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BUY OUT RATIOS

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AM INVESTIGATING BUYING AN EXISTING FRANCHISE - A 3 YR OLD BUSINESS THAT GROSSES OVER A MILLION A YEAR, A 20% BOTTOM LINE PROFIT AFTER ALL IS SAID AND DONE, IS THIS A NORMAL RETURN AND HOW MANY TIMES ANNUAL EARNINGS SHOULD BE PAID, EQUIPMENT WAS REFURBISHED AND THEY MARKET AGGRESSIVELY.
MICHIGAN OPERATION
 
20% is reasonable for a well run operation, but most pizza places do not hit that number. I’d be suspicious while understanding it is possible.

2.5x profits is the norm for a top flight place. I’d have to know more about this place to give you a correct ratio.
 
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Is it a franchise? WOuld you mind telling us which one. Maybe some of us have some “scoop” on it.
 
JMBO:
AM INVESTIGATING BUYING AN EXISTING FRANCHISE - A 3 YR OLD BUSINESS THAT GROSSES OVER A MILLION A YEAR, A 20% BOTTOM LINE PROFIT AFTER ALL IS SAID AND DONE, IS THIS A NORMAL RETURN AND HOW MANY TIMES ANNUAL EARNINGS SHOULD BE PAID, EQUIPMENT WAS REFURBISHED AND THEY MARKET AGGRESSIVELY.
MICHIGAN OPERATION
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I missed something when I read this yesterday. The higher your sales, the higher your profit % should be. Your fixed costs are your fixed costs. So 20% on a million is very reasonable. If it were my place, I would probably be at 30% or so. Then subtract out royalties (let’s say 6%), and I would be at 24%. So 20% is definitely within reason.
 
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Thanks for information, the seller would like a cash out deal, hard to come up with $400k, on a 1m gross 20% take home, what would be a reasonable offer to buy out this existing business???
 
Anonymous:
Thanks for information, the seller would like a cash out deal, hard to come up with $400k, on a 1m gross 20% take home, what would be a reasonable offer to buy out this existing business???
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If he is profiting $200k, has solid records, and is a solid franchise this place is worth roughly $400k. I would probably offer $325k though and negotiate from there.

If he has solid records, you should have no problem getting SBA aprroval since he has three years of records. That will likely require 20% down.

Please take my advice, have an accountant scrub whatever record he gives you. Just because a 20% profit margin is reasonable does not mean he is hitting it. There is a place for sale in Illinois right now, has sales of $1.4M, and is only cash flowing $65k.
 
One of the partners dropped the ball, the question is how much to offer since the business is using a manager from another store and being spot checked by one of the other partners.
 
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