KITCHENER'S DELICATESSEN 127-129 Portobello High Street EDINBURGH EH15 1AF
£165,000
Ref 13060
About The Business
Kitchener’s Delicatessen and Coffee House is a highly successful business with huge potential situated in the much sought-after area of Portobello, on the East side of Edinburgh, by the Firth of Forth.
Currently owned and run by our clients, the business was established over 16 years ago by Graham Kitchener. With a growth in sales over the past 2 years exceeding all expectations, the business offers continued scope for development and represents an excellent opportunity for the right owner.
Estimated turnover for 2007-2008 is £275,000 with a gross profit of 51%. The passing rent is £12,000pa.
The Premises
Kitchener’s Deli occupies a fantastic location in the heart of Portobello. Converted from 2 separate premises, Kitchener’s Deli includes the Delicatessen, a 15 cover coffee shop/wine bar, fully equipped kitchen/preparation area, a loft (for storage), staff cloakroom (with additional storage for dry goods) and a customer toilet.
The Customer Base
Portobello is quite a distinct and unique community within Edinburgh, with a genuine ‘village-feel’ and Kitchener’s has long been regarded as a central part of this, with a particularly high level of customer affection and support.
The customers appreciate the high standard of friendly, personal service they receive when they visit the shop and the premium quality products on offer. Organic, fair trade and local produce are always popular and considerable effort has been made to tailor the offer to the customer base.
Trading Hours
Monday 8.00am – 7.00pm
Tuesday – Friday 8.00am – 9.00pm (this varies and may be later on busy nights)
Saturday 8.00am - 6.00pm
Sunday 10.00am – 4.00pm
Fixtures & Fittings
All fixtures and fittings on the premises are included in the sale, of which the following items were new in 2007.
CCTV system (£2,000) all 4 camera can be viewed remotely via broadband.
Coffee Machine (£1,500)
Chiller Cabinet (£1,300)
Ventilation System (£1,200)
Patio Furniture (£800)
Drinks Fridge (£300)
In addition the tiled floor was installed in 2007.
Experienced Deli Staff
Included in the sale are a fantastic team of dedicated staff. Kitchner’s operate 6 hour shifts with fulltime staff working a 30 hour week, complemented by 6 part time staff and overseen by the owners. All members of staff have completed basic hygiene training and one is studying towards the REHIS Advanced Level.
Accounts & Production Information
The business has been run using the MYOB accounting package and detailed information is available. In addition, there is a comprehensive product database detailing all products bought and sold since April 3rd 2006, with margin analysis – a vital resource for effective product management. This information, together with a management summary, will be provided to the new owner.
Sales History
In 2005/06 the turnover was £200,000. Since taking over the business 2 years ago, the current owners have delivered almost 40% growth with many areas identified for yet further improvement. Detailed sales and product analysis have helped to achieve a gross profit of 51%. Copies of accounts are available on request.
Ref 13060
Full Drinks License
Awarded in 2006, with an investment of £2,000, this was a particular coup for Kitchener’s and offers considerable scope for sales growth both through on-sales in the Coffee Shop & through off-license trade.
L’Aperitivo Evenings
Kitchener’s has operated and evening wine-bar format from Tuesday to Friday since July 2007, under the ‘L’Aperitivo’ banner. There is certainly potential to fully develop evenings- they haven’t been advertised and only a limited selection of bar snacks are available – opening Saturdays is an obvious opportunity.
Alfresco Kitchener’s
There is a license to use the patio area in front of the shop, renewable annually. Improving the access, possibly by installing full length doors from the Coffee Shop, attaching an awning and/or investing in patio heaters would maximise sales from this very popular seating area. The existing aluminium patio furniture is included in the sale.
Sunday Brunch
Sunday openings started in July 2007 and, despite operating on restricted hours, already account for 10% of the total turnover. With promotion (and not just relying on word-of mouth!) this could be an opportunity for further growth.
www.kitchenersdeli.co.uk
The deli has a web-site and the domain name is included in the sale.
Future Opportunities
Developing the business further will be an exciting part of the new owner’s responsibility but there are several obvious opportunities which include;
1. Outside catering – started as a limited trial in 2007, this has proved to be very popular
2. Web sales – the existing website already attracts a reasonable volume of visitors but has not been used as a sales channel
3. Home deliveries – there have been a number of requests for this service
4. Parties & Functions – having run several, very successful private parties in the deli, there is scope to further promote Kitchener’s for private functions
5. Sandwich deliveries – with an increasing number of businesses located in the local area and the recent relocation of Queen Margaret’s University campus to Musselburgh, lunchtime sandwich deliveries are an obvious extension.
