The Caterers Corner
Purchasing a catering company Caterers Corner: Purchasing a catering company
By M Randery on Friday, July 06, 2001 - 10:40 am: Edit

Hi All,

I am currently the chef for a catering company in Connecticut. The company has an excellent reputation, client list and an excellent full time and part time staff. However, because of the mismanagement of the business end of things, the owner is deeply in debt and I don't think the company will survive more than 6 months to a year.

Having been the chef for a few years I know the most of the regular clients well.

I am considering purchasing the business. Of course the current owner (and the person responsible for the mismanagement) would go!

Is this a good time to purchase the business? I am worried about waiting until the company is really in trouble and damages its reputation.

As a follow up, any thoughts on the valuation of a catering business would be helpful.

Thansk a lot.

By Chefmanny (Chefmanny) on Friday, July 06, 2001 - 11:32 am: Edit

If it's going under why not wait until it does and just rent the place? You already have the client list, and they know you. Why pay for something that has little or no value? If you pay, you should pay for the income potential more than anything. If the business seems to be going downhill, I don't see the purpose of paying for it!!!

By catergreat on Friday, July 06, 2001 - 04:08 pm: Edit

This is more of a situation of you bailing him out, not paying him for his failing business. You have the advantage in this negotiation. You need to value this based solely upon the VALUE of the assets. Current value, NOT replacement value.

He may be satisfied to reduce his debt. You need to find out how much that is.

Goodwill value is for successful businesses. I would not pay him anything for income potential, because it is YOUR potential, not his....

Otherwise do as manny suggests, wait till it goes under and pick it up then.... But get everything in order because things will move very fast possibly...


By Panini (Panini) on Friday, July 06, 2001 - 06:06 pm: Edit

Uh, I don't know about this. M Randery, do you have access to the internal books? Is the business actually for sale? This mismanagement, do you know specifically know where the problems lie.
Many businesses are in debt, do you actually know why?
If the business is not for sale, be careful. If the business is having trouble meeting overhead, the owner might take this personally.
Was this a start-up for the current owner? If so, I would not be to sure about the repeat business of clients. He could move down the street with a new investor and cause heck, especially if you've just bailed him out of debt.
These are just my thoughts. If your getting your compensation and all those full time and part time employees are getting paid, maybe the business is not as bad as you think.
If I owned a business and my chef was thinking
about taking my business from me, I might not be to understanding.
Maybe the way to go would to involve him somehow.
Good luck to you,
I thought I might give you a little of the other side. Most sunken ships will never be brought up but they have saved a few sinking ones.

By M Randery on Saturday, July 07, 2001 - 11:57 am: Edit

Thanks for the responses.

I've already mentioned taking over and the owner seems agreeable. It is not up for sale generally speaking but we have talked about it.

I certainly do not want to pay for anything other than the assets minus the debts. However, the client list is a major asset,it would seem.

As far as waiting till the business goes under, what if the reputation is damaged because of cancellations or problems at parties due to lack of funds. The caterer gets paid AFTER a party (even if it is the the same or next day).

As far as competing from down the street, as Panini mentioned, part of the sale would be a non-compete requirement (pertaining to all current clients, maybe the catering business in general, let's see what the lawyers say) as well as a letter from the owner to all current clients stating that the owner is retiring (or whatever) and selling the business to the chef and that all service and food will be the same as before.

As I mentioned before the client list is excellent and includes about 10 clients that have parties monthly.

There is no real reason for the business to be doing so badly financially from a cash flow basis. The big problem seems to be that the owner is pulling a huge amount of money out of the business to finance his lifestyle at home! I thi9nk what has happened is that the owner has turned personal debt into business debt by funding the home front by pulling money out of the business.

My weak point in working as the chef here is that I had really no idea about the business end of things while I ran the food end of things. However, since the owner is so heavily involved, and I have no stake in the business, I really couldn't have been.

Again, thanks for all the responses. Now that I've found this forum, I going to get more involved in the conversations here.

