Buying a business

[Nick2024]

The company that I work for is looking at selling one of there stores .
If I was to look at purchasing it off them what would be the best way to finance this , say asking price is £180k with turnover of over 500k . Gp around 70% .
Would be first call be to my bank ?
What deposit would they be looking for ?
Thanks

 

[Mark T Jones]

It's always worth adding your bank - but in reality it isn't their market, so don't take rejection as an end.

Before doing so, ask the vendor if they are prepared to finance it.

The biggest questions will be:

What are you actually getting for your £180k? (Are there fixed assets of value?)

How much are you putting In?

What can you offer as security?

 

[Nick2024]

The vendor is looking to invest elsewhere so would want all the cash if u meant paying them over a longer term.
It’s a takeaway so be around 80k in fixtures fittings equipment, the rest be for goodwill .
This is where I was looking for advice , as unsure how much cash upfront I would need to secure a 180k loan ?
Would it have to be secured .. I have property ect .

 

[Mark T Jones]

As a starting point, I'd look at Start Up Loans - up to £25k per person (from memory) £80k per business.

Beyond that, you'd probably need to look at a secured facility - either remortgaging property or offering a charge as security for a business loan.

Ik now about charge loans @tony84 is your man for mortgages

 

[cjd]

Income and gross profit is interesting but fairly useless. Net profit tells you what this business is actually worth and it's what any lender needs to know. Goodwill is entirely notional.

Also, you need to know what the actual value of those assets are - if they needed to sell them I suspect it wouldn't get to anything like £80k.

 

[Nick2024]

Too kit an empty unit to the same spec would cost me around the 80-90k mark obviously the value of the equipment has gone down in value as it’s in use . It’s currently management run so will be able to increase turnover with my full focus and experience .
Obviously gas /elec and product costs have impacted the business and it is not as profitable as it once was for them.

 

[cjd]

Too kit an empty unit to the same spec would cost me around the 80-90k mark obviously the value of the equipment has gone down in value as it’s in use . It’s currently management run so will be able to increase turnover with my full focus and experience .
Obviously gas /elec and product costs have impacted the business and it is not as profitable as it once was for them.

Don't negotiate for them!

If they need to sell, they would get a fraction of that sold as second hand. They are probably trying to sell BECAUSE it's not as profitable for them as it was. Do you not know the P+L of the business? Net profit is what defines the sales price.

 

[Baines Watson]

The company that I work for is looking at selling one of there stores .
If I was to look at purchasing it off them what would be the best way to finance this , say asking price is £180k with turnover of over 500k . Gp around 70% .
Would be first call be to my bank ?
What deposit would they be looking for ?
Thanks

AI Generated

If you're considering purchasing a store from your current employer, here’s a refined approach to financing and evaluating the opportunity:

1. Understand the Valuation​

• Valuation Basis: Before anything else, ensure you understand how the £180,000 valuation was determined. A lender will want to see a solid basis for this valuation, such as profitability, asset values, or comparable sales.

2. Initial Steps​

• Speak to Your Bank: Yes, your first call should be to your bank or a financial advisor. They can provide insights into financing options and help you understand what’s required.
• Deposit Requirements: Typically, for a first-time business purchase, banks might expect you to provide a deposit of around 50% of the purchase price. This could vary based on your financial situation and the bank’s assessment of the business’s viability.

3. Financing Considerations​

• Personal Security: Be prepared to offer personal security (like personal assets or guarantees) for the loan. This is common, especially if this is your first business venture.
• Interest Rates: Consider current interest rates and how loan repayments will impact your cash flow and profitability. High-interest rates could strain the business, especially in the early stages.

4. Viability of the Purchase​

• Profitability Analysis: Understand why the current owners are selling. If the store is no longer as profitable for them, assess how you might overcome these challenges, especially with the added cost of loan repayments.
• Professional Advice: It’s wise to consult with a financial advisor or accountant who can help you analyze the numbers. They can assist in determining whether this is a viable and profitable purchase given the current market conditions.

5. Risk Management​

• Calculated Risk: Every business venture carries risk, but it should be a calculated one. Make sure you fully understand the financials, market conditions, and any potential challenges before proceeding.

In summary, start by understanding the store’s valuation, speak to your bank about financing options, and ensure you have a clear picture of the store's profitability and potential challenges. Professional advice is crucial to making an informed decision.

