Business Investment - Can I fund it this way?

jimjames

The one thing I'd say you need to do is to get an accountant involved to look at the numbers for you. Based on the info here there may be more to it and the fact you've asked the question suggests that you might not fully understand the options available and the business valuation process.

TheTracker

Yes, you need to understand how the business was valued, not just its valuation. Im not sure it sounds dirt cheap to me! You'd usually be looking at some multiple (1.5-3?) of annual profit plus capital assets for a cafe.

But your biggest risk is the labour the owners put into running the business (as in on premises labour) that they will no longer put in. If they put in next to zero and pulled in £15k profit then fabulous! But quite possibly they put in 40 hours. How will you replace that labour, what would it cost, and what does that do to the valuation?

jimjames

TheTracker wrote: »

But your biggest risk is the labour the owners put into running the business (as in on premises labour) that they will no longer put in. If they put in next to zero and pulled in £15k profit then fabulous! But quite possibly they put in 40 hours. How will you replace that labour, what would it cost, and what does that do to the valuation?

Yes, that was my thought too. Jay64, are you intending working in the cafe or just having it as an investment to provide you income?

Someone I know was running a studio, they said how well it was going and how much it was turning over. It was only when I found out the hours put in and them being supported by tax credits that I realised it was making no profit when you accounted for wages.

Jay64

I plan on working in it as well - at current it trades wed, thurs, fri 6pm-11 and Saturday 11-3 and 6-11.

I intend on changing the trading hours slightly (to open more!) the staff he has at the moment are all on zero hours and work as an when needed. Once in I intend to give them actual hours to give them some stability and make my job slightly easier not worrying about who will work and when!

Jay64

Oh and currently he does work most shifts as it is his only job.

pjread

So is that £13k profit after paying himself a market salary, and reasonable to expect it to continue if you hired in someone to do what he did? Or are you effectively 'buying yourself a job' knowing that the "profit" is artificial and based on owner operator working for 'free'?

Jay64

This is a 13K profit after paying himself a salary. In theory I could hire someone, however I would feel more comfortable running it and growing it myself