I'm after some general pointers on buying an established catering business, my family already have a few catering businesses already but they have built them from nothing where as I'm looking to buy one that's already making money.

So let's start with the asking price, it's freehold so all I'm buying is the customer base which with catering is very unstable. The business is making good money (I've not seen the books but I live very close so I see its turnover) at the moment as there is a new school been built next to it so all the builders are using it.

I think they may use this when showing the books to show how profitable it is.

How do I work out how much it's really worth? I can work out a value of the equipment that's included in the sale.

Any other advice on buying a business feel free to post up as I'm sure a good few members run businesses. (Forum discount can be offered too )

I would want to see 3 years audited accounts, this would give a truer picture of the businesses profitability.
Get an accountant to look at the accounts.
Is the equipement theirs to sell or has it been leased or financed.
Check for any creditors that may be owed money.
Is the premises fit for purpose or are there going to be some hefty maintenance bills to come. MY13.5 Autobiography, Santorini Black, Privacy Glass. Gone
Driving a milk float for now.

Thanks for the reply.

I've only seen it advertised a few hours ago so not really done anything since im at work.

It's had a full refurb in March of this year but hasn't been running that long maybe a year max.

I've worked in Acquisitions for decades and you should always use bucket-fulls of common sense.

Why are they selling, what building or developments are around the 'corner' in the future, how long have they run it? Is there any competition opening nearby. fresh parking restrictions, one-ways systems or other changes that could make it harder for your customer to get to you, etc.

What's the staff turnover?

Some of these businesses that handle cash often show different 'profits' on different records. The 'Annual' accounts for the Inland Revenue that their and/or your accountants may see can be quite old and 'window' dressing is very common when selling businesses i.e. delaying creditors into the next financial year and not taking depreciation allowances can inflate the margin in the f.y.e before the Sale. So a good thing is to look at the VAT records, they are likely to be more up-to-date and you will see if any 'cash' doesn't go through the main books.

Before being confused by the owners do your own homework, its usually relative easy to assess the overheads based on the number of staff, size of building and, since you're already in the trade, make a informed guess as to what you think they are turning over and what the footfall must be to sustain a good margin. Then you can see if your estimates match with what you are being told - if there is any differences be careful.

Make sure that none of the equipment, etc is on lease agreements.

I'm very greatful for your detailed reply.

It's not in a town centre so parking is plenty, no possibility to build other outlets near to this business.

Why are they selling is top of the list but in all honesty would you answer that question truthfully.

That's a good tip with checking the vat records.

I have "friends" who seem to lose track of cash jobs too as they are self employed.

Thanks again

RRSDAZ "Why are they selling is top of the list but in all honesty would you answer that question truthfully. "

If you ask the question up front, you can at least ask other questions that might help fill in any gaps and check for lies; especially good if you can talk to the staff (not always allowed if its a limited company!).

Have you staked the place out? i.e. visited shops/newsagent etc nearby and asked them ( in casual conversation), parked down the road and watched the flow of customers (early, midday, evening etc)?

Get a couple of mates to go in a see what the service / food is like early morning and late in their opening times,and at what they claim is their busiest time ( how much waste seems to be about inside and outside) you'll soon work out an estimate of how much they're taking

I know the place as it's within walking distance of where I live, so i know that there has been a catering business there before but it did close down (unsure of reason and wouldn't know how I could find out) the new owners setup the business again then did a big refurb earlier in year (defiantly need to check if equipment is leased with it all been so new).

Since then it will have had good flow of customers because of the building site, (new school) you know builders like to eat.

The hard part to gauge how busy it will be when the school in finished as it's only been running a short time but as with any business expanding it is part of taking the challenge of a new venture. I have ideas of how to grow the business.

The danger is my wife as she is a head chef in good employment so to take the risk is difficult, running your own business is one not to be taken lightly.

Rule of thumb at the moment seems to be 2.5-3 times the net profit (up to 5 times if it has a high margin) plus assets (you say freehold, is the unit owned outright in the name of the business?) you should make sure that if it is part of a group of similar businesses that there is no creative accounting going on that can massage the figures ie any management costs not included or over inflated.

Cheers
Dave MY10 TDV6 SE (debadged ), Santorini Black, Flappy paddles, Privacy Glass, 20" Stormers, Mudflaps!

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