re; how to negotiate

aspasp1

Hi all,

I inquired about a business and the asking price is 65K for a 5.5 K weekly sales. As I am new to all this, I just want to ask how to go about negotiating the price. This is the price given to me in the first enquiry. But I think It deserves only about 45K. Is it too much to negotiate to 45K. BTW its a fast food. I think I saw on boards.ie somewhere that you can hire agent to negotiate on your behalf. If that is the case how much does it cost.

Can someone please help...

Thanks,

aspasp1

stepbar

For a transaction of that size, I seriously doubt someone negotiating on your behalf is going to save you much money.

Have you seen any financial accounts? Aside of T/O, Is the company making any profit? IMO that's the key metric you should be considering.

Anyhow, what exactly are you purchasing? and what's stopping you from opening a fast food place yourself?

Get Cracking

you have to wonder about a biz for sale these days,
and theres a lot of places for rent also these days,
but getting a place up and running is a lot less hassle,
do a lot of research,then do a lot more:D

TheCostumeShop.ie: Ronan

Small businesses like this are very hard to value and the books are often a little misleading because the owners would often keep their wage small and then take their income from the profits.

To try to value the business you need to work out how much net profit after interest, taxes AND taking a decent wage for yourself. Even though you won't take that sort of wage you need to allow for it in your calculations. Then multiply the net profits by five and that's a rough value for the business.

The next stage is motivations - why the owner wants to sell and the SWOT of the business potential. Logically if there is no other buyers and they are keen to sell then you will be able to get a better deal than if not.

Last thing I'd say is don't try to squeeze every last penny from the deal, you really want the seller to be happy with the deal so that they do everything in their power to make your businesses succeed after they leave.

aspasp1

aspasp1 wrote: »

Hi all,

I inquired about a business and the asking price is 65K for a 5.5 K weekly sales. As I am new to all this, I just want to ask how to go about negotiating the price. This is the price given to me in the first enquiry. But I think It deserves only about 45K. Is it too much to negotiate to 45K. BTW its a fast food. I think I saw on boards.ie somewhere that you can hire agent to negotiate on your behalf. If that is the case how much does it cost.

Can someone please help...

Thanks,

aspasp1

65K for a business thats turning over 286K a year? Theres something not right there, unless they are making a tiny tiny margin, or have big debts.
I would go down to the place and spend a day or two counting exactly the turnover they are averaging and you'll get the certain picture of revenue

Ronan -"you really want the seller to be happy with the deal so that they do everything in their power to make your businesses succeed after they leave"

I think you must be in a very good mood today!! Or the nicest businessman in the country....

ssbob

Financial statements (IMO) do not tell lies, however on seeing these you would need to consider the wage bill and consider whether or not the owner was putting everything through the books, what I am saying is that Fast Food is predominantly a cash business, therefore is he turning over more than 5.5k a week? Is he paying casual staff cash rather than putting them through the books.

You also need to consider the cut off point of the business, will you be liable for the owners debts once the transfer happens etc?

As Ronan said, a thorough SWOT analysis is critical.

Can you give us any more info on this business for example location etc? We may be able to help you.

I would disagree with a business being worth x times its profit, a business is worth what the market(you) are willing to pay for it, there are many variables that come into the equation though.

As far as negotiating goes, if there is no one else interested then it should be easy enough for you to strike a deal to suit you.

TheCostumeShop.ie: Ronan

Deleted User wrote: »

65K for a business thats turning over 286K a year? Theres something not right there, unless they are making a tiny tiny margin, or have big debts.
I would go down to the place and spend a day or two counting exactly the turnover they are averaging and you'll get the certain picture of revenue

Ronan -"you really want the seller to be happy with the deal so that they do everything in their power to make your businesses succeed after they leave"

I think you must be in a very good mood today!! Or the nicest businessman in the country....

I'd guess the margins are very very tight, but the point of paying a "reasonable" price is because in a business like this there is a lot of intangibles and good will.

TheCostumeShop.ie: Ronan

TheCostumeShop.ie: Ronan wrote: »

I'd guess the margins are very very tight, but the point of paying a "reasonable" price is because in a business like this there is a lot of intangibles and good will.

You mean in terms of keeping the staff, suppliers and so forth?

ssbob

TheCostumeShop.ie: Ronan wrote: »

I'd guess the margins are very very tight, but the point of paying a "reasonable" price is because in a business like this there is a lot of intangibles and good will.

Deleted User wrote: »

You mean in terms of keeping the staff, suppliers and so forth?

