Purchasing an existing business, good or bad idea?

What is the net per month?

 

That would be a deal killer for me right there for sure. Also, if the business was doing anything he would not be selling it.

 

If he doesn't have financials....you're buying assets -- not a business! What's the stuff worth? (not new -- second hand). Is it a franchise? What's that worth?

If he says he doesn't have any financials....or they're sketchy...I'd steer clear from buying his corp -- you get all his old skeletons! The assets may be worth it if the price is right?

He's got to have some finanacials unless he hasn't filed taxes for ten years. Again...not a good sign.

 

OK, I deal with this alot. If he can't show proof of financials, walk away, NO.....RUN AWAY.

What type of business is this? Fast food, but what type?

 

Be concerned. And I would always assume they are overestimating their sales, especially in this case.

 

He has to file taxes annually. If he claims he doesn't have financial statements, he's lying. Ask him for his tax filings to see what his annual paper profit/losses are.

 

He might also try and scam you by showing you the earnings before income tax. You need to view the proper cash flows to see if you can afford any capital expenditures.

 

Does he own the building? How much is it worth? What are his gross revenues per month/year?

What about net profits?

How much is he paying himself?

What would you have to do if you bought it? (Work there yourself?).

He has to have financials, due dilligence requires paperwork....

DD

 

dude is lying, he has to have his tax papers

 

Is he listing it with a Commercial Broker or selling it himself?

My advice is if he's not willing to show financials than find another business to get into.

Keep in mind with rent, you have to include: marketing, paying employees, insurance, etc. It's not going to be easy to turn a business around. He's going to be making money from you when he collects his rent, so it sounds very fishy for him to not show you the financials.

If the business was doing well, it would be selling more than 70k.

 

Is he selling the property too??

So you either lock in to a long term lease, or risk losing the location.

This keeps getting better.

 

Duplicate

 

If the equipment is only worth $40k and he wants $70k, then there would be about $30k in Goodwill for the good Name of the business,

It doesn't sound like a major Franchise that he is selling.


Is the $4k month profit projection on top of a reasonable rate of return for the $70k investment that you had to put up to get into the business? Whether you have to borrow the 70k or are just diverting excess funds, that $70k has a Cost.

I don't think the profit numbers will be that impressive once you really start crunching tham.................so consider some other business to buy.

 

What did you do to figure out that $4k profit is realistic?

Let's start with the revenues. If he said $25-$30k, you can estimate $25k at best. Take out sales taxes and you're probably down to $23k or so. From there, your cost of goods sold is probably 40% or more - that puts you at maybe $14k to cover expenses + profits.

expenses include:

$3k rent
3 employees, $6/hr, 18 hrs a day = $10k
Insurance = $500, at least
Utilities/Maintenence = $1000

That right there is $14500, putting you around break-even. You might be able to go with fewer employees, but consider that this doesn't include merchant fees, payroll taxes, security, cleaning, marketing, miscellanous expenses, etc.

Maybe it works if your COGS is substantially less than 40%, but I'm not sure how likely that is.

Get the financials. If he really wants to sell, he'll show them to you. No one should EVER buy a business without seeing them.

 

this is bullsh!t. all you need is the documents that he sent the IRS.

The equipment is worth $0.10 to the dollar. That is all he'll get if he liquidates.

Although Good Will can be worth something. You have to go into a negotiation saying it is worth nothing. The way you look at it is if he does go out of business and liquidates...and then you move in and negotiate a new lease with the landlord...that is what it is worth. That's what you tell him.

Why give him Good Will value when he's about ready to give it all up? Just move in after him? no?

I'm saying this, because I'm looking too. This is what my best advisors tell me. They kinda just slap you upside the head to say...don't pay Good Will...unless you can really prove it.

bottomline: don't even go any further until he shows you his IRS stuff. That will have the net, the costs, the running inventory...everything... in it.

until then...there is nothing to negotiate.

 

You should think hard about this, whether you buy this business, or another like it. A good friend of mine, who was burnt out from the investment game (a Harvard MBA... IPOs and stocks), thought it would be cool to own a BBQ joint in Westlake Hills, here in the Austin area. He had some romantic notions about greeting customers, having live music, having the best BBQ in town, and making money, besides. It turned into a nightmare. As you said, it is 24/7. There is no rest. There is no vacation, unless you shut the place down. Employees call in sick, so you scramble and frequently end up doing their job. You have to know how to do everything, because you never know when someone will call in sick, or quit. There are expenses you never dreamed of and that the former owner "forgot" to mention. Equipment breaks down. The cost of supplies unexpectedly goes up. It's endless.

I admire those who can do it, but I wouldn't want to run a business like that if you gave it to me.


(Hi, Mango!)

 

good point