Brindabella Business Brokers

Recently I have been in discussions with potential buyers who are looking at two restaurants I have for sale.  As buyers are aware, Brindabella Business Brokers provides enough financial information and detail about the business to allow them to make an informed decision on whether they want to enquire further.  However there seems to be a very strong focus on turnover without understanding the other aspects of the business.  The focus has been so strong around turnover that buyers are not interested in anything else about the business and simply say – business is too expensive based on turnover.

Today I am going to discuss one of the other aspects buyers need to consider – the age of the refurbishment.

Let’s use an example of two businesses for sale.  They prepare similar food, have similar turnovers, similar rents and the area they are located in is also similar.  However Business A is selling for $140k whilst Business B is selling for $250k.

If you base your purchase decision solely on turnover you would go for Business A as it cost $110k less.  Therefore how do you justify the $110k difference for Business B?

Business A has been open for 10 years and requires a refurbishment.  The ovens are 10 years old, exhaust system is 10 years old, the cash register 10 years old, tables 10 years old – you get the picture.  Therefore whoever buys this business needs to understand more money is required to be spent on this business and it may be required to shut the doors  to do this work.

Business B had a refurbishment 3 years ago that cost $300k.  They put in new ovens, benches, bar area, tables, cool room etc.  They have noticed an increase in the number of customers coming through the doors as the decor is more inviting.  Also they are quicker at getting the orders out as the new kitchen is purpose built and the staff enjoy working with the equipment as it makes their life easier.

Business B may cost $110k more however you in fact are saving yourself $190k ($300k – $110k) as the refurbishment has already been completed.  Business A will need to go through this same process of undertaking a refurbishment. It may not cost $300k, however $110k difference between the two businesses will not go far if you are buying new ovens, benches etc.  Also you need to factor in planning approvals, builders, plumbers, electricians and lost revenue from being closed.

What the above demonstrates to buyers is if focus strongly on turnover you may think you have saved yourself $110k, but in fact it may cost you more in the long run.  Business B is now ready to undertake the next step in growth whilst Business A will be held back by using equipment that is 10 years old.

Do not get me wrong, turnover is very important.  However turnover is only one item you need to consider and there are a number of other items you must look at before you make the decision – will I buy Business A or Business B?