional items such as paninis, smoothies and better pastries will help the sales. I also plan on actually working there myself so that should decrease the payroll. It has a very good reputation in the community and yet I feel that there's still a lot more I could do with it.

Should I do it? Or is it overpriced? I am new at this and your input will be greatly appreciated. Thanks.

 

[Jackson]

shop advice

Is the coffee shop making a profit? If it is, can you pay off a bank note and pay yourself from the profit? If so, the selling price is probably ok. If the shop is currently not making any money, you should be able to buy it for a song. It should be a good enough deal, that you would not want to look elsewhere. You could go on E-bay and purchase all the equipment and fixtures for a coffee house for under $30,000. You may not beable to prepare much food with that capital, but it doesn't sound like the existing shop has much food prep equipment either.

 

[ontrees]

I agree with Jackson about calculating if it can pay a loan and yourself.

If I'm understanding your calculations then the shop is making under 10% profit based on the gross. This seems a bit low unless you are talking about a high volume shop - e.g.

1,000,000 gross = 100,000 profit
500,000 gross = 50,000 profit
100,000 gross = 10,000 profit
50,000 gross = 5,000 profit (I just looked at one of these for sale last week!)

It also depends on what is included in the purchase price
- is the building leased or owned?
- if it is leased, do you have at least ten to fifteen years of options left on the lease?
- is the equipment leased or owned?
- does it include the business name?
- is the profit based on the current owner working full time or more, or do the employees run the shop? would you be working full time or having employees run the shop?
- will you be changing the theme/atmosphere of the shop? if so, expect sales to change drastically, probably down for awhile.
- why is the owner selling?
- is there something changing in the area that will affect the business? road changes, a national chain coffee shop going in, etc.?
- will the old owner be allowed to open up a new shop in the area, or are they signing a non-compete clause in the sales contract?
- do you have the experience to run the shop the way they did? if not, make sure you are adequately trained by the current owner or manager. any change in product consistancy will change sales volume.
- what is the current reputation of the shop? if it's bad, you have to change that, which is hard. if it is good, you have to live up to it, which I think is easier than getting over a bad rep!

So, with some of these answers you can focus on your question.

If the shop is selling for 20,000 and includes a great lease and a lot of equipment and you want to build up a shop - awesome! If it is selling for 20,000 and includes nothing but an expensive lease, not so awesome.
(There was a shop I looked at the was on the market for about 8 months for $20,000 that included around $75,000 in equipment, but no one would buy it because of the lease. He finally gave it away minus a few thousand in the equipment!)

If the shop is selling for $400,000 and makes $100,000 per year net and includes real estate worth almost $400,000, who knows, might be a good deal, might be a money pit?

My point is that there are a lot of things to look at.

Have fun!

 

[Pnay]

Thank you very much for your responses. Erik, the answers to the questions you posed are all favorable to me. Right now, the income of the business is enough to cover the loan plus small amount for me. I think that if I cut back the payroll a bit, I can make a good profit.

Thanks a lot again for taking the time to post your thoughts. I'll post however this deal turns out.