 

[Mark T Jones]

Too kit an empty unit to the same spec would cost me around the 80-90k mark obviously the value of the equipment has gone down in value as it’s in use . It’s currently management run so will be able to increase turnover with my full focus and experience .
Obviously gas /elec and product costs have impacted the business and it is not as profitable as it once was for them.

It's a different discussion / thread - however the price you pay is based on minimum value to you, not their justification of pricing.

The market is awash with used equipment(and heavily discounted new equipment).

If you have substance, landlords will give you discounts to take on premises. So, go back and revisit what you are actually paying for.

 

[WaveJumper]

Don't negotiate for them!

If they need to sell, they would get a fraction of that sold as second hand. They are probably trying to sell BECAUSE it's not as profitable for them as it was. Do you not know the P+L of the business? Net profit is what defines the sales price.

And that’s the bottom line spelt out there. Before even thinking about how much you can or can not borrow you want to see minimum last three years full accounts (maybe even five) and sit down with someone who fully understands them (preferably an accountant)

There would also be a mountain of other issues to consider the least of these would be the lease itself and the current staff and management structure especially if you are thinking of removing the latter.

Lots of red warning lights flashing here

 

[Nick2024]

Cheers for the replies , will speak to my bank ,as it’s been company owned for over 10years they have long term figures which I know sales haven’t really dropped just like all business at the moment overheads have gone up in all areas !
The valuation they gave would obviously be worked on just a starting figure on how they value these type of takeaways.
And its inline with the current market value all be it there is a lot more on the market at the moment .

 

[pentel]

And its inline with the current market value

By this do you mean other similar businesses that are up for sale?

Don't confuse asking price with sale price. Unlike houses there isn't a rightmove for businesses where you can look up sold business prices.

Ignore the asking price. Decide what the business is worth to you. Don't forget you are taking on the liability for the lease and the employees transferred under TUPE.

 

[Nick2024]

By this do you mean other similar businesses that are up for sale?

Don't confuse asking price with sale price. Unlike houses there isn't a rightmove for businesses where you can look up sold business prices.

Ignore the asking price. Decide what the business is worth to you. Don't forget you are taking on the liability for the lease and the employees transferred under TUPE.

 

[Nick2024]

Yes going on sold prices for a few shops that I have know have changed hands recently ,but any offer I would make would be on my own valuation just comparing what there asking price is compared to the rest of the market at the moment. Only benefit is I know how this shop has been run/ maintained and that the figures are not manipulated .
The mangemant would go it would just be a few staff that would transfer over .
Current Lease has 15yrs left .

 

[tony84]

You would be better with a commercial broker to get an idea of options, but general rule of thumb for commercial mortgage is 75% LTV at 7.5%.

As others have said, take your heart and enthusiasm out of it. Its a business, do the numbers stack up?

If someone random put this offer on your lap, would you take it, would you negotiate or would you turn it down?

I dont think there is a problem paying a little more for the assetts than they are worth personally. The alternative is saving yourself some money elsewhere but then having to get them transported and fitted. But you should be trying to buy them for what they would sell on the open market if not a little less as they then have the hassle of trying to sell them.

 

[Lisa Thomas]

£80k to buy second hand takeaway assets seems extremely high to me. Suggest you get your own valuation. I can recommend an agent if needed - feel free to dm.

Definitely do you due diligence and pay accountants to audit those accounting records before you do anything else.

 

[Chris Ashdown]

How do they get their stock, as a chain they may well get a far lower price than a single tack-away can get, so question is who buys the stock the present manager from independent suppliers or from a central company stock. And is there a supplier locally who can match or better the prices. As a new business you may not get supplies on credit so would need to adjust your cashflow forecast

 

[BusterBloodvessel]

Many red flags here and many things I'm not buying into. If you were to replicate all the equipment in that takeaway buying it all second hand (not new, as this isn't), I'm struggling to see how it would cost anywhere near £80k. What kind of takeaway/equipment is it?

Why are the owners so keen to sell?

if it's part of a chain, will they allow you to continue using the name? If yes, there's potential issues for both you and them operating different restaurants under the same name. if not, then what goodwill exactly are you paying for?

All seems off to me, I'm afraid.