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  • #993270
    Rickety
    Member
    • Total posts: 3

    Hi All

    I’m B, a long time reader, first time poster :)

    My husband and I are faced with an opportunity to buy a small café/take away in a busy shopping centre. While we are both excited by this prospective venture, the accountant is hesitant.

    The shop is the first tenant to have resided on it’s plot, so brand new fit out in an expanded section of a growing centre. The centre is not yet cranking occupancy wise, but the shop is positioned on the route between a major supermarket and major general goods retailer, and is positioned immediately in front of the imminent entrance to a 4 Cinema complex, anticipated opening 2017.

    The current owner commenced trading on 1 August of this year and reports steadily turning over 9k per week already, but has quickly established that running two businesses is more than she can cope with, so is offloading this one.

    We have been supplied with one week’s figures. Based on that, profitability looks good (I am told we can get figures from 1 August if we proceed to the due diligence phase – i.e. ‘offer – pending’), but the accountant feels it is expensive ($170k), and that perhaps they have over capitalised on the fit out.

    Anyone care to share wisdom?! What questions would you seek to answer to give comfort to an accountant?

    Gratefully :)
    B

    #1190750
    MyGreatIdea
    Member
    • Total posts: 2,278

    Honestly? I wouldn’t be trying to give comfort to my accountant…I’d be listening to him.

    Wendy :)

    #1190751
    Rickety
    Member
    • Total posts: 3

    Hi Wendy, thanks for the reply – and that is certainly my intention haha! :)

    I suppose given we have only had a very preliminary discussion about it with the accountant, and the broker’s requirement that we submit an offer (subject to..) before we get too much more detail, I’m wondering what kind of info I could/should dig up before going that far down the line (particularly against the accountants early suggestions :) ).

    I don’t want to miss a viable shot, down to ‘dropping the bone’ so to speak! (I’m usually a gut-follower, but when I pay for an expert service I tend to heed advice ;) )

    Thanks again!
    B

    #1190752
    bb1
    Participant
    • Total posts: 4,485

    I would insist on full figures even without an offer. You are the purchaser, you hold the $’s, if they are serious they will give figures, if no figures assume they have things to hide, r that they just don’t stack up.

    But it sounds like your mind is made up, you want to give the accountant comfort, and “”against the accountant””. You need to listen to the accountant, and instead of asking what you need to give comfort. Ask the accountant what they need to see, or why they believe there is an issue.

    #1190753
    Burgo
    Member
    • Total posts: 2,099

    Listen to your accountant they usually play Devils Advocate very well and mine saved me lots of money and from making mistakes.
    You also need all the figures I would not purchase a business going by one weeks figures. Buyer Beware!!!!

    #1190754
    Jason Ramage
    Participant
    • Total posts: 3,161

    Sounds like you have some awesome advice already from some amazing regulars here, my additional comment (as i concur re listening to the Accountant) is that there is a LOT MORE INVOLVED with being in a shopping complex..

    Even though all sounds well such as 4 cinema complex and the likes the other aspect of the lease can be deadly, over committal, excessive reviews of rent, expectations to renovate every x years, and so forth and this too will determine another aspect of the offer. Many people i have been involved with get into shopping centre leases and soon realise that they are not ‘flexible’ and allow much room for movement, be it fit outs, design, traffic, renovations (that can also hinder traffic and business for months on end whilst you still need to pay your FULL RENT) and so forth.

    Just be cautious, the comment about 1 weeks figures is INSANE.. anything can be profitable based on 1 weeks extrapolation… The fact that the owner is also running 2 cafes and is offloading the shopping centre one would have me asking ‘so how did you decide on selling this over the other?’..

    Re overcapitalising on fitout – your figures to buy are not and should not be based on what someone has spent to set up the shop (taken into consideration though) but on the profitability of the outlet..

    Wishing you all the best..

