What value would you put on this business?

Calum

Pennywise wrote: »

you should also ask for copies of all the 2010 VAT returns so that you can prove turnover and check net vatable expenses.

The current owner has several business and operates all of them under one umbrella group so would I be right in thinking that his VAT returns would be for the whole group rather than the one business I am looking at?

steve1980

Calum wrote: »

The current owner has several business and operates all of them under one umbrella group so would I be right in thinking that his VAT returns would be for the whole group rather than the one business I am looking at?

This would concern me as he could make some of the money "disappear".

Also 2008 - 2009 accounts are now useless. Surely they must have accounts that finished 4 months ago.

As other people have said, if the business is continually running those figures and the owner not even having to be there, why would he/she/they sell.

COOLTRIKERCHICK

dont froget the accountant can only certify the figures he is
given;)

Ok for example.....( these figures are not true, but it does show how easy it is)

My accountant needs to put my accounts in by the 31st January...

I want to sell my business for maximum amount, either because i know something major is going to be happening around my business or maybe plans to 'shift' the footfall by by building a new shopping area on the other side of town...or i need to raise loads of wongas as my business empire is going belly up.

All I need to do is give my acountant better income figures... Ok i know i will have to pay more tax, but i would get all that back when i sell my business for mega bucks...

MY accountant can only work with the figures i have given him....I have 2 sets of books.. the proper ones and the ones i want to give the accountants..

If this business has been trading since 2000 you need to see EVERY set of accounts from that date... so then you can see if the account figures they are saying ring true

To be honest If a business was for sale for a few grand... and there was a question mark over the turnover and profits etc, then it might be worth a gamble,,,BUT this is serious money they are asking....for hteir business.. Me personally would walk away.... as I wouldnt want that type of debt ( loan to buy the business) if its on a downward slide...

paulwf

Some things missing from the accounts...

Is takeaway a significant part of the business? If so does the "purchases" amount include disposables like cups, lids, plastic spoons etc? These all add up very quickly. I see a cleaning/disposables column elsewhere but this might mean things like toilet rolls and blue roll rather than customer items?

What about wastage? Even the most efficient catering operation ends up chucking away some food.

No money is allocate for advertising, PR or charitable contributions. That kind of turnover without any marketing is difficult (possible but unlikely).

There are loads of small things not accounted for like uniform, postage, promo material etc...again these all add up.

I think the largest cost is going to be wages, 25% can be achieved easily on busy day but with those long opening hours I bet there are rainy days where they run at 50% so you can probably add a few tens of thousands to the wage bill.

paulwf

Actually lets have a good look at the wages:

General manager: £25K
2 x shift managers @ £15K = £30K
3 x full time staff @ £12K = £36K

That uses up their entire wage allocation without accounting for any part times, weekenders or casual staff which generally make up a large proportion of staffing in catering!

I'm sure once you drill down to the *real* figures that £100K net profit soon starts disappearing. If the turnover is to believed (!) then for that rental there is decent money to be made though. I'm guessing more like £50K than £100K though...which when you look at it gives you £25K to act as overall manager (mostly off the shop floor but still full time but still full time) and £25K for the trouble of investing all your money and generally having the hassle of being the owner.

COOLTRIKERCHICK

paulwf wrote: »

Actually lets have a good look at the wages:

General manager: £25K
2 x shift managers @ £15K = £30K
3 x full time staff @ £12K = £36K

That uses up their entire wage allocation without accounting for any part times, weekenders or casual staff which generally make up a large proportion of staffing in catering!

I'm sure once you drill down to the *real* figures that £100K net profit soon starts disappearing. If the turnover is to believed (!) then for that rental there is decent money to be made though. I'm guessing more like £50K than £100K though...which when you look at it gives you £25K to act as overall manager (mostly off the shop floor but still full time but still full time) and £25K for the trouble of investing all your money and generally having the hassle of being the owner.

paul the op is talking about having a loan to buy the business, so the rest of the profit will be eaten up by the repayments


edit...just had a look at profit/loss summery..

1.....I cant see any money for replacing cups saucers etc..

