One of Warren Buffet’s sayings is “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”.
A good example of this is when you go to the supermarket to buy some steak. The budget steak is $10/kg and the good steak is $35/kg. You buy the budget steak, cook it up and it is hard to chew, has plenty of fat on it and you start to question was it really worth saving $25/kg. However the big question is, did you actually save $25 or did you pay for what you received. This is the same for businesses, from a seller’s and buyer’s perspective.
Good strong businesses will always sell for good prices. These are businesses with strong financials for a number of years; a strong lease; well trained staff; fit out/assets in good condition and the business showing strong signs that it will continue to trade strong into the future.
Let’s use the example of two cafes for sale. One cafe is run under management- consistent coffee sales each week, new strong lease, fit out in good condition and financials show excellent profits. The second cafe is run by two owners- the fit out is tired and financials show losses.
You know that after you buy it you will be making
good money and you will have a strong asset if you
were to sell in the future.
Obviously the prices for each of these will differ significantly, but from a buyer’s perspective it makes sense you would pay a fair price for the strong cafe. You know that after you buy it you will be making good money and you will have a strong asset if you were to sell in the future. The second cafe will also sell but it needs to be to a buyer who has a strong business formula to insert and is confident it will work.
As a broker we receive good interest for the example of a strong cafe but buyers often expect it will come at a wonderful price instead of a fair price. They are trying to pay $10/kg for a steak that is worth$35/kg. Just as you would not go into your butcher and say you want to buy the $35/kg steak but will only pay $10/kg, it is the same with businesses.
If you are a buyer, these wonderful businesses are not as common as you may think. If one comes up for sale, move quickly! And part of moving quickly is securing the sale of the business with a fair price.
BEAUTY SALON AND DAY SPA CIVIC
This Civic Beauty Salon and Day Spa was established in 2006. Located in the heart of the city, the design of the Salon and Spa specifically caters for
both female and male clients. The design would also allow the salon to have a secondary purpose as a training school. Over $220,000 spent on fit out. Over $130,000 spent on equipment/furniture, which has been well looked after, and includes a hydrotherapy spa.
ONRED – RED HILL LOOKOUT
Before today, you could not buy the views or placement of a restaurant of this calibre in Canberra. Sitting 175 metres above Civic, you, along with your customers, will be mesmerised by how incredible this location is. It really has to be seen to be believed, to understand exactly what you are purchasing here.
• 2012 turnover $820,000
• GP 65%
• Secure Lease 9 years
$460,000 + SAV
BEAUTY SALON NORTHSIDE
This run under management beauty salon has a like brand new fit out and revenues are continuing to grow. Specialises in waxing and tanning. For the period 1 July 2012 to 31 December 2012 showing profit to the owner of$73,000. Why would you set up a salon when this business will pay itself back very quickly. Owner lives in Sydney.
$115,000 + SAV
50% VENDOR FINANCE ON OFFER
The owner is ready to retire and has currently being running his Civic business really to suit his own lifestyle i.e. open limited hours. This restaurant has a strong lease at $59,000 incl GST, excellent fit out including large bar area, seating for 100 people and located next to the Canberra Theatre are. Owner knows how strong this business will be for the next owners hence the 50%vendor finance on offer.
$265,000 + SAV