At the same time Ronan/ElRifle, we know little about this business other than it's a fast food outlet with a turnover of 5.5k a week so really the only staff may be the owner, and a "reasonable" price is only determined on having the full details etc.......

TheCostumeShop.ie: Ronan

Suppliers will always follow the money so that's usually ok. But I'm talking more about the nasty little surprises you might not think of, you want to buy their experience and to motivate the owner to help you understand the role. For example if he can save a few quid by not re-ordering some burger buns which need to be paid upfront, but then on the day you take over there are no burger buns and its a Friday so your stuck for the weekend. Is there a lot of fake tender coming over the counter and how much should you budget for this?

My point really is I know of a lot of companies that get sold in an aggressive manor and then the core competencies get left out of the deal. The high value staff leave shortly after the sale and go with the entrepreneur on their next adventure, the discounts on stock due to relationships (early payments etc) cease... that kind of thing.

TheCostumeShop.ie: Ronan

ssbob wrote: »

At the same time Ronan/ElRifle, we know little about this business other than it's a fast food outlet with a turnover of 5.5k a week so really the only staff may be the owner, and a "reasonable" price is only determined on having the full details etc.......

Very true, but hey maybe some others who will be in the same situation might pick up on some of the idea's shared.

DoMyBooks

I would suggest either yourself or your accountant go through the books in forensic detail.

Do the purchases agree with the sales. (Ie 100 burgers purchased so 100 sold)
Does the VAT returns match up with the sales
Is there any large expenses you haven't considered (Rates/ Insurance)
Does the P35 for the last year show the correct amount of staff


If your not confident doing this yourself you should be able to get a reasonable daily rate from an accountant. If that accountant has experience in the industry all the better.

aspasp1

Thanks all,

The business is currently a well known pizza franchise, location is not bad enough but I think the big names are there to make money for them self and not for the individual franchisees. i have not seen books but I think the sales figures would be nearly correct. I have even seen the businesses for sale, where the sales figures are totally dodgy..deliveries going through front door to friends and coming in from back door to show volume to perspective buyer.

Recently I was with a friend who bought two small take aways and as per him, the general trend is to pay price of 10 times the weekly sales. So as per that formula the price is on a higher side..But just to leave the margin of safety, I would like to negotiate at a comfortable level. And the new owner wont have that franchisee name..(As far as I know and I prefer that so We can do the way we want). There is another take away for sale for 50000 with 5000 weekly sale but the place is about an hour drive from my place. Which holds me back.

I would appreciate, if you guys can keep giving your valuable advice on what info I should be looking from the agent. I have more than enough experience in managing the place but It will be first time as a owner, which I believe is completely differant. So any help/suggestions are appreciated..

Thanks

aspasp1

ssbob

aspasp1 wrote: »

Recently I was with a friend who bought two small take aways and as per him, the general trend is to pay price of 10 times the weekly sales. So as per that formula the price is on a higher side..But just to leave the margin of safety, I would like to negotiate at a comfortable level. And the new owner wont have that franchisee name..(As far as I know and I prefer that so We can do the way we want). There is another take away for sale for 50000 with 5000 weekly sale but the place is about an hour drive from my place. Which holds me back.

This worries me as nowhere are you looking at profit, you really need to look at the books.

Don't let an hours drive hold you off as the business potential may be much better than the premises you are already looking at, however you obviously do need to weigh up all your options.

Maybe you just need to keep looking for a more suitable business.

AndyJB

aspasp1 wrote: »

Hi all,

I inquired about a business and the asking price is 65K for a 5.5 K weekly sales. As I am new to all this, I just want to ask how to go about negotiating the price. This is the price given to me in the first enquiry. But I think It deserves only about 45K. Is it too much to negotiate to 45K. BTW its a fast food. I think I saw on boards.ie somewhere that you can hire agent to negotiate on your behalf. If that is the case how much does it cost.

Can someone please help...

Thanks,

aspasp1

Morning,
Just wondering are you buying a limited company or just the franchise license and property lease?

Please do have someone check the books for you. Also have a look at the lease on the property? You don't want to be caught with a donkey on either front.

Spending a few quid with an accountant could save you untold hassle and stress in the future. Have them check the actual Tax, PRSI and VAT returns for the business, if you're buying the limited company you will be liable for any tax issues left behind by the seller.

Best of luck
AJB

Kinetic^

ssbob wrote: »

This worries me as nowhere are you looking at profit, you really need to look at the books.

Agree 100%. You don't mention profit. It's all well and good having 5k a week sales but if you don't know what your bottom line is you could be losing your arse.