Okay Jif and AJ, The stores I mentioned are for sale. The owner called me yesterday and gave me the asking prices. Here's what I believe he stated, he's asking 3 1/2 times EBITDA. He said EBITDA was 172K. From my understanding this store had sales of 800K. I was led to believe this was the largest growing store in the chain this past year. He wants 500K and some change for this store. He stated the other store broke even and that was it. For that store he wants 240K, his cost. I believe he's willing to sale stores seperately. If his EBITDA was 172K for the profitable sub shop, My guess is he profited in the neighborhood of 100K? Does this sound right? The man lives in Ill. and say's it's just too hard to run part time. He does have a brother here who is running the stores for him. He also owns 2 in Gainesville Florida. His idea is to sale these 2 stores and open 2 more in Gainseville. From my understanding, University of Florida must be a much larger campus than UGA? Is Gainesville that much larger than Athens? It must be. He didn't sugar coat it. He gave me the spill of how hard it is to run, that it's hands on. He told me how College kids schedules change each Semester and lots more problems and head aiches. Ofcourse my thinking here is 500K is way too much money for a sub shop. I know it's a turn key operation that's profitable, Wouldn't 300K be well sufficient? It also seems that the other store shouldn't even be considered? I've only gave this a minute of thought. If I were to get serious about this I would have to sit down with the books and have my accountant explain to me what I'm in for. I also have a local guy I've come across that does some franchise consulting. He's got experience like both of you have in the Rest. business. and seems to know a hit when he see's one. So what do you guys think? My thinking is he'll take an offer that will pay his cost to open another store in it's place.
first things first. Get a copy of the franchise agreement and the sub lease agreement ( if there is one) and sit down with your attorney. Then get the sellers verified figures..sales tax reports..and other tax reports and sit down with your CPA. Then you can talk turkey with the guy!. jif
TB, given his sales projections and the helpful data AJ's provided regarding peer expenses as %sales, your sense of his bottom line earnings appear reasonable - $90-100K. His asking price would therefore translate into approx 6X earnings or so...by itself not an unreasonable number. In my experience, I always found it helpful to price transactions based on a target rate of return. An easy way to compute a reasonable proxy for expected return on a deal is to take the reciprical of the purchase multipe....e.g., 6X earnings, would yield us an expectation of 16% return if we hit our numbers and - importantly - prior to consideration of capital needs - new equipment, furniture, signage, etc. It is much more important to assess asset purchases based upon what is called "free cash flow" or cash flow reduced by the amount of annual capital investment required to keep the store in attractive condition. That appears to be an unknown in this case, but follow JIF's advice and dig deep and ask for historical capital investment data.....from there we can get to a good number. If it were my money and looking at it from purely an investtment point of view, my return requirement would be upwards of 25% - a vernture capital-like number....the reciprical of which - 4X free cash flow - would give me a ballpark multiple. Additionally, as the buyer, I always made an effort to structure a deal wherein some %age of the price was contingent upon the performance of the store.....the store exceeds some threshold, the seller could participate in the upside and vice-versa. It protects you against some downside risk. As the seller, I typically tried to minimize the contingent consideration. fyi, stock market investors are currently valueing shares of small restaurant chains at 9X cash flow and 0.4X sales. Given the increased risk of your enterprise, You'd necessarily want to pay less than that....otherwise, why take the added risk.....just take your money and buy shares in the franchise company itself. The hours are better, the work easier and you can sell it with the push of a button! Best of luck...I hope I have not put everybody to sleep! I'd be happy to help any way I can.... Terry
That's an interesting statement. If you can annually get a better return on your money with the stock, why own the frachise. I guess the upside to owning the franchise would be the combination of the profit + the increase in value of the franchise itself over time. I guess the question is what is the potential for this franchise or any franchise to increase in value over time. The downside is of course lack of profit and a decling franchise with obligations that you can't dump like you might the stock.
Couldn't happen very often or very long TOK - demand for franchises would go in the tank offset by an increase in demand for the stock of the companies themselves with, for sure, the appropriate price response for each - in opposite directions of course until such time as the risk/return dynamic has once again reached equilibrium! Ain't it great?! God Bless America..... 8) Terry
Hey guys, busy here! Haven't had time to reply. I'm about to contact the store owner for the 2nd time and will ask him for what yao all have suggested. Quick question here... Someone told me to get a copy of his P @ L sent to me. Hate to sound dumb, but what does P @ L stand for? Anyone?
Sorry to give the eye roll, TB but I find it amazing that someone so interested in opening a business and professes to be a stock wizard doesn't know what a P & L Statement is. In all seriousness, you might consider a course in business management or work toward your MBA to get a better idea of how to successfully operate a business in today's world. Now if you are planning on being able to hire a MBA to oversee the business, then more power to ya!
UT Tom, So I didn't know P and L was abbreviated for profit and loss, big deal! No need for you to apologize to me. You're not sorry for it. I can't stand when someone apologizes for something and follows up with trying to justify it. As for hiring an MBA for running a sub shop? Are you kidding? LOL! I didn't graduate college Tom, but I know that won't be needed for this business. A course in business management might come in real handy, especially when trying to digest all of Terrys (aka BuckeyeT) thoughts above. Anyway, I could run this business no problem, it's a matter of having a good accountant and making sure I pay what it's worth and no more.
TB my Skybox bud...we really need to talk before you do yourself an injustice. Are you around any weekday mornings so I could phone you? If so E mail your phone number to me. I want to mention one thing to you which I have posted once or twice about 8 years ago. I put my A&W restaurant up for sale and a gentleman after the proper negotiations etc bought it. I was to remain with him for a period of time to make sure the transition went smoothly. The very first day (a Saturday) that he took over after about 3 hours I see him getting ready to leave. Where are you going says I. I play Golf every Saturday says he. To make a long story short, that nite I went home and told my wife " We got problems!". Sure enough about 10 months later he calls me up and tells me he has to give me the keys back..he is broke. ( I was carrying the paper). Fortuately I had a substantial down payment, plus HIS HOME which he lost. I then turned around and resold it and I am free and clear and retired. If you care to talk, I will be glad to explain what faces you..not only P&L wise..but physically and mentally! jif
Jif, <t>Monday is a good day to hear from you. I'm headed to work at 3 pm. Only thing I have to take a sick pup to the doctor in the morning. He's ran a fever of 104 all weekend. So i'll be out for a minute or two in the morning. I have a couple ideas to throw your way.</t>
Jif take a look. <r><URL url="http://marketcenteroconee.com/about/">http://marketcenteroconee.com/about/</URL><br/> <br/> <br/> Read the demographics of this area...<br/> <URL url="http://marketcenteroconee.com/features/demographics/">http://marketcenteroconee.com/features/demographics/</URL><br/> <br/> <br/> It's being developed now.</r>
Yes Jif, <t>Thank you for your time. I really enjoyed the time to chat with you. I'll keep you updated.</t>