Make Offer on Business Opportunity

Spend the money and go see an accountant.
As mentioned above, some figures don't look right. You may need to substitute with market values for a few.
Also the NP was on a decline for the last 3 years, now as they want to sell they have done 100k 6 months to December 2014..

I do small business purchase/sale feasibility anaylysis every month.
Spend the money and have an accountant act on your behalf.
If the numbers don't stack they don't stack!
Even if it costs you $2k, a whole lot better than being stuck with a lease and a dog business for 1-2 years...
Agreed. Numbers dint add up here and rent seems far too high.

Lots of odd looking figures too, doesn't look like the full picture. There would have to be something pretty ourstanding/uunusual that isn't immediately obvious to justify this purchase.

Look at it another way, even if the business was free could you make it work with the rent as high as it is and wanting to make decent money?
 
Thanks Guys for all your responses! I appreciate all your feedback.

I understand the rent is way too high, the only justification I have is that the size of the warehouse is big to accommodate the fitting.

I have spoken to my accountant, and pass him all the information I got from the broker. his response came as below.

He will only add the interest and depreciation to the net profit. so he said that this place is making around 45K net profit every year, given that my wife will be taking the salary. he used a simple multiplier by 3, and he said that I should not offer more than 135. but he not welcoming the idea of such purchase as even in case the vendor accepts my offer. the rent is high, revenue is very steady, and is not expected to jump over night. so I should expect revenue to remain steady, and expenses / COGS / maintenance to increase.

He also said that the vendor needs to justify the reason for the increase in sales in first half in 2015. but also he said he wouldn't worry about all of that at the moment. he will request the BAS statments for last years, and he can analyse further if I still want to go forward with the purchase.

He advised to stay away or only go ahead if I can buy the freehold. in this case, numbers will change and it may become a different situation.

I am still going to meet the vendor tomorrow. and I will update the thread with his responses.

Thanks for all your help.

Ram
 
I have 2/1 on the vendor owning the freehold!

pinkboy
Yep I agree... LOTS of ????? In those figures.

Starting from the top..
Cleaning.... $0 in 2014? Now $2000 for 6months.?

Depreciation....52198. Then 16530. ??? Seems a big drop

Electricity...9513... 10568... 13648.... Now just 4311 for 6months? Seems way too low

Hire of plant and equipment? All of a sudden now in2015???? $3872???

Licences paid..... ???? Nothing ??? Seriously ??? NOTHING ???

Rent... As discussed in the thread ... Rent is just WRONG. Rent should not fluctuate like that. You would expect it to be at most increase by 5%pa but NOT UP AND DOWN as shown here

Repairs & Mainenatance..... Fair enough to expect a figure here ( you are dealing with kids) but the figure is similar 2012-2013 then a BIG hit 2014 now nothing 2015... Does this mean a super big hit in 2016?

Wages.... Is this the owners wage included?

Super? ^^^ this shows that the above wages DOES include owners wage. Calculate backwards. Super is 9% of wages. Hence in 2014 and again in 2015 there have been NO EMPLOYEES.

On these figures... I would offer not much more than equipment value.
 
I always consider three aspects when looking at a business

1. Current profit/turnover
2. Current assets eg fixtures, equipment etc
3. Goodwill/ future potential

The figure of 235k depends on all of the three figures.

Regardlesa businesses are ao damn volatile. Its not even in the same league as property investmwnt in terms of risk and difficulty
 
A children's playground type business would have almost no goodwill.

Folks go these places if they are clean, tidy, equipment in good condition, and good range of things for the kids to do.

The coffee shop/restaurant section has to be good as well.

I would be framing the offer based on equipment and stock only.
 
Have to agree with most, 235k for a business that makes you 45k profit per year is outrageous. Also remember getting people back into a business after they have left is harder than getting new customers.

The expenses vs income on this one would be a no go for me.
 
Goodwill in this type of business is fluid - you have kids, use the place for parties, kids grow up but others in their group replace them (if they've had a good experience ).

There are two or three main revenue generators in these businesses:
1) play equipment (supervised by parents)
2) party rooms
3) food/coffee

Cost of entry is substantial for new competition so there are some barriers though minor.

