Looking To Buy Fish & Chip Shop But Accounts Show Different Turnover & Financing

[bounce]

Looking To Buy Fish & Chip Shop But Accounts Show Different Turnover...

I'm Looking To Buy A Fish & Chip Shop That Advertised Its Takings As £3000 Per Week..

The Accounts Show £1200 Per Week...

Asking Price Is £100k For The Goodwill, Fixtures & Fittings...annual Rent Is £10k Including Living Accomodation.

I Am A Bit Confused On What Sort Of Offer To Make As They've Based The Asking Price Based On £3k Weekly Takings Where As The Accounts Show £1200, And I Feel That My Offer Should Be Based More On The £1200 Takings..

Also Any Idea On How Much Loan To Value Lenders Offer On A Leasehold Business, And Also Do They Lend Without Security...i'm Looking To Put Approximately 50% Deposit Down Myself..

 

[Zeno]

Ask for an explanation but it does not sound good.

Could be that the takings have been "overestimated" in the advertsing or that £3k is the actual figure and £1,200 is what they tell the Tax man.

 

[elaine@cheapaccounting]

There was a very similar post to this recently - also from a newbie.

I will try to find it.

 

[bounce]

Ask for an explanation but it does not sound good.

Could be that the takings have been "overestimated" in the advertsing or that £3k is the actual figure and £1,200 is what they tell the Tax man.

They've declared the £1200 to the tax man to save on tax i think

 

[elaine@cheapaccounting]

here it is

http://www.ukbusinessforums.co.uk/forums/showthread.php?t=141226&highlight=fish+chip

 

[elaine@cheapaccounting]

They've declared the £1200 to the tax man to save on tax i think

oh so you are buying a business from someone who has committed fraud. How interesting.

If they have lied to the tax man I am sure that they must have told you the true figures

 

[bounce]

oh so you are buying a business from someone who has committed fraud. How interesting.

If they have lied to the tax man I am sure that they must have told you the true figures

Lol...this is the thing i'm not 100% sure about as we have no way of 100% confirming what the business actually is taking...Based on the figures they've declared, it wouldnt be a worthwhile business for me...but based on what they 'say' they are taking its a bit more worthwhile...

 

[elaine@cheapaccounting]

Lol...this is the thing i'm not 100% sure about as we have no way of 100% confirming what the business actually is taking...Based on the figures they've declared, it wouldnt be a worthwhile business for me...but based on what they 'say' they are taking its a bit more worthwhile...

and how will you find out the truth?

All I would say it make sure you have a water tight contract that limits any liability to you for their tax evasion and other 'wrong doing'!

 

[bounce]

and how will you find out the truth?

All I would say it make sure you have a water tight contract that limits any liability to you for their tax evasion and other 'wrong doing'!

Could i be liable for there tax evasion?????

 

[crossdaz]

Could i be liable for there tax evasion?????

It depends if you are a labour MP or not

Re your question - you can only base your decision on the actual figures not what they are saying with a nod and a wink.

 

[elaine@cheapaccounting]

Could i be liable for there tax evasion?????

what are you buying from them?

The business including all assets & liabilities?

As I say something to get tied down in a sale agreement if you decide to do business with them.

 

[Strontium Dog]

I have acted as a professional adviser in a fair number of transactions involving either the purchase or disposal of a cash business.

It is fairly common practice for the proposed purchaser to spend as many "shifts" as they like in the shop prior to the aquisition in order to verify daily takings. remember, you are not really interested in historic takings figures (from the year end accounts). The current figures are the relevant ones.

I have one client who is fairly aquisitive in the fast food market, and he pays his (retired) father to sit and monitor sales in any business premises he is interested in!

 

[Homshaw]

If the accounts show £60K sales how much is the net profit? The rent is £10K

Can't see what's worth £100K leasehold. A few shop fittings and a little dubiously valued goodwill

Trying to suggest turnover is 2.5 times that shown in the accounts is a joke. The suggestion is they are hiding £90K a year. I would run a mile and report them to HMRC

Are you seriously considering spending a 100K on this?

 

[bounce]

If the accounts show £60K sales how much is the net profit? The rent is £10K

Can't see what's worth £100K leasehold. A few shop fittings and a little dubiously valued goodwill

Trying to suggest turnover is 2.5 times that shown in the accounts is a joke. The suggestion is they are hiding £90K a year. I would run a mile and report them to HMRC

Are you seriously considering spending a 100K on this?

I'm definately not looking to spend 100k on this...i'm looking to make a realistic offer based on the figures from the accounts + for fixtures and fittings etc...all they can do is say no...

I am interested in the place as it could have potential...but i'm only looking to base my offer on what its worth based on factual information, not the takings 'they' say its taking etc...

 

[QuickHomeBuyers]

Make sure they dont mix VAT with takings. If their accounts turnover is £60000 then they probably arernt registered. Guestimating the net profit around £20k then make an offer no more than £60k including everything.

We recently had a dispute when the sellers told us there sales including VAT however their accounts were net of VAT and they were 60 year old kids who acted childish and said we wont reduce the price even tho the PO remuniration has gone down and the sales havnt gone up. They said "we thought we should tell you the amount with VAT". LOL

 

[bounce]

Make sure they dont mix VAT with takings. If their accounts turnover is £60000 then they probably arernt registered. Guestimating the net profit around £20k then make an offer no more than £60k including everything.

We recently had a dispute when the sellers told us there sales including VAT however their accounts were net of VAT and they were 60 year old kids who acted childish and said we wont reduce the price even tho the PO remuniration has gone down and the sales havnt gone up. They said "we thought we should tell you the amount with VAT". LOL

there net profits show for your end 2008 show approx 12500 net profit...

