Do these business numbers stack up?

Gordon Gekko

Gordon Gekko

Hi All,

I'm in the early stages of looking into buying a retail business. Its in a retail type of business I know alot about.

I have a friend who works in the size business I am looking at and he has given me some numbers .......sssssshhhhhhh :rolleyes:

Its a one man show during the week and the owner and casual work the weekends. The shop holds about about $200k of stock.

These are the numbers i know:

(all per annum)

Sales: $720,000
COS (Stock) $408,000

So Gross profit is $720,000 - $408,000 = $312,000

Outgoings:

Wages: $50,000
Super: $4,500
Rent: $12,000
Group fees: $12,000
Utilities: $3000
Insurance: $2000
Misc: $10,000 (in case i missed something)
GST/BAS Bill: $40,000 (approx)
Loan: $50,000 (to buy business and stock) approx, could be a lot less, have no idea

Total: $ 183,500

So, $312,000 - $183,500 = $128,500

Am I missing any huge expense?

$128k sounds like a nice profit / salary

Any thoughts / help would be great :)

GG
 
Hi,

As you don't mention the type of business I will make some general comments.

The sales seem high for a 1.5 person business at $60k a week. You know what you are selling, work it out $$ sales per hour, is it believable?

If it is a big $$ product then it could be done but then the GP seems very high for a big $$ product.

If it is an exclusive product with fat mark up then all could be OK but if it is something that has opposition/ competitors then I think something is not quite right.

To sell a business netting the owner operator $128 k for $50k is really stretching my BS meter. Generally if it is netting that sort of money I would expect it to go for over $100 k

HTH
 
Given group fees...I assume franchise?

What kind of retail business?

I imagine cost to buy will be significantly more then $50,000 - unless you're suggesting you have the cash? Reason being, if the seller has $200k of stock, they'd expect at least face value for this (unless there's some particular urgency to the sale?)

Wages @ 50k? For one casual on weekends? or does that also assume a salary to the owner or will the place be managed?

$1,000/month for rent seems very cheap...and don't underestimate the cost of utilities - my families business is costing over $2k/month for electricity - (its a 7day cafe).
 
Macca said:
Hi,

The sales seem high for a 1.5 person business at $60k a week. You know what you are selling, work it out $$ sales per hour, is it believable?

HTH
Click to expand...


How did you get sales of $60k a week? $720000 / 52 weeks = $13,846/week? (edit: oh i see...$720,000/12 months...)
 
Last edited:
Macca said:
Hi,

As you don't mention the type of business I will make some general comments.

The sales seem high for a 1.5 person business at $60k a week. You know what you are selling, work it out $$ sales per hour, is it believable?

If it is a big $$ product then it could be done but then the GP seems very high for a big $$ product.

If it is an exclusive product with fat mark up then all could be OK but if it is something that has opposition/ competitors then I think something is not quite right.

To sell a business netting the owner operator $128 k for $50k is really stretching my BS meter. Generally if it is netting that sort of money I would expect it to go for over $100 k

HTH
Click to expand...

Hi Macca,

Thanks for the quick reply.

I know the Gross profit figures are correct, its a high volume / high GP retail industry.

And the $50,000 (for the loan) was the loan repayments, not the purchase price :D

Thanks

GG
 
JoshyBoi said:
Given group fees...I assume franchise?

What kind of retail business?

I imagine cost to buy will be significantly more then $50,000 - unless you're suggesting you have the cash? Reason being, if the seller has $200k of stock, they'd expect at least face value for this (unless there's some particular urgency to the sale?)

Wages @ 50k? For one casual on weekends? or does that also assume a salary to the owner or will the place be managed?
Click to expand...

$50k for a weekday manager, casuals are paid cash sssshhhhhhhh

As mentioned to Macca, the $50k loan was loan repayments (sorry if i wasn't claer there :) )

GG
 
Gordon Gekko said:
Hi All,

I'm in the early stages of looking into buying a retail business. Its in a retail type of business I know alot about.

I have a friend who works in the size business I am looking at and he has given me some numbers .......sssssshhhhhhh :rolleyes:

Its a one man show during the week and the owner and casual work the weekends. The shop holds about about $200k of stock.

These are the numbers i know:

(all per annum)

Sales: $720,000
COS (Stock) $408,000

So Gross profit is $720,000 - $408,000 = $312,000

Outgoings:

Wages: $50,000
Super: $4,500
Rent: $12,000
Group fees: $12,000
Utilities: $3000
Insurance: $2000
Misc: $10,000 (in case i missed something)
GST/BAS Bill: $40,000 (approx)
Loan: $50,000 (to buy business and stock) approx, could be a lot less, have no idea

Total: $ 183,500

So, $312,000 - $183,500 = $128,500

Am I missing any huge expense?

