Need Advice on Small Business Purchase!

Discussion in 'Growing and Managing a Business' started by AnnacotSteel, Nov 20, 2014.

  1. AnnacotSteel

    AnnacotSteel
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    Hi guys, Im currently doing my due diligence in regards to a purchase of an existing business. Ive been researching for over a year now and think I finally found the one I want to buy. It suits my budget and lifestyle goals perfectly. I would like any thoughts/advice opinions on whether this would be a good investment or not.

    The business in question was established in 2007 and sales have been consistent the last 3 years, around $750,000. Gross margin is around $550,000. In 2012 and 2013, after expenses, it made a net profit of around $45,000 and $37,000 respectively. It is priced for $225,000. Would this be a good investment of my money for the price its listed at or would I be better of investing somewhere else?

    Any feedback is appreciated. Thanks
     
  2. webdesignphx

    webdesignphx
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    Man there is so much involved in an acquisition of this size. I don't think anyone could really help you with just the above information. You would have to view the Profit and Loss statements. It would also depend on the Cash Flow, Business Industry, Business Model and a bunch of other things.

    I would be happy to help you with something like this. But need more information. Either way, good luck to you!
     
  3. AnnacotSteel

    AnnacotSteel
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    Hi webdesignphx, thanks for the reply. The business in question is a fast food franchise. I dont have access to additional financial info such as cashflow of the business yet but will post as soon as i find out. But lets say the business averaged a Net Profit of $35,000 a year for the next 5 years, is that a good ROI for a $225,000 investment?
     
  4. James4

    James4
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    Hi AnnacotSteel. Of course. If this business suits your budget and lifestyle goals perfectly then I don’t think so that you have need to more time to buy the business. On other hand if you are thinking about to buy other franchises then it’s also not a bad idea. Because 2015 is a Great Year to Start or Grow a Franchise. Small business optimism for the future is at its highest point since 2007/2008, according to both the National Federation of Independent Business and the recent Wells Fargo/Gallup Small Business Index. Funding and Tax Incentives are also in your Favor.
    If you are interested then visit the following sites, which may be useful as you start your new business or develop a franchise.
    sba.gov, bbb.org, franchiseregistry.com
    Today morning I have found a blog post at benetrends.com on SBA Financing for a Franchise Faster and Easier. Check out it here https://www.benetrends.com/blog/how-to-secure-sba-financing-for-a-franchise-faster-and-easier . May be it will help in your way to find out how to Secure SBA Financing for a Franchise faster and easier.
    Thanks.
     
  5. nldisplays

    nldisplays
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    Whatever it is you are purchasing, it will require an investment of time and money. Determine what these investments will cost you, and then determine what it will take to recoup the cost. This is referred to as calculating your return on investment (ROI).
     
  6. allcitycleaning

    allcitycleaning
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    why did the net income decline by 20%? That is a flag that needs explanation. Sounds like the business is not growing either but is flat in sales. Does the net income include owner salary or has a salary been paid before net to either the owner or a manager? If I owned a restaurant I would think I would need to pay a professional manager at least $50,000. That would mean that you would be investing $225,000 with a negative $5,000 to $13,000 annual return. Bad deal. If the net is after paying a manager than you are getting a net return on investment of $37,500 per year or about 13% which seems about right.

    Julia
    All City Cleaning Service
     
  7. ConvertiVid

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    What kind of business are you talking about. It would surely help if you can describe what kind of business are you buying. You already gave some figures. It wouldn't hurt if you add more details.
     
  8. shami95

    shami95
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    Every business have there own parameters,I think you can chose the business that is suitable for your requirement and social status, some business can increase after some time and other can are total finish.
     
  9. RTSteam

    RTSteam
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    But are you really interested in running this business or are you passionate about it? It would be a shame if you purchase a small business and in the end you find out you are not passionate about it.
     
  10. elbertglazer

    elbertglazer
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    Whatever our feedback is? In the end, your opinion and decision is your priority with this. For me, before I entered that field, I will do a research about the business I want to purchase.
     
  11. Kevin Peter

    Kevin Peter
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    Did they talk to you about the break even for kind of investment you're ready to? You need to cater the staff pay, overall expenditure and taxes.
     
  12. 60degreeDigital

    60degreeDigital
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    Fast Food Franchise business suiting both your budget and lifestyle goals are just perfect. As for now, ROI seems to be good, but what if, say you want to increase the margin, do you have any plan for that. For future, its necessary that at least you have a plan in tube for expanding your business.
    Though, Fooding business is considered to be a good return business. I wish, for you this would turn out to be a very good investment.
     
  13. david14beck

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    I am not good at all in these stuff but if you are trying to do something then don't stop. give it a try and lets see how much profit you can earn by yourself. :D
     
  14. Business Attorney

    Business Attorney
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    All "rules of thumb" are only averages and are subject to lots of exceptions, but I have found that most closely held businesses that have relatively stable income streams sell for 4-6 times net cash flow.

    Based on an average of $41,000 (averaging $37,000 and $45,000), that rule of thumb would put the price at between $164,000 and $246,000, so that price would fall into the range, although near the top end. If you use the recent net income of $37,000, then the range would drop to $148,000 to $222,000, so $225,000 would be just outside the top end of the range.

    Without knowing a lot more, it is impossible to say whether than is a fair price, but at least it does not seem to wildly out of line.
     

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