2....I dont see any money being spend on waste disposal, as business waste collections is not included in your business rates, so you either got to pay the council x amount per bag or have a private recycling firm collecting your waste

3.... no motoring expenses? so they must have EVERYTHING delivered to the cafe yes? and they dont do any business running round in their car/vechicle? I find this extremely hard to believe

4......the amount they have put down for accounts seem extremely high to me 5K?

5......If the business was allways making a profit etc why would the banking expenses be 2.2k? as if i had a business where i was paying bank charges ( after 18 months change to another bank for free banking)


again.... alarm bells ringing... if you were making just under 100k profit a year and not doing hardly any work, would you sell it?????????????

paulwf

COOLTRIKERCHICK wrote: »

3.... no motoring expenses? so they must have EVERYTHING delivered to the cafe yes? and they dont do any business running round in their car/vechicle? I find this extremely hard to believe

Actually this is easy to do in catering...it's quite a traditional industry and the fruit & veg van comes round daily, the milk van daily, crisp van every 2 weeks etc etc.

5......If the business was allways making a profit etc why would the banking expenses be 2.2k?

This is possible...coffee shops take 95% of their turnover in cash (some still 100%) so all that cash paid in and change taken out really racks up the bank charges. You can get the figure much lower if you are smart and pay staff in cash and suppliers in cash (as I said old fashioned industry, most deliveries are cash on delivery). If you don't actively "dispose of" your cash and bank it all though this figure is in the right ballpark, if a little high still.

I agree with your other points (and generally 99% of the time agree with you) CTC

Calum

Thanks everyone for some really good feedback.

You have all raised the same concerns I have. What I am going to do is ask for a very detailed financial history and take it form there. I will post any other details I find out and if people are king enough to let me know what they think it would be most appreciated!

Thanks again!!!!

COOLTRIKERCHICK

paulwf wrote: »

Actually this is easy to do in catering...it's quite a traditional industry and the fruit & veg van comes round daily, the milk van daily, crisp van every 2 weeks etc etc.




This is possible...coffee shops take 95% of their turnover in cash (some still 100%) so all that cash paid in and change taken out really racks up the bank charges. You can get the figure much lower if you are smart and pay staff in cash and suppliers in cash (as I said old fashioned industry, most deliveries are cash on delivery). If you don't actively "dispose of" your cash and bank it all though this figure is in the right ballpark, if a little high still.

I agree with your other points (and generally 99% of the time agree with you) CTC

Fair point about the deliveries.... was just going by the local cafe in our area, allways see them in the cash and carry ( or the supermarkets...lol..)

what wrong with the other 1%:rotfl:

I allways like reading your replies on the business thread... as most of the time:p I totally agree with your answers:D


OP... If you feel as though you want to this a step further....delve deeply before making any offers, and if you feel its all above board, then dont offer anywhere near what they are asking, do you know what they have advertsied the business for? Or are they asking for offers? if so ask the estate agents for a guide line of the type of offers they are looking for....

heretolearn_2

This does seem to be ringing alarm bells for a lot of us, just because if something seems to good to be true, it often is, but it might be legit. I'd advise getting your own accountant to look at their accounts - or even to do a set of accounts/bookkeeping from their orig. documents if they'll let you, it'll cost you a little bit but at least you know you'll have the right figures to make a decision on.

1) Why has there been a sudden decision to sell? It is a sudden decision, the sales agent has told you that when he said the accounts were prepared to minimise tax and sod the net profit. Usually people plan to come out of a business over a couple of years - especially experienced successful businesspeople with no urgent financial reason for sale - and do everything they can to maximise net profit and hence the value and sale price. I don't believe the reason given.

2) They are playing games with the accounts. Forget the 'adjusted' rubbish. The accounts they've given you aren't right in any case, have a lot missing, and a lot doesn't add up. Also bear in mind that whatever they give you are not audited accounts. Audited accounts will be (should be!) accurate as the auditor checks the information given by the client is accurate. Unaudited accounts, even if signed off by an accountant, have no guarantee of accuracy. All the accountant is signing to say is that the accounts are accurate and fair according to the information given to them. The information given to them could be 100% fiction!