Looking to buy existing coffee shop, need advice!

[ppoppi]

Greetings all coffee lovers and owners!
I am in middle of obtaining a coffee shop but wanted some input if things make sense and if this purchase is worthy.

The coffee shop is located in downtown of very big city. It is in the building of one of the biggest banks in the world but somewhat hidden on the side entrance. It is very well set up in terms of presentation of the business with plenty of seats to offer.

Now, with financial details and agent/seller details

Agent is stating they are currently doing ~$160k in revenue, around $13.3K per month.COG is ~20% payroll is around 20%(2 part times and owner does NOT work at all) and additional expenses of 23%. Basically netting around $60k as per Agent listing. The price of this business is $100k.
I have checked with my CPA and numbers seem somewhat reasonable besides the payroll.

The rent is % based on gross sale per month, which I believe is a good thing, in single digit.

The owner wants to sell this business to pursue different business. If something like this is profitable and owner barely works, i dont understand he/she wants to sell?

Also, the lease is up to 2023, transferable but agent told me when i transfer, I can not extend the lease but with paying ontime thorough out the year, they most likely will grant me renewal but probably with higher % of base sale, which is a little concerning.

Agent did not mention this was an ASSET SALE when we discussed until recently I have found out its ASSET SALE. Meaning no book check, only physical assets sold "as is" and "where is". Goodwill, sales and profits are not consideration. This makes me really nervous as why they would not show. I almost feel they inflating their numbers.

Any thoughts based on above situation? Should I ask for open book even if its ASSET SALE only? How do you suggest I make offer ?

Thank you in advance for all your input and thoughts

Cheers Coffee Lovers!

 

[Stonewall123]

I sent a private message but now thinking I want to answer on here..
Many problems with a deal that you can not see the books, being told numbers and not seeing is a gamble with your money. The lease has no time left and if the landord wants he can rent to anybody when its up and my feeling is that he knows he can get much more rent. Why rent there and build the business to find out you can't stay or wondering if you can stay. Another gamble with your money! With an asset sale you have to pay all up front but if you buy another shop that is real the owner will hold paper meaning you can get twice the bang for your buck. Make sense? You can even start your own for much less then that 100K and get a lease that works for the long term. A bad lease takes value from your business when you want to sell! Last, if your CPA says it sounds reasonable without asking or seeing numbers then I would get a new CPA.
That's all I got for ya. Any questions feel free to write back

 

[Musicphan]

I tend to agree with Stonewall... I read this last night and had to think about how to respond. I see LOTS of red flags. First, the fact you yourself describe the entrance hidden... first bad sign. It's all about visibility and ease in this business. Secondly, without being transparent about the numbers don't trust them, the numbers could be complete BS. The fact they are not willing to discuss numbers IMO speaks loudly that there is something wrong with this business. If you were the owner of this business and it was profitable - wouldn't you want to disclose those numbers to increase the price of the sale? I agree with Stonewall about the CPA - they simply are failing to do their job if they are really doing a financial audit or attempting to value the biz. Typical valuation of a business is 1) on assets - simply liquidation of the business - take original price of equipment and drop it in half or 1/3 2) Or go off profitability.. most valuations are 3x earnings.

 

[wmark]

Wow........as per the people above, I too would be highly suspicious.

Asset sale ? Lets take a look. What is the equipment worth new ? How old is it ? At most probably 25% of the original value
Furniture is worth even less. Asset sale means that the business is losing money. Business sale means that it is at least covering costs

Do you know what the average ticket is ? Industry average is about $6.50
Have you sat outside and counted the number of people going in and out ? That against the average ticket will give you a real good idea.

I had a shop that did considerably more revenue than that and still did not net out $60k
The cost of goods sold looks suspicious (and I roasted and supplied the coffee at cost)
Two part time employees looks highly suspicious
I don't believe that the owner(spouse,child) did not work it

 

[wmark]

On second thought. It is an asset sale. I would sit and count the number of patrons going in and out for a week. They should average 102 people a day (20 working days per month), assuming a $6.50 ticket average.

 

[WorldTraveler]

Greetings all coffee lovers and owners!
I am in middle of obtaining a coffee shop but wanted some input if things make sense and if this purchase is worthy.

The coffee shop is located in downtown of very big city. It is in the building of one of the biggest banks in the world but somewhat hidden on the side entrance. It is very well set up in terms of presentation of the business with plenty of seats to offer.

Now, with financial details and agent/seller details

Agent is stating they are currently doing ~$160k in revenue, around $13.3K per month.COG is ~20% payroll is around 20%(2 part times and owner does NOT work at all) and additional expenses of 23%. Basically netting around $60k as per Agent listing. The price of this business is $100k.
I have checked with my CPA and numbers seem somewhat reasonable besides the payroll.

Based on the sales of 160K which is not very high, their sales price of 100K seems high

Based on revenue alone 160K which is not a lot, the sale price seems very high.

The rent is % based on gross sale per month, which I believe is a good thing, in single digit.

The owner wants to sell this business to pursue different business. If something like this is profitable and owner barely works, i dont understand he/she wants to sell?

Also, the lease is up to 2023, transferable but agent told me when i transfer, I can not extend the lease but with paying ontime thorough out the year, they most likely will grant me renewal but probably with higher % of base sale, which is a little concerning.

Agent did not mention this was an ASSET SALE when we discussed until recently I have found out its ASSET SALE. Meaning no book check, only physical assets sold "as is" and "where is". Goodwill, sales and profits are not consideration. This makes me really nervous as why they would not show. I almost feel they inflating their numbers.

Any thoughts based on above situation? Should I ask for open book even if its ASSET SALE only? How do you suggest I make offer ?

Thank you in advance for all your input and thoughts

Cheers Coffee Lovers!

I would not want to buy anything BUT an asset sale. Buying a business you then inherit any debt, employees etc. Even with an asset sale you are entitled to the books since they are selling it based on previous sales. If they won't show it then you have to decide if the cost of the business would be cheaper than opening something new, obtaining permits, plans, equipment etc. and if the location makes sense where you can recoop your money over a reasonable period of time.

 

[ppoppi]

hello all!
Hope you had all wonderful thanksgiving.

I have decided to pass up on this opportunity. There seemed to be too many flaws with this business.
I want to thank everyone that took their time to reply to my thread

Until next time!

 

[Stonewall123]

Just a thought. You should reach out to the landlord and maybe when the present owner closes up you can buy for just Key money... Cash is king!

 

[Melody707]

sounds like a bad deal!!!!!!