I was thinking of an offer around teh 60k mark...

 

[Homshaw]

I'm definately not looking to spend 100k on this...i'm looking to make a realistic offer based on the figures from the accounts + for fixtures and fittings etc...all they can do is say no...

I am interested in the place as it could have potential...but i'm only looking to base my offer on what its worth based on factual information, not the takings 'they' say its taking etc...

If you've seen the accounts you must know what the bottom line is. Knock off a fair wage for an unpaid owner if appropriate and notional interest on what you would get in a building society

I honestly can't see how its worth much more than the assets plus a little if judged to have potential. £60k is not a big turnover for a fish and chip shop. At £5 a portion its about 42 customers a day

 

[QuickHomeBuyers]

there net profits show for your end 2008 show approx 12500 net profit...

I was thinking of an offer around teh 60k mark...

I would half the asking price to start with. Start negotiating with £45-50k. However you are in the best position to understand the business worth.

Just dont consider the figures they speak. Go by the accounts, if in doubt request tax documents etc and get an accountant to verify.

 

[bounce]

The accounts show fixed assets at £85599.00 for the year march end 2009...

Therefore am i right in thinking they's want more than this for the goodwill??

 

[Homshaw]

Seems a lot for assets. Ask for a breakdown

 

[Strontium Dog]

The historic accounts are not relevant from a business appraisal point of view - just find out what the business is doing now/is capable of doing.

 

[David Griffiths]

The historic accounts are not relevant from a business appraisal point of view - just find out what the business is doing now/is capable of doing.

They are highly relevant from a business funding point of view. Lenders will ask for accounts, and work from the reported figures.

The other factor is that if the vendors have lied to the tax authorities, the chances that they are being completely truthful with prospective purchasers is somewhat diminished.

 

[Strontium Dog]

They are highly relevant from a business funding point of view. Lenders will ask for accounts, and work from the reported figures.

The other factor is that if the vendors have lied to the tax authorities, the chances that they are being completely truthful with prospective purchasers is somewhat diminished.

I agree that if the vendors accounts are poor it will not help borrowing side of things (see the OP's other thread on this), but that was not my point. We don't even know how old the accounts are. They are not a good basis for deciding whether to buy the business or not. Check current weekly turnover by sitting there if necessary. By all means reconcile to the CURRENT VAT returns, and ask questions if there are serious discrepencies (If the business is turning over £3K per week and is not VAT reg ask MAJOR questions!).

Fish and chip shops generally sell on multiple of weekly T/O, and profits are not relevant to determining price. I wouldn't generally agree that this was sensible, but its fact. If the OP prepares a bid based on the historic accounts, and current sales are reallt £3K, he will not get the business , because someone else will.

I take on board what you say about anyone who cheats the tax authorities cannot be relied upon, but the OP must just take a view based on what he knows about the individuals, and decide if he can do business with them. Just my thoughts:redface:

 

[Homshaw]

Surely the amount of risk you are taking has got to affect the price

You know the turnover is somewhere between £1200 and £3000 a week

You would have to work 8 years to recover your £100K although hopeful it would have a resale value

What are these assets valued at £86K. Looking on the internet a second hand range comes in at £12K

It's OK paying goodwill for a thriving business. This doesn't sound like one to me

It may have potential but why would you pay someone for potential that you realise

You are renting a shop and buying second hand equipment. The rest is unproven

 

[QuickHomeBuyers]

I appriciate your interest in the shop, personally I wouldnt pay 2 or 2.5 times of the net profit.

Unless fish and chip shop is your preferance, I would also look at other businesses.

Get a PO. Easy peasy.

 

[Atilla]

The accounts show fixed assets at £85599.00 for the year march end 2009...

Therefore am i right in thinking they's want more than this for the goodwill??

85k for an old range?
Add in the Peter Pan figures for the T/O and the warning bells should be telling you to run a mile.

 

[David Griffiths]

Fixed assets probably include a fairly substantial figure for goodwill paid to the previous owner. You'd need a full breakdown to see what is there.

 

[Homshaw]

Just been on a site called UKbusinessesforsale

I did a search for Fish and Chips, Leasehold, Turnover up to £60K

Bit confusing because some people enter the weekly amount in turnover but I would say the asking price is too high. £25K to £35K seems the right spread

But hey it's your money

 

[Bob]

Do you belong to the Federation. Very worthwhile - a great source of information.

They also run courses for people thinking of buying a fish and chip business

 

[DFL Accountants Ltd]

You cannot be held liable for their tax evasion, however it may cause you some short-term hassle if they are investigated - and could create some poor publicity for the business.

You could be liable for any rent-arrears - so be careful with the contract.

I note that their declared turnover of £1,200 keeps them below the VAT registration limit - have you checked how many weeks per year they are open - it could be that the weekly turnover is £3k for a short period of the year and the rest of the year they open restricted hours (or take a break) to keep below the registration limit - some businesses do this (quite legally) - in this case however I think the large difference in turnover makes it unlikely.

If you are still interested in buying this business, the value should be based on the declared turnover. Anyone else interested in the business will also use that as the basis for the valuation.

Also if you do buy the business and find the turnover is £3k per week you will have to register for VAT (assuming they are not already registered) - this will prob mean increasing your sales prices which may then reduce the turnover as you lose customers.

Darren Loring
DFL Accountants Ltd

 

[Homshaw]

this will prob mean increasing your sales prices which may then reduce the turnover as you lose customers.

Darren Loring
DFL Accountants Ltd

I would have thought it difficult to pass the VAT on (so a £5 bag of fish and chips becomes £5.87-for a family a major increase) and with food being zero rated there is little to claim back.

If turnover was £3K there probably wouldn't be a problem but there is too much uncertainty to pay a lot for this business