$128k sounds like a nice profit / salary

Any thoughts / help would be great :)

GG
Click to expand...


A couple of things I notice:
Insurance looks low, public liability, products liability, building insurance, business/stock insurance, etc I would think could be a little higher.

200k of holding stock seems very high for annual sales of 720k , why the need to carry and pay for so much stock?
You'd only be turning over this stock only twice per year.

50k for a weekday manager sounds cheap, if you want them to perform as the business owner would and keep profits high.
 
Whoops, not $60k a week, a month :eek:

I guess it depends on the total purchase price too.

You could ask Geoff the Subway, things are often not what they seem and finding a good manager is a lot easier said than done
 
Any business can be right if you can get it at the right price and terms - and you are capable to operate it.

General comments - not in any order :

1. 2 time stock turn is low for retail, usually like 4
2. Is the retail concept based on trend ?
3. Rent is low. Is there a long lease for the site.
4. Will the stock perishable or out of date ?
5. Without knowing the actual business, typical return on small retail business 40 to 70 % return on investment
6. What would be the resell value of the business in the market ?
7. Any special license, skills, training etc will also impact on value

Hope this helps.
 
Not enough info for me to make a comment...

One thing i will say though...i like cash myself at time but when you have staff and pay "cash" you are opening up a can of worms that can attract issues especially if someone is hurt, killed or even gets a grudge against you.

Id be allowing a proper wage, including super, compo cover etc etc and take that off the net return...

what industry are you talking about? high stock volume value for the turnover but if its working so be it i guess.

i always look at fire sale options in any business im involved in...whats it worth at short notice if i have to offload...

good luck
 
Hi GG,

I suggest you change from paying cash to someone, that is a definite problem waiting to happen.

I know someone who did that (NO, not me) and the casual worked there every weekend for 3 years then had a tiff over something with owner.

Casual went to Industrial Relations Dept, result huge back pay, huge ATO tax bill and fine. Talking 10's of thousands all up, very nasty experience.

Also, if you pay cash in hand you don't have the tax deduction so the amount is still included in your nett profit so you pay tax on the full amount.
 
Thank you all for you feedback :)

It's in the Hardware industry.

And before you say "What about Bunnings?"

Bunnings has its place, when I walk in there, I am truely amazed at their range, its a great place.

But in the right shopping strip, small hardware shops have their place. Its all about convenience. Customers walk in, get a one on one experience and get an experienced person to help them, one who knows what they are talikng about.

Pick the right shop, in the right place where bunnings and the new woolworths (Danks) mob can't build you out. Position, position, position :D

And I totally agree with not paying cash........you can get into all sorts of trouble.

A few things about the shop i mentioned where my friend works at:

a) It's not computerised, so they don't do regular stocktakes, don't keep track of inventory, uses the "gut feel" on how much stock to order......and so on.....so the $200k of stock was a guesstermation but i believe i am in the ball park.

b) sales are correct, about $2,000 per day, working on 360 days

c) yes, I believe the $50k salary for a manager is low

Thanks once again for anymore feedback,

Cheers

GG
 
GG

Bigger profits are made from tradies patronising the hardware shop rather than individuals coming in and asking lots of questions (how to do the job) before purchasing.


80 - 20% rule.

One thing to be careful of does the seller of the business own another business and are they channelling takings from other business into this business to increase turnover and profit?

DD would be to watch the number of people entering and leaving after purchasing and get an idea of flow of business.



Regards
Sheryn
 
Sheryn said:
GG

Bigger profits are made from tradies patronising the hardware shop rather than individuals coming in and asking lots of questions (how to do the job) before purchasing.


Regards
Sheryn
Click to expand...

Disagree Sheryn,

Tradies might provide bigger turnover but not bigger % profits.

The type of stotres i will be looking at are small shops, tradies would use them for picking up things they have forgotten or run out of and will pay a premium to get the products :)

GG
 
What I would consider are:

At $128k profit over $720k turnover the margin is only about 18%. And it doesn't take too many expenses rising to wipe this out.

HOWEVER on the other side, if he has scope to increase his prices because his service is what people are after then it doesn't take much to increase the margin significantly.

Cash payments, being what they are, can be risky because if he ever has to stop them it will put a big dent in his profit. He should consider the effect of having to factor this in.
 
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