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valuing sydney cafes

Discussion in 'Small Business' started by eke, 23rd Jul, 2015.

  1. eke

    eke Member

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    In the middle of due diligence for a cafe trading 7 days. Net profit a steady 75 k to 85 k a year fully staffed. Both accountant and lawyer have stated that cafes in Sydney sell for two years net profit if open five days. One and a half if open six and one years net profit if open seven.

    The lawyer , in particular is adamant that this is the price range. He is a cafe specialist with over 15 years in the field.

    I feel this is very cheap. Current owner is asking for 350k .

    I paid 2.5 net profit for a bar on last purchase and considered that a bargain.

    This is the first cafe I have ever looked at so was wondering what people considered a fair price in sydney.

    Also happy to pass on what I have already learnt to anyone treading a similar path.
     
  2. Northy85

    Northy85 Well-Known Member

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    How much work is required? Is the place properly managed and only requires you to rock up a couple of times a week for a few hours? If that's the case why wouldn't everyone just buy cafés and live the dream on 100%pa ROI?

    Not being a smart arse because I really want to know, as that sounds awesome! Even at $300k with putting in say 7 hours a week would be good value. Good luck with everything
     
  3. eke

    eke Member

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    Thats exactly what I am thinking. I was quite happy to pay a three or four year net profit multiple. But both accountant and lawyer said I was crazy.
    The cafe is run very well . everyone wants to stay. Even at twenty hours a week it seems a good deal.

    I have done a quick check on seek and their is a lor of cafes selling for between one and ywo years net profit.
    As the lawyer explained to me the downside risk of commercial lease is what inhibits the sale price of any cafe. The owner has gone from 350k to 200k after I explained the advice I was given. It still seems cheap
     
  4. Jessproperty

    Jessproperty Well-Known Member

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    Does the current owner work in the cafe? We have owned and sold various cafés over the last 10 years.

    We have always worked in the cafe to ensure quality and cleanliness is at a high standard. A lot of people who have bought our cafés have tried to do the whole keep the staff on board and come in once in a while and have failed miserably. You need to be there!

    A cafe can be a tough gig, if customers love the current owner and staff, who's to say that the staff won't like the new owner and the way they want to do things and walk away. Once the customers see no familiar faces and service possibly changing they might choose to go somewhere else.

    Staff can promise you the world but generally there is a high turnover.

    I'm not trying to be negative but you see a lot of people buying cafés for the numbers. I'd rather by a good property any day!

    If he has dropped his price to $200k sounds strange. Have you started a 6 week trial in the shop to see exactly what the takings are? Owner might reduce price again lol!

    We have always sold ours in the $600k -$ 980k mark
     
    Last edited: 23rd Jul, 2015
  5. Scott No Mates

    Scott No Mates Well-Known Member

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    How many kg of coffee is is turning a week? What's an average cup of coffee worth? How rubbery are the figures? How much of the asking price is the fitout?
     
  6. eke

    eke Member

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    yes current owner works there -the wife is the manager and wishes to stay. The staff are all locals who want to stay. Yes have done the trial and figures are good. Averaging 22kilos coffee a week. Very consistent trade for last four years. Fit out is valued at 20k. Husband needs to leave to take advantage of new business. I have reduced net profit by replacing his wage at award(only two days a week) and agreeing a salary for his wife - also taken off net profit.
    Cafe comes with a house so we would move in for at least the first year. Wife would be hands on daily.
     
  7. Aaron Sice

    Aaron Sice Well-Known Member

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    where is their incentive to keep things rolling? are they going to care as much about saving face once they have a wage and clock off for the evening? how do you keep good staff engaged? what's the wife's strategy for that?

    you've just opened up a whole new section of the goodwill side of the contract.
     
  8. CU@THETOP

    CU@THETOP Well-Known Member

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    Why not get a registered valuer?. This is a couple of years old but an extract of a valuation on a coffee shop. All I can say due to client confidentiality:

    Many aspects of the macro-operating environment must be considered when


    determining an appropriate Capitalisation Rate to apply in the valuation of a


    business. The Capitalisation Rate is selected by assessing factors including, but not


    limited to, recognisable risk, security of tenure, competition, competitive


    advantages, impact of technology, the ability to gain funding from financial


    institutions, specialist skills required, special licences required, length of time in


    business, business reputation, industry precedents, condition of assets and stock


    and the quantum requirements of working capital. It can also take into account the


    amount that a competitor might be willing to offer if purchase of the target business


    resulted in a significantly strengthened market position.


    Capitalisation Rates vary between industries. The table below details indicative


    yields for leasehold businesses (that is, businesses paying rent) in several risk


    profile bands. The yield reflects what both an investor or an owner operator would


    seek; the former seeking a return on capital and the latter on the assumption the


    owner operator is also paid a market wage/salary for the role undertaken.


