Posted by Sam Sears, CEC on July 09, 19100 at 12:41:52 :
In Reply to: re: A fair purchase price posted by Yoshi Kipper on July 08, 19100 at 02:04:54 :
: I am looking into purchasing a what used to be restaurant now catering and (small app. 1200sq. ft actual usuable customer floor space) private event facility business. The business (contents, equipment, receipes, goodwill, etc.) that is not the building (the building is leased). It is located right off of a historical square in downtown of a small up and coming town right outside of Kansas City, MO. My question is: How do you determine a fair price to offer for an exsisting catering business after looking at all of the details? Such as the client list, areements with the leasor(landlord), equipment(appraised value), business expenses (utilities, insurance, rent, no payroll since the current owner has no real employees), profit & loss statements, tax return for the previous year. Have I covered everything?! Getting a business loan is not a problem for her asking price that I have not yet agreed upon, that end has already been covered. The owner has already agreed to stay on for a period of 6 month as sort of a training, transition stage for me and her exsisting clientelle.
: I hope I have not left out any details and my question is not too vague. Any help would be much appreciated. Thanks!
This is a frequently asked question regarding catering businesses, how much is it worth....well I have bought one fairly successful company and turned it into one of the "players" in our market, there is good points to buying an existing business (BUT must have a stellar reputation, you can never recover, in my opinion, from buying a business that has a bad rep), your phone should be ringing from day one, booked/contracted business on the books, ready made relationship w/ landlord, ready to go kitchen, ect.........
Here is the formula I used 12 years ago when I bought our firm....contracted business is worth about 20-25% of estimated billing-thats the minimum amount of profit you should make in catering (I think, anyway)-I would figure 50% of aniticapated profit as a fair price for contracted work, now on to equipment, don't believe appraised value, remember food service equipment-front & back of house is just worth pennies on the dollar, everybody thinks their equipment is worth a lot, but in reality a savvy business man can get cheap, cheap & good equipment dirt cheap...so be careful in that area, the hard part is the goodwill, client lists ect ect.. I would look at least 5 yrs of p&l verified thru their accountant, vs their 5 yrs of tax returns...see what the NET profit is after owners salaries, we strive for 20 - 25% minimum Net profit, after a resonable salary for owners,then take three years of net profit and offer 50% of that figure........now after all this, she might be asking for a lot less.......just my thoughts.......Sam