business value?

[BeBond]

I am looking at a business,the seller wants £20,000 for it ,it has a seven year lease left.The books show it is running at a loss,fixtures fitting are worth next to nothing,what exactly would I be buying ? I would negotiate a new 5 year lease with 3 year break in it.All I keep hearing is goodwill,but I thought goodwill was all to do with profit?

 

[businessfunding]

,what exactly would I be buying ?

That is a good question to be asking the vendor

Goodwill is very thin, particularly in the retail sector - is the 'brand' actually of any value to you?

 

[BusinessDeli]

Ask them to show you precisely where the value is. If there is no tangible client list, product or actual business you're buying him out of a lease he doesn't want!
Goodwill is just a throw away term.

 

[BeBond]

thank you for that,just what I was thinking,I am really paying for her to get out I suppose,but if I hang tight for a while I think she will have to close as its running at a loss and could contact the landlord in the interim with an interest in the property.

 

[BusinessDeli]

If it's just the location you want then definitely contact the agent / landlord! Damn sight cheaper than 20k!

 

[BeBond]

just what I thought,I have arranged a meeting on Monday with the landlord,many thanks for your advice .

 

[Billmccallum]

if the location is popular, someone else might comealong and offer the £20K asking price. You need to decide the value of the location to you.

 

[J_Pickering]

Aside from the possibility a great location and a business space that has some potential, it doesn't sound like this business has much value. You don't say how long the business has been at that spot, so it's hard to say whether you will be able to count on any repeat customer traffic coming into the shop. You might want to get the opinions of other merchants in the area as to what they think of the operation.

 

[mhall]

Walk away, talk to the landlord and bide your time. It will be worth the wait.

 

[BeBond]

I have offered a price to the vendor of what I think it is valued at , left them to mull it over ,if they want more will just walk away.I know what has to be done there and the costings. There is seven years left on the lease.Still have an appointement with landlord in the week ,so not all lost.

 

[BeBond]

thats what I think ,the business has been trading for 4 years,but is now trading at a loss,there is quite a lot to do in the shop ,electrics ,plumbing ,windows,all of which if she accepts my offer these issues will be negotiated with the landlord.She is a limited company for some reason but has guarantoor on her lease,bad advice was given to her I think ,so she says she must come out with something.

 

[Page]

thats what I think ,the business has been trading for 4 years,but is now trading at a loss,there is quite a lot to do in the shop ,electrics ,plumbing ,windows,all of which if she accepts my offer these issues will be negotiated with the landlord.She is a limited company for some reason but has guarantoor on her lease,bad advice was given to her I think ,so she says she must come out with something.

Dont make her problems your problems - it is irrelevant that she says she has to come out with something

It is business - it is all what you can negotiate
(and her also)

What if you dont buy it - her position will get worse and so ....

What matters is what it is worth to you - she can think it worth 20K and if you think it is worth 100K then grab it before someone else does

She can think it worth 20K but if to you it is only worth 1K then you should only offer 1K

If she is losing money she may be more than happy to just give it to you to get out of the situation
(Remember when you read about businesses being sold for 1p despite turnover of millions but losses - there is a legal reason for the 1p)

Sometimes shops pay to get out of leases

it gets more complicated due to other things to do with leases and transfer but I hope the above helps

It is very common for limited companies to only get loans and leases with other - often personal - guarantees of some sort

You do not have to enter into such arrangements but nor does the lender or landlord have to deal with you

And on it goes - it is business

 

[a4nthony]

Why do you want the shop in the first place, is it of a unique nature ?

Most towns have ample empty shops, wouldn't it be better to take one of them ?

 

[Louie]

I'd pay 1p for it max. It's losing money simple as that. You say the assets (fittings and fixtures) aren't worth much. It also needs work as you stated.

If the business has the potential to be worth 20k it's up to her to realise that potential before anyone pays for it. It's a lot easier to take over a unit that is empty or isn't trading and do it up rather than trading through improvements.

I'm not sure if you plan to change the use of the unit or if you think you can tweak the current business to make a profit. If its the previous find another location. If you think you can tweak the current business and it would be detrimental for it cease trading before you take over it might be worth a little.

People always think there house, car, business is worth more than it actually is. Normally because they can't accept depreciation, especially if it was a profitable business previously.

It all depends on supply and demand, if someone else really wants it you might miss out. The agent if there is one, or seller is most likely to embellish any slim interest there is. As others have said I'd speak to the agent, offer a small sum if you think the location or continuation of trade is worth it, or sit it out and wait for her to reduce the asking price vastly or close.

I'd like to state this is just my opinion and I'm certainly not the oldest or wisest person on here.

 

[Billmccallum]

Lots of comments, but not a great deal of common sense....

In many areas of the country the premium asked from existing leaseholders cn be huge in respect to what they offer. For example - I have seen shops in Lyme Regis asking for £25K premiums, mainly due to the location and nothing to do with the value of the business.

As per my previous post, the only measure of value in the property in question is what the OP is willing to pay for it. Again, nothing to do with the value of the business.

 

[seopeak]

I am looking at a business,the seller wants £20,000 for it ,it has a seven year lease left.The books show it is running at a loss,fixtures fitting are worth next to nothing,what exactly would I be buying ? I would negotiate a new 5 year lease with 3 year break in it.All I keep hearing is goodwill,but I thought goodwill was all to do with profit?

I think you should start a new one....

 

[BeBond]

Much appreciated all the really helpful advice,many thanks.
I have offered a very minimal amount to the seller just really to get her out,she hasnt said yes or no yet,have put a short timeline on it ,if it comes back no will bide my time and wait...Have spoken to the landord to give me first refusal on lease .