How much is it worth?

noctambulist

Hello everyone, first of thank you for taking a look at my question and I do hope someone can advise me better.

My daughter has recently been offered an opportunity to purchase shares in a franchise business that has been trading for 5 years now. What I recall is that the company was turning over 400K+/- a year and was increasing by 15k or so a year.

Now please bear with me as I am not to sure on all the details, but I hear the business was not so profitable for the first 3.5 years so not much profit in the company. But is doing a bit better now.

With that in mind the Million dollar question for a 40% share in the company is the Value of £25,000 a steal what would something of that age and value normally go for.

Once again my apologies as my business share dealing is terrible and seeing as il be donating the money :rotfl: I figured I should do my own research.

I look forward to your responses.

Thanks

tradetime

There really isn't a lot of info for anyone to work with there, you may be focusing on the turnover figure in relation to the cost to your daughter, but the turnover is simply an expression of how much money goes through their hands in the form of sales and bears no reflection on their profit margins. If the business were on the verge of going bust £25k would not be such a steal. Before signing anything, or parting with any money you would want to have your own accountant go over all the earnings statements etc.

noctambulist

@tradetime I totally agree that I haven't provided much to go on, I will certainly try and get some more paperwork before parting with my cash. But in relationstion to that particular company going bust all I can say its a High St mutiple so I doubt that very much.

As I dont want to pry to much into her business would LTD companies have sufficient information to download from Companies House website?

noctambulist

Ok I just spoke to her and she will come and see me on the weekend hopefully with some more detail, but I notice she has left a Bottom Line Report for March 07 and a Financial Statement for 30 June 2006.

If I am looking for anything to assist I am guessing the annual financial report will be the one, though old if you could maybe advise me what I need so when I get the more up to date I can know what I am looking for.

Thanks.

tradetime

As I dont want to pry to much into her business would LTD companies have sufficient information to download from Companies House website?

To be honest I don't know if all the info you require would be there, but imho I would not be entering into this without the assistance of an accountant.

ManAtHome

Why would a £400k+ business who's turnover is increasing willing to flog 40% of it for £25k..?

noctambulist

I will be ringing an accountant asap but if someone can tell me what to look for that will be great,

Looking at the Bottom Line from March 07 the company made a £10K profit (I am guessing for the year leading up to Mar 07) and Total sales of 425K, Gross Profit 278K.

Does this help a little better?

[Deleted User]

Hi,

first thing I noticed in your opening post,

t/o £400K+/-, and increasing by £15K, or so, that's only 0.375% pa, doesn't seem a lot to me, prices increase by more than that.


'Looking at the Bottom Line from March 07 the company made a £10K profit (I am guessing for the year leading up to Mar 07) and Total sales of 425K, Gross Profit 278K'

So now that the company is showing a profit, for her 40% stake, she would get £4K from the £10k profit, a good return on initial £25K.

Wonder why a company that is just into profit is offering a 40 % stake, after 3.5 years of struggle.

'But in relationstion to that particular company going bust all I can say its a High St mutiple so I doubt that very much.'

My thought again, she would not be buying into the High St multiple, she would be buying a 40% share of the franchise, my suspicious mind wonders, if 5 years ago the initial cost of the franchise just happened to be £25K. :rolleyes:

Hungerdunger

noctambulist wrote: »

@tradetime I totally agree that I haven't provided much to go on, I will certainly try and get some more paperwork before parting with my cash. But in relationstion to that particular company going bust all I can say its a High St mutiple so I doubt that very much.

As a former Franchisee of a High Street multiple (I wonder if it's the same one), can I suggest you need to go much deeper than just looking at the accounts.

For instance, what are the terms of the Franchise? How much longer does it have to run? Can it be renewed? Will your daughter need to be approved by the Franchisor? Is the Franchisee responsible for periodic shopfitting? If so, how much will it cost and when will the next one be due? Are there any restrictions on the Franchisor opening new shops in neighbouring towns? If not, are they likely to, and what might the effect be on this business? Does the Franchisor also sell on the Internet? If so, is this likely to grow over the next few years at the expense of the High Street stores? When is the next rent review due? A large increase could wipe out most of the 10k profit. Do you have any information on rental trends in neighbouring stores?

I'm sure there are many more questions I could come up with, given time, but these should do for starters!

ManAtHome

Somebody is on a nic little earner GP £278k, Net £10k - doesn't that worry you..?

noctambulist

@frugalmacdugal My apologies once again I had misheard my daughter but looking at the bottom line, Mar 06 295K and March 07 425K so a growth of 43%

Operating Profit March 06 -7K and March 07 57K so an 851% growth.

Gross Profit March 06 192K and March 07 278K

Interesting what you noted about the initial investment maybe being 25K but that surely would be silly on the Franchisee to want to sell at that rate after 5 years of trade?