    Business Type Investment


    Yield


    EBITD


    Multiple


    Child Care Centres 20% - 25% 4.0x – 5.0x


    Newsagencies, Post Offices 22% - 30% 3.3x – 4.5x


    Supermarkets, Corner Stores 25% - 30% 3.3x – 4.0x


    Motels, Hotels, Transport, Registered Training


    Organisations


    25% - 35% 3.0x – 4.0x


    General Retail, Franchises, Event Co-ordinators, Hire,


    Food & Beverage (EBITD > $100K pa)


    35% - 45% 2.2x – 3.0x


    Manufacturing, Internet/Mail Order, Food & Beverage


    (EBITD > $70K - $100K pa)


    45% - 55% 1.8x – 2.2x


    Tradespeople, Handymen, Civil Contractors, Consultants,


    Brokers, Professional Service Providers, Experts, Food &


    Beverage (EBITD <$70K pa)


    50% - 100% 1.0x – 2.0x

     
  9. TMNT

    TMNT Well-Known Member

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    I too am more used to 2-3 times MOE for 5-6 day hospitality operations above $100k

    your trend of 1-1.5 might be more the sydney market

    edit: I got some spam for a new business alert in my area in vic, and it said turnoever of $230k per week!!! I thought it was a a typo for $23k, but called the agent and yep, $230k! as expected agent wouldnt tell me what it was. still trying to work out which place turns over that much
     
  10. Zos

    Zos Active Member

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    75-85k profit and owner is asking for 350k.

    I personally think the asking price is too much. If I was going to spend 350k on a business I would like it to be making at least double that. I was offered to buy a cafe that was clearing approx 170k per year. Owner wanted 200k for it, this was in Melbourne. 7 days and around 90hrs a week of work.

    Figured I would open something of my own for a 1/4 of that cost and be heaps better.
     
  11. TMNT

    TMNT Well-Known Member

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    Youve never done a similar business have you?

    200k/4=50k wont get you far

    Setups are expensive and goodwill in hospitality is absolutely vital (valuing it is another thing)

    Earning 170k for 350k . Why dont you buy 10 of these instead of 10 ips. Ips only return 5to7% !
     
  12. Pistonbroke

    Pistonbroke Well-Known Member

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    That'd mean having to work @TMNT
     
  13. Zos

    Zos Active Member

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    No I have not, I am just posting rubbish on here for the fun of it. Of course I have done a similar business otherwise I would not bother posting.

    Buy 10 of them and what??? Work 900hrs a week, not possible even if I did not sleep as the week only has 24x7 = 168hrs. So I will state the obvious now, if you had 10 of them you would need to employ more workers and you will not be making 170k.

    I can definitely set-up a cafe/cake shop style for 50k easily and it will look great, just need to know where to buy equipment and be smart about it.

    Plus I have difficulty in believing business owners numbers when they are selling a business. too many ways to skew things...

    Btw the 90hrs per week was for a team of 2 my wife and I so total 180hrs a week to bring in 170k pa. What is that, roughly $18.15 per hour.

    So no, not easy money!


    Oh and I forgot you have to pay tax from that 170k. So that $18 per hr figure is high.

    I think IP's are better yeah?
     
    Last edited: 2nd Aug, 2015
  14. sanj

    sanj Well-Known Member

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    If the figure of 170k doesn't take into account wages for the owner spending 90 hours a week then the claimed figure is ******** anyway
     
  15. TMNT

    TMNT Well-Known Member

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    With smalll busiensses younhavevto be careful you are not buying a job

    There are a gazillion business that profit 60k. With the business costing 90k. But the 60k profit is you working a full week
     
  16. eke

    eke Member

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    thanks for the feedback. Cu@thetop that valuation looks reasonable. I did make an offer that I would pay whatever the independent valuer decided plus the valuation fee.

    Price has come down to 200,000. Buying a job I think is one of the biggest risks for small business.
     
  17. TMNT

    TMNT Well-Known Member

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    good luck with it!
    hope it turns out genuine,

    I admire people who give things a shot

    too many people around that 'do all the talking, but do nothing!'
     
  18. Zos

    Zos Active Member

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    So the owner has gone from asking 350k down to 200k that is amazing. I got shot down for saying it was overpriced at 350k and now it has gone down by half the value almost. Honestly for the food industry and such a business it will be a job. Don't expect to forget about it and just collect the money every week. Wont work like that, so be prepared to do the long hours, if you want it to be successful you will need to be a part of it.
     
  19. Ace in the Hole

    Ace in the Hole Well-Known Member Premium Member

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    Wow, what a drop in ask.
    Just wait a couple more weeks and it may halve again :)
    That initial ask was ridiculous though, and halving again would not be unreasonable for a buyer to expect.
     
  20. TMNT

    TMNT Well-Known Member

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    Shot dwon by us or the agent?

    Id say 150 to 200k is a fair market price if all the figures are genuine