Make Offer on Business Opportunity

Discussion in 'Commercial Property' started by New_Investor, 15th May, 2015.

  1. sanj

    sanj Member

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    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?
     
  2. DaveM

    DaveM KFC Buyers Agent

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    For sale: 1 x $104ka pa lease obligation. $235k ono
     
    spludgey likes this.
  3. pinkboy

    pinkboy SS Lookerafterer

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    [​IMG]

    pinkboy
     
  4. Dazedmw

    Dazedmw Member

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    Yes, that is what I was thinking. At no time in the last 3.5 years do they have the turnover to justify $104k in rental.

    And why is the rental in the last six months only $42k?
     
  5. pinkboy

    pinkboy SS Lookerafterer

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

    pinkboy
     
  6. New_Investor

    New_Investor Member

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    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
     
  7. DaveM

    DaveM KFC Buyers Agent

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    Based on the figures provided i would offer them one years operators gross wage and not a cent more.
     
  8. moyjos

    moyjos Member

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    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.
     
  9. spludgey

    spludgey Member

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    Buying a job that pays $10k and carries huge risks!
     
  10. Truly Exotic

    Truly Exotic Property Deal Finder

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    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
     
  11. BayView

    BayView Member

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    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.
     
  12. Zos

    Zos Member

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    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.
     
  13. Scott No Mates

    Scott No Mates ...and people wonder why?

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    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.
     
  14. Hulkster

    Hulkster Member

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    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
     
  15. Ace in the Hole

    Ace in the Hole Don't compete, Dominate !

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    Bad, bad, bad !!!
     
  16. New_Investor

    New_Investor Member

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    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
     
  17. Ace in the Hole

    Ace in the Hole Don't compete, Dominate !

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    Offer to take over the lease and you'll take the business for free.
    But seriously, this seems dodgy as, forget about it.
     
  18. pinkboy

    pinkboy SS Lookerafterer

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    Honestly...its a dog business.

    How are you going to make serious money for your efforts?

    I agree with AITH....move on.


    pinkboy
     
  19. sanj

    sanj Member

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    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?
     
  20. Hulkster

    Hulkster Member

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    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.