    Cheers

    ps… after reviewing my response i feel i should have been, or have been, an accountant as i play devils advocate well ;)

    Jason Ramage | Lucas Arthur Pty Ltd | E: hello@lucasarthur.net.au   P: 61 3 8324 0344    M: 61 412 244 888
    #1190755
    Divert To Mobile
    Member
    • Total posts: 2,752

    Hi Rickety,

    A few points.
    $9k turnover might not leave you much after expenses.
    Accountants are people too, some are positive some are negative.
    Get the complete numbers, in no transactions do you ever enter with offer pending.

    Best of luck,

    Steve

    #1190756
    Stuart B
    Member
    • Total posts: 1,073

    If my accountant is nervous, it makes me nervous. Why? Beacuase knows his s**t.

    $9k turnover might sound impressive for a week, but I bet the rent for the space is equally impressive.

    When I was in my teens I worked at a small lolly shop in Chadston (Melbourne) and from memory their rent was about $5k/wk.

    Add staff, utilities, cost of goods sold and you need to be making a lot of money to cover it and make a profit.

    #1190757
    MissSassy
    Member
    • Total posts: 1,255

    Just my 2 cents and a little more devils advocate

    I would run from being within a shopping centre for the following reasons:
    Rent is always overpriced
    Some like to review your income (even have a connection to the register) and increase your rent accordingly
    They control how often you need to redo your fit out
    They control your hours of operation
    Plus much more

    Yes it works for some but unless you have done it before and understand the pressure involved with being in a shopping centre, it will be something you may regret.

    #1190758
    Rickety
    Member
    • Total posts: 3

    Thanks all, your input is greatly appreciated :)

    #1190759
    Anonymous
    Guest
    • Total posts: 11,465

    Hi B, and welcome to the forum :)

    You’ve received some very thought-provoking comments there, and I hope they prove useful to you.

    Good luck with it all, regardless of whether you decide to move forward with this opportunity or wait for a new one.

    All the best,
    Jayne

    #1190760
    Gormandize.com.au
    Member
    • Total posts: 78
    Rickety, post: 223844, member: 72975 wrote:
    Hi All

    I’m B, a long time reader, first time poster :)

    My husband and I are faced with an opportunity to buy a small café/take away in a busy shopping centre. While we are both excited by this prospective venture, the accountant is hesitant.

    The shop is the first tenant to have resided on it’s plot, so brand new fit out in an expanded section of a growing centre. The centre is not yet cranking occupancy wise, but the shop is positioned on the route between a major supermarket and major general goods retailer, and is positioned immediately in front of the imminent entrance to a 4 Cinema complex, anticipated opening 2017.

    The current owner commenced trading on 1 August of this year and reports steadily turning over 9k per week already, but has quickly established that running two businesses is more than she can cope with, so is offloading this one.

    We have been supplied with one week’s figures. Based on that, profitability looks good (I am told we can get figures from 1 August if we proceed to the due diligence phase – i.e. ‘offer – pending’), but the accountant feels it is expensive ($170k), and that perhaps they have over capitalised on the fit out.

    Anyone care to share wisdom?! What questions would you seek to answer to give comfort to an accountant?

    Gratefully :)
    B

    Hi Rickety,

    I think there are some very important you need to assess:

    The product: You are saying that currently they are making $9k/week. If this is how much they are making by serving a bitter coffee and aweful sandwich then I’d say it great, you have potential to to better with great coffee and food (you need to go there and try)

    Competition: is there competition around? What are their offering?

    Financial: Did you get any ideas of their cost of food and labour cost?

    Trading hours: are they just opened from 9am to 5pm. Is there potential for extended trading when the cinema opens?

    I can think of another hundreds of questions. If the cafe is around Sydney then I can provide a viability report. Contact me at damien@gormandize.com.au

    #1190761
    bb1
    Participant
    • Total posts: 4,485

    Just to pick up on one of Damien’s comments where he mentions competition, great point, don’t look at just current competition, but also consider that with the cinema’s coming there will most likely be more cafes opening in that general area. And would they be better positioned to service the area. You need to look 3 years down the track if it is still a growing area

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