Buying a business (cattery/kennels) - how?

thenewbee

Hi all

I'm a first time poster in this forum. I currently run my own business, a dog walking and pet sitting service. A friend mentioned something to me the other day and it's got the old cogs turning...

There's a cattery and kennels business for sale in a nearby village. It's for sale along with the residential house, for £695,000 with annual turnover of £120,000.

Were I ever to buy a business like this one, how would it work? Would I get a regular mortgage from a bank as it's a residential house? Or would it be a commercial mortgage? Would the turnover of the business be taking into account when assessing me for a mortgage or would it just be my income as with a regular resi mortgage?

Any insight and info much appreciated. Currently pie in the sky but I'm curious for more information and can't find anything online.

somethingcorporate

How much would the house and land be worth excluding the business?

How much profit does the business make? revenue is largely irrelevant.

Why is the business being sold?

Go and see a broker to start discussions but make sure the basics stack up first.

thenewbee

somethingcorporate wrote: »

How much would the house and land be worth excluding the business?

How much profit does the business make? revenue is largely irrelevant.

Why is the business being sold?

Go and see a broker to start discussions but make sure the basics stack up first.

I would guess the home on its own would be worth around £250,000 minus the business (very rough guess without having seen the house but knowing it's a 3 bed semi and knowing the area).

Profit is on application - I know turnover isn't the number that counts but it does give some indication of potential income.

What sort of broker should I speak to? I used L&C when buying my current home... would they be able to help with this as it's got a commercial element?

ps. selling due to retirement

Pennywise

thenewbee wrote: »

I would guess the home on its own would be worth around £250,000 minus the business (very rough guess without having seen the house but knowing it's a 3 bed semi and knowing the area).

Ouch, if that's right, they're having a laugh. That means they want £445k (£695-£250) for the business which is roughly four times it's turnover! It would be expensive if it were 4 times it's profit!!! There's no way you'll ever get a loan or mortgage for anywhere near £695k if the property is only worth £250k. Even if the property were worth £695k, for a commercial mortgage, you'd be lucky to get offered more than 75-85% of it.

thenewbee wrote: »

Profit is on application - I know turnover isn't the number that counts but it does give some indication of potential income.

No I don't think it gives any indication at all. Turnover is vanity, profit is sanity. It could be making £50k profit, £10k profit or even a loss. You NEED to know the reporting profit and you NEED to know all the costs involved. Some of the "normal" property costs will be hugely more expensive such as waste disposal, rates, power, security, even telephone calls and line rental will be higher for a business. Also don't forget that the turnover level means it's VAT registered, so that's £20k of that turnover gone to the taxman for a start!

First thing is to get the accounts for the past three years. These will show turnover, an analysis of expenses and the net profit. You're wasting your time and the finance broker's time without that key information. The finance broker will almost certainly want future cash flow projections to support the bank application, so you'd then need an accountant to look over the historic accounts and help prepare the forecasts.

motorguy

Interest payments alone on a £600,000 mortgage would amount to £2,500 a month / £30,000 a year.

antrobus

thenewbee wrote: »

....There's a cattery and kennels business for sale in a nearby village. It's for sale along with the residential house, for £695,000 with annual turnover of £120,000.
...

I don't suppose that this is the business for sale?

http://uk.businessesforsale.com/uk/Boarding-Kennels-And-Cattery-In-West-Yorkshire-For-Sale.aspx

If you look at that website, you can see that there are a number of similar businesses for sale, and at least get an idea of how it compares.

http://uk.businessesforsale.com/uk/search/Catteries-for-sale

thenewbee

Pennywise wrote: »

Ouch, if that's right, they're having a laugh. That means they want £445k (£695-£250) for the business which is roughly four times it's turnover! It would be expensive if it were 4 times it's profit!!! There's no way you'll ever get a loan or mortgage for anywhere near £695k if the property is only worth £250k. Even if the property were worth £695k, for a commercial mortgage, you'd be lucky to get offered more than 75-85% of it.



No I don't think it gives any indication at all. Turnover is vanity, profit is sanity. It could be making £50k profit, £10k profit or even a loss. You NEED to know the reporting profit and you NEED to know all the costs involved. Some of the "normal" property costs will be hugely more expensive such as waste disposal, rates, power, security, even telephone calls and line rental will be higher for a business. Also don't forget that the turnover level means it's VAT registered, so that's £20k of that turnover gone to the taxman for a start!

First thing is to get the accounts for the past three years. These will show turnover, an analysis of expenses and the net profit. You're wasting your time and the finance broker's time without that key information. The finance broker will almost certainly want future cash flow projections to support the bank application, so you'd then need an accountant to look over the historic accounts and help prepare the forecasts.

Invaluable advice, thank you very much.

thenewbee

antrobus wrote: »

I don't suppose that this is the business for sale?

http://uk.businessesforsale.com/uk/Boarding-Kennels-And-Cattery-In-West-Yorkshire-For-Sale.aspx

If you look at that website, you can see that there are a number of similar businesses for sale, and at least get an idea of how it compares.

http://uk.businessesforsale.com/uk/search/Catteries-for-sale

Yes it is!

martindow

It's extraordinary that the three photos are of dogs and cats rather than the house, runs, etc. There are a few more photos and the address here

http://www.merizelkennelsandcattery.co.uk/our-gallery

Is this the house or next door? £399,950. If so they are still valuing the business at £300k.

http://www.rightmove.co.uk/property-for-sale/property-31678881.html

colino

As with any business purchase, you have to be objective. Did you actively want to buy a cattery/kennel in this area or has this sale triggered a, "why not?"
Being objective, would you want a business in that area, would you have set up one there (especially a semi!) and does it have scope for expansion?
As has been said, business valuations are particular to sectors and industries and can be a multiple of (genuine, certified) profit. This sounds like a non-starter and certainly not worth professional due diligence without seeing the (credible) books.

Aquamania

Pennywise wrote: »

Ouch, if that's right, they're having a laugh. That means they want £445k (£695-£250) for the business which is roughly four times it's turnover! It would be expensive if it were 4 times it's profit!!! There's no way you'll ever get a loan or mortgage for anywhere near £695k if the property is only worth £250k. Even if the property were worth £695k, for a commercial mortgage, you'd be lucky to get offered more than 75-85% of it.



No I don't think it gives any indication at all. Turnover is vanity, profit is sanity. It could be making £50k profit, £10k profit or even a loss. You NEED to know the reporting profit and you NEED to know all the costs involved. Some of the "normal" property costs will be hugely more expensive such as waste disposal, rates, power, security, even telephone calls and line rental will be higher for a business. Also don't forget that the turnover level means it's VAT registered, so that's £20k of that turnover gone to the taxman for a start!

First thing is to get the accounts for the past three years. These will show turnover, an analysis of expenses and the net profit. You're wasting your time and the finance broker's time without that key information. The finance broker will almost certainly want future cash flow projections to support the bank application, so you'd then need an accountant to look over the historic accounts and help prepare the forecasts.

Agree with most of your post, but turnover is usually reported excluding VAT.