Lease/Purchase price of existing shop

[tkln]

Hi...I am researching an existing coffee shop that is for sale...I have received some of the financials and have people looking over them, but I was curious what some of you thought about these numbers??

This is the lease terms...the shop is 1,725 square feet:
Triple Net, 10 year lease beginning with new owner
Years 1,2- $16.50 per sq. ft. with no increase
Years 3,4,5- Annual 3% increase or CPI whichever is greater.

The current owner of the business also owns the building.

The purchase price of the business (NOT including the building) is $150K, which I think is overpriced by at least $30K, if not more...gross sales for 2006 were $326K, but with almost no net income after all expenses...with adjustments, the new owner would 'technically' have a net of $40K. What areas are typically where expenses could be cut?

I don't have details on sales or anything like that yet...just starting to investigate. I think the potential for a great business is there, but I'm not sure if the current owner is mismanaging or if the expenses are in fact that high...

Thanks for any advice!
Lucy

 

[chip]

Business valuation

I remember reading in Inc. Magazine once that a business like a coffee shop is worth 40 - 60 percent of annual sales depending on the quality of the equipment. Given that, 150K sounds like it's in the ballpark, but that hardly seems like enough information. I'm struggling to both figure out what my business is worth and how to reduce costs to make it worth more. Our labor and COGs are both too high.

 

[starside8]

Business valuation

I would think that $150k would be in the ballpark as well if the gross sales are over $300k. I would also assume that if the seller owns he bldg, be/she would be a great support to the business and helping you take over. That is a plus for sure.
Cutting expenses is a large part of this business. My shop is relatively new and I'm still trying to trim fat just so I can grow. But wiht thesee bad economic times? it's a challenge. Good luck with it...