Rather than laugh at people you could help, but guess not
Reading between the lines in this absurd thread, the advice seems to be don't touch this turkey with a barge-pole!
I would not advise that this shop is a lost cause, but
you MUST go into this deal fully armed and aware of all the issues involved. The main ones are -
1. No assets to speak of.
2. Massive liabilities - staff and lease/rent costs. These are liabilities. They should be paying you for taking these liabilities off their hands. That, after all, is probably why this turkey is up for sale! Massive tip - TUPE applies even if you only buy the assets and if you try to 'elbow' the staff out by setting targets and other tests and benchmarks that they have never had to face before, they can (and probably will) walk off the job and claim against you for constructive dismissal.
3. £5,000 profit (net, gross, what?) is not a business. It is a hobby! There are costs involved in owning a business, such as accountants consultancy fees, legal fees, administration fees and the obvious effort you must make to oversee and check everything every week or month. These are above and beyond the actual costs that are set against the business itself. These are costs that YOU incur just by owning and overseeing the damn thing!
4. Due diligence? You make no mention of any research you have done. Questions you MUST find answers to BEFORE you make an offer include credit ratings for present owners, the landlord, plans by the council for that street, company history and history of the owners and (very important) the landlord's demands on a change of tenant.
5. Future investment needs? This place ain't going no place right now and YOU are going to have to cough up the dough to make the place viable. That too is a cost and my guess is that it will be a considerable cost.
OK, so far, so good.
Now maybe, just maybe, this shop has some future in your hands. Maybe you can run this place at a profit, where the current tenants have failed - obviously.
BUT that future is yours and not theirs. It is not their future to sell! That's why, when people selling businesses talk of potential, they are talking garbage.
YOU are the person with the potential - they have no potential and therefore no potential to sell!
As for the silly idea that a business is worth three-to-six-times net profit - say what??? There are 1001 different factors that decide the value to the buyer and profit is just one of them. Size is another.
The larger the company, the lower is the risk. A micro-company with a £70k turnover and with liabilities and F-all assets is the riskiest of all!
Yes, you can put a multiplier on profit, but then you must also put a multiplier on risk and add or subtract liabilities and assets. (And whilst we are talking about assets, stock should not be valued at whatever the owners paid for it, but at value. That means at fire-sale or eBay prices!)
Good luck and all that - but keep your eyes open and
talk to the landlord. The current tenants deserve something -
maybe a modest finder's fee is my take on their real position.
They don't have a business!