Rent as others have mentioned should be apprx half (is the vendor the building owner/bad negotiator).

Can you sublet? Ie get an operator for the food and beverage - this requires staff to operate and produces waste. If thete isn't an f&b outlet on premises you should & restrict food coming into the premises eg. Birthday cakes and special dietary needs only (g/free, baby formula etc). Instant $20k + to the bottom line.
 
Thanks Guys for your answers, here is some information.

- Owner?s new business is 700 KM away, and they are happy to sign any agreement that they won?t open a similar business.
- The lease is 3*3*3 renewed 18 months ago.
- Rent is 104K / Year.
- Wages are currently 50K, 1 manager and young students over busy days and weekends.
- My wife wage will be replacing the manager.
- I don?t know the exact split of equipment / stock / and good will. Stock is 3K, as per the memorandum, initial equipment price is 500K, this was back in 2007 when the place was opened. But not sure if this will be related to the remaining depreciated value or not.
- I am not taking any debt from the purchase.
- My wife is working in the childcare environment, and she is a graphic designer. So she will do good with kids and marketing / advertising. Our plant is to keep the manager for sometime until she is familiar with how to run the business herself.
- It is the only place in an area of 10 KMs, surrounded by other family / children activities (AMF / Flip Out). different activities. Kind of an attraction area.
- Owners are not managing it, and I will keep the current manager, so fingers crossed clients will not leave. We are not planning to do major change instantly.
- I am attaching a print shot from the P&L, please have a look and trust your advice.

Will ask for bank statements to prove income. And how they came up with the 235 price
Things that jump out are
=> depreciation
=> rent from personal premises
=> lack of licence fees - No music played? No food on site? No council place of assembly required?
=> check insurance coverage to make sure it includes public liability, business interruption, building and contents, glass etc. Motor vehicle takes up a fair whack of the total reported.

Basically a P&L is only as good as the inputs. I could make you one of these in about 15 minutes showing profit of 150k per year. Whether its accurate is a whole different story.

It's why I recommend getting bank statements - you can do a certain level of reconciliation from the information contained there and start to see if the "P&L" is a good reflection of reality or marketing puffery.

Best of luck - I'd still run
 
The only thing that attracts me to this business is that it can run by only my wife, and I can keep my job. it is 10 minutes drive from my home, it have a good potential as the current owner do not go their at all and his wife goes their 1 day a week, so some effort will really change the place.
Bad, bad, bad !!!
 
Thanks guys for your reply,
Here is the outcome of my meeting with the owner. The owner is very bad with numbers, he was asking the wife for the values and wages, rent,. Everything. the place needs a bit of work, mainly cleaning / better service. The numbers are very bad and they change their accountant in the last year. This is why the depreciation is very high in 2013 as the previous accountant was not calculating depreciation properly.

He said to me that he did a bad financial decision and he hit a brick wall and have to sell.

I settled down a lot and I spoke to my wife, and we are not willing to do a bad financial decision. Your responses are helping us a lot.

What I have done, is that I spoke to a friend who owns a Hungry Jacks Franchise. He said to me that the potential is very good as the place is needs better service and we can manage it, however I shouldn?t calculate on any projected growth because of the effort we are planning to spend. becauuse this should is outcome of our effort and we shouldn't pay for. He said that I need to put an offer on how the place looks right now.

He said to me to check if the rent is inclusive of GST and outgoings first. And if all inclusive, I should put an offer of 100K, and max 110. and should forget about it if they ask for more. I should not pay any good will.

If I put such an offer, do you guys think that this is realistic, or I should just ignore this place and look for something else?.

Thanks
Ram
 
Firstly, aask yourself this. Even if the business was free could you make decent money from it? If the answer is no walk away and stop wasting your time


Have you looked at the lease to work out why it has been fluctuating so much?
 
If I put such an offer, do you guys think that this is realistic, or I should just ignore this place and look for something else?.

Thanks
Ram
This.

You are trying to hard to force this to work. The opportunity of a lifetime comes around about once a month.

If the guy is in a hole financially it is because of this business. Chances are you will be the next person in a hole financially because of this business.
 
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