Renew lease on Commercial Property - 20% increase

[Panic]

Video Store

HI Quoll,

I'm close to finalizing a deal on a video rental store.
As your problem re: commercial space... I have put a clause in my negotiations that all offers are void if I can not get a rental agreement with the current landlord to my acceptance, or be given the right to have month-by-month rent with the current landlord until I find new space to move the business (in the same area)

What I want to ask you is how did you do your due diligence on the business?

Did you value all the members and how much? How much did you put in for every active member and how much for the ones that are not that active?
Did you value the DVD's and the stationary? What method did you use?

Just for your information, the current owner has dropped the price by 60% from its initial asking price

Thx

 

[quoll]

The lease is almost sorted out, landlord reckons he knew nothing about it and will get the solicitor to draw up the contract as per the old lease agreement, $49k + gst with CPI adjustments.

Just waiting for the piece of paper to sign now.

cheers
quoll

 

[quoll]

HI Quoll,

I'm close to finalizing a deal on a video rental store.
As your problem re: commercial space... I have put a clause in my negotiations that all offers are void if I can not get a rental agreement with the current landlord to my acceptance, or be given the right to have month-by-month rent with the current landlord until I find new space to move the business (in the same area)

What I want to ask you is how did you do your due diligence on the business?

Did you value all the members and how much? How much did you put in for every active member and how much for the ones that are not that active?
Did you value the DVD's and the stationary? What method did you use?

Just for your information, the current owner has dropped the price by 60% from its initial asking price

Thx

Bugga I only got him to drop it by 10%, well done Panic. I think I need to knuckle down and become harder in my negotiation, sometimes I see the possiblilities and think others seem them as they are very obvious, so I get excited and pay a bit more they I might have needed to.

Anyway due diligence, we looked over the figures and compared the store to other stores and other business's of similar sale value. The stock is a bit low, the business has been run down a bit, lots of potential if we run it well. Didn't look at the customer database. As a rought guide when talking with different selling agents, they use a general rule of thumb net profit x2/3/4 to work out asking price and it depends on the business as to how good / solid / franchise it is as to which multiplier they use. So we have looked at Wendies, Midas, a cleaners, a hire place, compared the figures from video store to those and decided it looked OK.

Didn't spend much time crunching numbers, spoke to people, got a feel for the business, customers and watch the traffic. Seemed OK.

Not very scientific but....

Cheers
quoll

 

[Aceyducey]

Did either of you look at the benchmark report for Video stores?

http://www.ebc.com.au/product/product.asp?loc=1,35,60&admin=

Cheers,

Aceyducey

 

[quoll]

G'day Acey

I've had a look now, their numbers seem a bit low for the startup costs. Profit seems reasonable. I guess if you didn't have the security system, cameras, counter, etc you could get away with 100k startup but if you set it out well you need more like $200k, just checking out the cost of a store refit now, budgeting is fun it's it. Enjoy the journey.

I've seen some smaller stores around the $100k mark, 120m2.

Cheers
quoll

 

[Panic]

Video Store

Hi Quoll, Acey...

To set up a new store with any of the "big" franchises is around 250K, this is pretty much a standard. So the 100K numbers on the ebc site look much lower then they really are. Just the stock cost around 70-90 grand.

Anyway, Quoll
When you were evaluating the potential and the worth of the store, were you allowed to look at the ATO returns and the BAS statements from the current owner, or did you base your decision only on the P&L analyses?
What I mean, is how do you know that the store is making the expected profit?
Also, you should ask for trial period, this is also very common. 4 weeks trial, during which you run the store as your own. If the profit during this period does not meet the presented numbers, you should be free to pull out.

Hope it all works out fine for you, I still havent finalized mine, but lookting to do it sooner rather then later.

Dont worry about the 60% asking price drop in my case. I was able to get that since the store is making virtually no profit!

 

[quoll]

Panic

Had a chat with the vendor and looked over the numbers in the computer. Sales, expenses, etc, mainly used the P&L figures but you have to find out what else is going on. We looked at the numbers from his accountant. So the net profit is what he paid tax on.

Heard of one business where the agent actually advertised $300wk undisclosed income, needles to say the vendor wasn't very happy with the agent.

The way I understand it, the info you get is the advertising and if the advertising doesn't match the product they are selling then you have legal recourse to recover some money, I think it comes under the false advertising legislation. Wouldn't want to do that as it would take too much time and effort but if you do stuff up the due diligence you might still have a way out.

If the net profit is +/- 20% I can live with that, if it's down 20% I'll be pissed off but that just means I screwed up in my evalutation.

Have a look at figures from the last 3 or 4 yeasrs, what stands out? Numbers that jump up or down by more than 30% should be looked at, find out why. I also stuck the numbers into excell so I could see what the sales and expenses looked like.

It's nice to see a steady increase in sales but you can also deal with a decrease if the selling price is right, gives you a chance to turn the business around.

Cheers
quoll

 

[Petal]

Bump - How's the video business???

Quoll,

Just found this old post of yours and am wondering how the video store is going????

My husband and I often talk about video stores and how they can survive in a climate where movie content can be sourced from so many places.

I do note however that although there are less of them they still appear to be thriving (but this is mainly the chains)