By sam on Sunday, July 08, 2001 - 05:01 am: Edit

just remember that a great business is built by great business people, if that is not your forte, then find some uninterested mentor to assist you, if this comes to not being intimately involved in the "business" end of the operation, you may not fully understand all the in's & out's of the business cycle, so make sure you are not putting up your hard earned cash &/or credit, for just purchasing a "job"....but having purchased an on going catering firm, which was not by any means faltering, but I like to say was "sleepy", but had a Great Reputation and the phone was ringing from day one, so I can see the beauty in that aspect of your plan...but as said above, you don't want to purchase a bad reputation,,,,my advice is to value the hard assets (and food service equip is pennies on the dollar) - take that figure & add to...value the NET profit of the business already under contract - give him 50% of that figure - and net earnings for the last year (documented by the irs returns) X 3...and would ask for a "non-compete" clause that covered the county of location & all adjoining counties,,,,non-competes are not legally binding if that encompasses, say the entire state or some other large area, or at least that is my understanding.......good luck......sam sears, cec

By Chefmanny (Chefmanny) on Sunday, July 08, 2001 - 01:00 pm: Edit

Randery, get paid up front! unless it is a well established client that pays on a timely basis.
You will get screwed one day, big; and that is the day you will learn this lesson!!!
Non-compete clauses are basically useless in catering, only if you are on tv or the radio; this is because you cannot dictate to the public who they can and cannot use in any aspect of their life.
Also if your state has "right to work laws" the no-compete clause is useless.
If you do get this business, pay yourself a descent salary, most unexperienced persons in this business don't "pay" themselves and that overstates/understates your profit/loss and you screw yourself out of $$$.

By Peachcreek (Peachcreek) on Sunday, July 08, 2001 - 03:37 pm: Edit

A good story for a Sunday afternoon.
I worked one season in a ski resort with a couple of jobs. One of them was as the asst. baker at a new dinner place. Ski towns, as we know have the revolving-door of restaurants. They tend to come and go, some more quickly than others. Well, this place was new, beautiful, well equiped, well staffed and really slow. Seemed like 30 covers was a big deal. So, as the holidays drew near, and in anticipation of a busy ski season, they were more than anxious to book Christmas parties. One of their regular customers told them he'd like a Xmas party there. He really liked the place, he was doted on approprietly etc. So he books and pays a deposit on 20 people, and goes from there. He calls up a few days before the event, telling the chef that its going to be more like 80 people, but the chef said ok, since they still hadn't had a busy night. The party was great. The food was excellant, the wine flowed. Finally a busy night. The tab was huge, the waitstaff finally made some money. The customer was ebbulent. The chef and manager were happy to take a check from the guy.
Everybody was happy. Till the check bounced. And the guy was gone out of town to who knows where. Then the owner got wind of this, as restaurant checks start bouncing because customers' big check bounced. You get the picture. The restaurant closed 4 months later. Kind of an "infant mortality" thing. I don't know if they ever caught up with the customer.
I have the philosophy that the bank and I have a simple agreement. They don't serve food, and I don't extend credit. With debit cards, credit cards and everything else, its easy to be pre-paid. It doesn't matter what people seem like. The thing I learned from that whole experience was GET THE MONEY. You really don't know these people.......

By Chefmanny (Chefmanny) on Sunday, July 08, 2001 - 05:29 pm: Edit

Good words to live by in business, Peachcreek

By M Randery on Sunday, July 08, 2001 - 11:55 pm: Edit

Thanks for all the input everyone.

I do have experience running a business as does my wife who will be a partner (no comments on the pros and cons of this please ;-) ) I'm not worried about running the business end myself. I only said I was not involved in the business end of this company.

As far as getting paid, the current owner asks for a large deposit up front and the balance payment the day of the party as the catering staff are leaving and regular clients pay within the next day or so.

However, it's time to speak to my lawyer and accountant and take it from there. They should know about the viability of a non-compete clause.

Will keep you posted on how things go.

Again thanks for the input.

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