What value would you put on this business?

Premier_2

Sorry, but where are you getting the figures from?

Have they shown you their books? The books which according to them they paid £5000 to have drawn up last year?

So far we can see the following apparent errors:

The cost of employment - wrong
The cost of overheads (ignoring the cost of employent issue) - wrong
So the net profit (on which tax is paid) - wrong!

It's at that point that Ballantyne, Meaden and co. would all say they are out; I strongly suggest you do likewise

COOLTRIKERCHICK

What has got my alarm bells ringing is

If you have a 'healthy' business making a good profit, and run by a manager, so basically you dont have to interfere in the main running of the business.

WHY SELL IT???????

lets rface it we all dream about businesses like that, where you can just sit back and 'rake' it in.....:rotfl:

Also ( i am not implying the owners have done this BUT) if htey knew they were going to sell this business for what ever reason, there is nothing stopping them giving their accountant 'inflated' turnover figures...

As for the staff, in theory..you say you didnt want to take the existing staff with the business, so they would have to pay redundancy pay, and re- interview them and take them on... ( but you would have to check this would be viable..

Me personally, I think i would leave well alone...... due to too many htings dont add up ( as been pointed out in other posts)

If you do decide to get more information def go to an accountant with the accounts, AND the day to day working books too, and listen to him especially if its not hte things you really want to hear..

paulwf

Just one little thing...when looking at the figures and working out if they seem correct do little research on what does and doesn't incur VAT. For instance you're turning non vat coffee beans and milk into a latte that incurs 20% VAT.

The alarm bell ringing in my head is that a Starbucks, Costa or Nero is set to open nearby, this could potentially halve your trade overnight.

paulwf

Calum wrote: »

Hours of opening are:

Mon - Sat 0800 - 2000
Sun 0800 - 1800

I plan to manage the place myself so I would not require to pay a manager. This obviously raises the question of redundancy payments as they have been with the business for 10 years and I believe they are on a salary of £25k.

You're going to need a very good assistant manager/manager (call them what you will) as you deputy. Potentially shifts are running from 7am to 9pm so there are 14 management shifts a week and the two of you can only cover 10, even with some juggling around and 6 day weeks they will still be used to their full plus you'll need a good supervisor for Sundays.

Now take into account your deputy gets 5.6 weeks holiday a year and you need holiday, plus you'll be open every day apart from Christmas day and your management structure looks tight, let alone making a very experienced manager redundant!

£25K is a bit high for a deputy, but TBH if it really makes £100K with the current structure I'd keep him in place to deal with the day to day stuff which will leave you free to work on the overall strategy.

Calum

Premier wrote: »

Sorry, but where are you getting the figures from?QUOTE]

These figures are from the agent who is selling the business on behalf of the owner. They are an extract from the trading accounts from Sep 08 - Sep 09. They were accompanied by the email below:

'Further to your interest in the above and following your request for a copy of the trading accounts we are pleased to attach herewith those in respect of financial years ending September 2009

Whilst inspecting these figures we would ask you to bear in mind that they have been prepared by our clients accountant in such a way so as to reduce the eventual net profit to the lowest amount which is legally possible in order to minimise our clients tax liability.

As such there are various expenses that would not necessarily relate to yourself as the new owner and therefore these can be added back to the net profit to form what we call “an adjusted net profit” which is a better reflection of the business’ “true profitability”.

Items that fall into this category are such expenses as EXPENSES together with depreciation which is an “immaterial expense” and does not represent a movement of funds.

Taking the aforementioned expenses into consideration an adjusted net profit to would amount to in excess of £100,000 which is the adjusted net profit particularly when bearing in mind that this is after all other expenses and overheads have been deducted'

I have uploaded the actual accounts I recived if anyone would be good enough to have a look and let me know what they think of them:

http://www.mediafire.com/?c9njwop53z0il3w

Thanks!

Calum

paulwf wrote: »

The alarm bell ringing in my head is that a Starbucks, Costa or Nero is set to open nearby, this could potentially halve your trade overnight.

It is already, literally, next door to a Starbucks. The Starbucks opened in 1999 and the shop I am looking at opened in 2000, both appear to be doing very well. I will add that the shop I am looking at has a few USP's compared to Starbucks so this could well explain how they have coexisted for so long.

Calum

paulwf wrote: »

You're going to need a very good assistant manager/manager (call them what you will) as you deputy. Potentially shifts are running from 7am to 9pm so there are 14 management shifts a week and the two of you can only cover 10, even with some juggling around and 6 day weeks they will still be used to their full plus you'll need a good supervisor for Sundays.

Now take into account your deputy gets 5.6 weeks holiday a year and you need holiday, plus you'll be open every day apart from Christmas day and your management structure looks tight, let alone making a very experienced manager redundant!

£25K is a bit high for a deputy, but TBH if it really makes £100K with the current structure I'd keep him in place to deal with the day to day stuff which will leave you free to work on the overall strategy.

Thanks for that. You raise some very valid points here and should I wish to pursue this business maybe I will rethink the staffing.

JCS1

Concerned that they can't add up overheads in the accounts that they've given you. Also these are to September 09, what are the accounts to September 10 looking like? A lot can change in a year.

Also, wages being exactly 25% of turnover? Doesn't ring true.

You also need to see a balance sheet to see the whole picture of the business.

Calum

JCS1 wrote: »

Concerned that they can't add up overheads in the accounts that they've given you. Also these are to September 09, what are the accounts to September 10 looking like? A lot can change in a year.

Also, wages being exactly 25% of turnover? Doesn't ring true.

You also need to see a balance sheet to see the whole picture of the business.

Yeah I must admit that it does not reflect well that the overheads don't add up.

I am waiting for the most current accounts, hopefully get them soon, I have also requested a balance sheet.

Yeah I really don't understand what the whole 25% thing is, regarding wages, very strange!

Pennywise

Those accounts are worthless as they're not real figures just theoretical figures - far too many "round" figures. You need to see the real accounts as submitted to HMRC or a set of "adjusted" accounts signed by their accountants which are basically the same but with financing and depreciation removed (as is standard in "selling" accounts), but you still need their accountant's certification either way that the figures are the real ones. All you've got there is the selling agent's version upon which you can place no reliance.

In addition to the 2010 year end accounts, at the very least, you should also ask for copies of all the 2010 VAT returns so that you can prove turnover and check net vatable expenses. Better still would be to see their "books", i.e. their basic, core accounting records for 2010. Your accountant should be able to help with all this as they'll know what to look for and find any "holes".