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Potential for the business going forward

When you are looking at buying a business, financialsonly tell 50% of the business story. It is importantyou are giving attention to all the other factors thatwill influence you buying decision.
Financials are straight forward, but like any game of sport, youare only as good as your last game. Therefore buyers want to seehow the business is currently trading and use financials from thepast to gauge where you are now when compared to prior years.If the profitability of the business has been increasing then littleexplanation is required, but if turnover and profit are down, as abuyer you will want to understand why they are down.
However it is important to give just as much attention to theother areas of the business. Some of the areas you need to consider further are:
• Strength of the lease, the landlord you will be dealing with andlikelihood of receiving a new lease once the current one expires.
• Growth areas for the business and more importantly thelikelihood of growth going forward.
• Expenditure required in the next 2 to 3 years – is a minor or majorfit out required? the condition of the machinery used in thebusiness, what needs to be spent on the business to take it to thenext level?
• Owner’s role and staff roles in the business. If you take over thebusiness can the owner be replaced an impact on the business oncethese changes occur.
• Market going forward – are there new laws to be introduced,developments in the area, technology changes, location of thebusiness with its customers?
• Why is the owner selling – are the owners tired, not suitable for thebusiness, can see changes that will impact the business, ready forretirement, change in lifestyle?
Let’s use the example of a 5 day cafe. You obtain the past threefinancial years and the profitability is not great for the business hencethe reason for sale. You present the financials to your accountant andadvice will be easy on this one – do not buy if you plan to run the cafein the same manner. So financials in the case help you understandwhat not to do but give you some of the likely running costs. This iswhen you need to concentrate harder to understand why the cafe hasnot been profitable and how you can put in a formula for how you canrun the business going forward.
In summary if you are buying a business what the business did 10years ago helps you to understand the business you are buying now– but where will the business be again in 10 years time? What is thepotential for the business going forward after you acquire it? This iswhat you also need to consider when you acquire a business.
If you want to make a net profi t of $180,000 with a franchise food business
run under management than you will need to move quick. Some of the benefi ts
of this business:
• No owner involvement
• Located in one of Canberra’s strongest food courts
• Strong lease
• Like new fi t out
This bar/pub is run under full management with no owner involvement. Short
operating hours for a 7 day business. Some of the benefi ts of the business:
• 2012 turnover $1m
• GP 69%
• Net Profi t $186,000
$395,000 + SAV
This run under management beauty salon has a like brand new fi t out and
revenues are continuing to grow. Specialises in waxing and tanning. For the
period 1 July 2012 to 31 December 2012 showing profi t 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
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 fi t out including large bar area,
seating for 100 people and located next to the Canberra Theatre. Owner
knows how strong this business will be for the next owners hence the 50%
vendor fi nance on offer.
$265,000 + SAV

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