It has been my dream for the last 10 years to someday open a place. I found an existing place that has been open for a little less than 3 years. Gross sales last year were $290k. Owner started price at 97k…Given me a few different options.
90k and 2k a month 10 year lease.
70k and 2.5 k a month 5 year lease.
50k and 2.8k a month 5 year lease.
30k and 3.2k a month 5 year lease.
I am doing a home equity loan for the purchase price. We finally settled on 18k and 3300/month lease for 5 years. He and his wife work there pretty consistently. Open M-Sat 11-9…Not open on Sundays. He doesn’t really do any marketing at all. He is a very nice and genuine person. He has added 2 more children to the mix in the last 2 years totaling 4 kids. I know the rent seems a little high; however, it’s offsetting the purchase price. Food cost is around 7700 and labor is at 4000 a month. Area is somewhat rural but only about 4 miles in 2 directions to towns with about 50,000 each. It being rural, it only takes about 4 minutes to drive to either town. Don’t get me wrong, there are still a few good sized neighborhoods near the shop. Has dine in. 16 seats at 5 tables. Could be 30 seats or so if I put in another bathroom. Let me know what you guys think of this. Also, within the next 2-3 years, a large factory is being built about 3 miles away which should emply about 1,000-1,300 people. There are NO other businesses in 4 miles either way except for 1 gas station. any input would be greatly appreciated.
imathieu,
#1, you’re in love with buying your own business (or anchor in this case). Gross sales $290k after 3 years?? This very nice and genuine person would have to PAY ME $30K to let him out of his lease. To give you an idea of how poor those sales are, with 3 years of experience now, and an assumption of zero debt service (not true in your case) I WOULD STRUGGLE JUST TO BREAK EVEN!!!
#2, your post is out of order, so I’ll get my comments back on track. You started by him offering to sell at a price of $90K & a lease?? Does he own the building??? Do a search on how businesses are valued. To me his numbers are too low to be profitable which means: ITS WORTH ZERO DOLLARS, not $90K. But, do some discovery, review his tax returns, sales tax payments, labor reports, etc… ***Don’t be afraid to poke… if he owns the building, he could have it leveraged to high noon, which would make it extremely risky. You could eventually toss $200K into the business, only to have landlord foreclosed on. Isn’t that a nice thought.
Do some searches on buying a business, LOOK AT THE FAQ. There is a ton of info already posted on what you should be asking and looking for. You should seriously spend the next week, not fantasizing about owning your own store, but in researching PMQ and expanding your knowledge a little bit. It doesn’t sound like you have the capital to weather the start-up. * 1 in 3 businesses FAIL the first year, mainly because of lack of capital. FAIL is a 4 letter word, but for most of us, we lose our house, savings, and go bankrupt.
I would not “buy the business” but start my own and look at an asset purchase. Suppose he’s being sued, hasn’t paid taxes…
*RENT DOESN’T HAVE A THING TO DO WITH PURCHASE… if thats the case walk.
You’ve taken the first GREAT step in posting and asking for advice on PMQ. This place is filled with smart, savvy, and LONG-TIME successful operators who share their hard earned experience and lessons. Take advantage of it. DO ME A PERSONAL FAVOR - DON’T PURSUE THIS PURCHASE FOR AT LEAST 7 DAYS WHILE YOU READ AND SEARCH PMQ 8 HOURS EVERYDAY.
He owns the land and the building. He lives right next door and is also offering 600 hours of his and his wife’s labor. He has another full time gig. I plan on putting my heart and soul into marketing to businesses for lunch and trying to get some catering going. Also, opening on Sundays would be a big help. As far as capital, I hear ya there. I do have a couple other options in rounding up a little more cash. I’m a big believer in no debt and would do what I can. My wife has a good job and as far as living expenses we could get by easily on just her salary. Again, he doesn’t do any marketing and only goes 1 mile west but goes about 6 miles or so east as far as delivery goes. I believe I could get the sales up by the neighborhood of 10-20% in the first 6 months. Is that naive of me to think so? Again, any help is appreciated.
What happens after 5 years?
Not sure I’d want to buy a business that people have to drive 3 or 4 miles to get to. That would make it a “destination” place only. No impulse sales. No sales from people visiting other businesses.
He probably doesn’t market since there is no one to market to.
A factory opening up “3” miles away??? supposedly. I’ve seen these situations before. Many times they never open or it happens many years later. Still, “3” miles away.
Gross Sales??? Net sales are what you should be concerned with.
“He is a very nice and genuine person.” What’s this supposed to mean? Do you expect him to be mean and rude when selling a business?
“There are NO other businesses in 4 miles either way except for 1 gas station.” hmmmmmm, wonder why . . .
Sounds like he is doing “decent” sales considering where he is so maybe its well run. Assuming this is the case, what are you improving on? Another bathroom and extra seats? Advertising to people 3 or 4 miles away?
Its cheap for a reason.
Here’s a tact: Why not offer to work for him for 6 months as a management trainee?? **Don’t be afraid to work for FREE!! That way, you’ll learn the area, the business, your potential landlord, and what a big mistake you avoided.
[quote="pizza2007Here’s a tact: Why not offer to work for him for 6 months as a management trainee?? **Don’t be afraid to work for FREE!! That way, you’ll learn the area, the business, your potential landlord, and what a big mistake you avoided.[/quote]
Best advice you’ll get. Spend lots of time at the business before you spend or agree to spend anything. If you are not in the position to spend the time, get yourself a real good lawyer and a accountant who specialize in business and leases, to take a look at your whole deal. The money you’ll pay in the beginning will be worth every penny in then end.
Good Luck
CaptnSammy