Leasing an internet cafe: is there a business "equation" I can apply to leasing?

William Shatner

This is something Ive been looking at for a few months now as I have some cash availible for investment and Ive always had an interest in computers, the internet and making money in general

Some Im looking at range from 20 to 60 grand with the premises, the location and the income varying from average to good. So here's the questions:

• What should I ask for when looking at past accounts and income? Registered accounts?
  
  
  
• Is there an "equation" I should apply to the price of the lease? I remember reading something in a magazine about putting the price of the lease, the duration, overheads, income etc into it and coming up with what the lease was actually worth in real money. If anyone knows about the equation Im talkiing about could they help me out here.
  
  
  
• What other legal documents should I ask for from the seller?

I know I might be coming across as a business virgin but Im far from it, having been self employed since I was 18, Im just not overly familiar with leases and what to ask the seller etc.

Any and all input welcome

antoinolachtnai

You will see a trend in most of the accounts: business has been picking up over the last few months. This is probably because the owner started beefing up the lodgements over the last few months. Really, there is no way to check these historical numbers because this is a purely service based business with no raw materials purchasing.

You could ask for bank statements showing lodgements. You might not get them though.

The rule of thumb on leases at the moment seems to be one or two years rent. A lot depends on when the next rent review is due. It is worth more if the rent review has just passed (and the rent hasn't increased too much).

I wouldn't bother with equations. That's all very well if it is a big established business, but this is very small. It's basically worth what anyone else is willing to pay for it plus one euro.

If you are buying computers or computer leases too, you need to figure that out when you are coming up with a value.

You are really buying a business rather than a lease, so look at the fundamentals of the business. How does the business make money? Multiply it all out.

You should check any figures you are given for sales by observing (or getting someone else to observe) what business is actually being done in there. Also try and understand what footfall there is.

There are loads of ins and outs to this depending on exactly what you are buying. It is certainly worth looking at the lease, and understanding the finance on the equipment. Also, stuff like employment contracts and disputes. You really need to get a lawyer involved, maybe an accountant too, if you're not familiar with this stuff.

If you can, arrange an earn-out with the old owner, i.e., you only pay him the full amount after the business has been successfully trading with you at the helm for a certain period of time. To be honest, you are unlikely to get this, but it is worth thinking about.

Victor

antoinolachtnai wrote:

You will see a trend in most of the accounts: business has been picking up over the last few months. This is probably because the owner started beefing up the lodgements over the last few months. Really, there is no way to check these historical numbers because this is a purely service based business with no raw materials purchasing.

Get them to provide till rolls, computer logs, etc. demonstrating that these lodgements are correct.

It might be worth your while getting a solicitor to explain the lease to you.