The Next Step:
Viewings/Meetings – 01204 467301 viewings@knightsbridgeplc.com (Strictly by appointment through the offices of Knightsbridge Business Sales PLC.)
Customer Care
customercare@knightsbridgeplc.com
Free Finance Quotation – 01204 467332
finance@knightsbridgeplc.com
Kitchener's Deli - Analyse this!
Just a tad!! I reckon the shop (bricks and mortar) is worth somewhere not too far north of £165k. And in term of the fixtures and fittings if the qwners want to take them away they are worth virtually nothing.Marya wrote:Maybe I've missed something in the ad, but is this the price for the premises or just the goodwill and fixtures? I thought the notice in the window said they weren't selling the deli just the business but the asking price seems on the high side for that
I simply can't accept they are serious about that sort of money for the lease. I called the agents and asked them three times if it was and they said yes. I think I may have been speaking with a numpty so I have emailed too. Will let you know.
Bearcub says it is a good business and I agree. I think owning the deli and working there would pay tremendous socially. Hard work but good fun.
The fact they turnover £275,000 is helluva an achievement , its a lot of money to take out of PHS.
Having said all that, I don't think it could be convincingly described as "a goldmine". An individual could make a decent £40k- £60k maybe? But to do that they would have to take a huge risk and work bloody hard. Perhaps 7 days a week.
A Gross Profit of 51% of £275,000 is £140,250.
This is before:
Staffing Costs
Rent and Rates
Heat and Light
Other Costs
The place is open 83 hours a week and if you assume at least one person has to be in there an hour before opening, that means 90 hours per week. Which is 4680 hours per annum.
So the average hourly Gross Profit (£140,250 divided by 4680 hours) is £29.96. Call it on average £30 Gross Profit each and every hour.
The rent is given as £12,0000, rates will be £7000 and lets say heat and light and other costs are £11,000. That is a total of £30,000. That wipes £6.50 per hour of the gross profit, so we are down to £23.50 per hour.
The owners want £165,000 for the lease, fixtures, fittings and goodwill. Whether a prospective purchaser had to borrow this £165,000 or not is of no consequence. As one has to consider the opportunity cost of money. To borrow £165000 on a commercial basis over 10 years would cost £2000 per month with interest. So £24,000 per annum. That eats up another £5.12 of the hourly Gross Profit, so we are down to £18.38 per hour.
We have £18.38 per hour to staff the deli and make a profit. The owner has yet to take a single penny. Surely his/her wages should be considered first? Lets say I decide to take a risk, invest, take on responsibility for shrinkage, health and safety and most of all staffing. I might be prepared to do that for say £10 per hour. If I worked all 4680 of the hours in a year (a 90 hour 7 day week) I would earn £46800 before tax. (Co-owners could of course work 45 hours each and earn half of this amount. An LRT bus driver working those sort of hours would earn about the same)
This would leave £8.38 per hour for the rest of the staffing, which equates to less than 1 and a half people on minimum wage.
The deli is an awkward layout. The kitchen, shop, cafe and for much of the year the outside has to be manned. I would say it takes at least 3 members of staff on duty to be anything approaching efficient. 3 staff on £6 per hour eats up the entire hourly gross profit.
I reckon they should be asking for £20k or less for the lease, fixtures,fittings and goodwill. The place is now a shadow of its former self, most of the light bulbs are out for gawds sake!!. There is no way they will turnover £275,000 if it continues to run in this manner.
If you know anyone thats tempted, please let them read this, even if its to point out that i am miles off the mark.. Buying the deli would be exciting and its easy to take ones eye off the ball in those circumstances.
This is before:
Staffing Costs
Rent and Rates
Heat and Light
Other Costs
The place is open 83 hours a week and if you assume at least one person has to be in there an hour before opening, that means 90 hours per week. Which is 4680 hours per annum.
So the average hourly Gross Profit (£140,250 divided by 4680 hours) is £29.96. Call it on average £30 Gross Profit each and every hour.
The rent is given as £12,0000, rates will be £7000 and lets say heat and light and other costs are £11,000. That is a total of £30,000. That wipes £6.50 per hour of the gross profit, so we are down to £23.50 per hour.
The owners want £165,000 for the lease, fixtures, fittings and goodwill. Whether a prospective purchaser had to borrow this £165,000 or not is of no consequence. As one has to consider the opportunity cost of money. To borrow £165000 on a commercial basis over 10 years would cost £2000 per month with interest. So £24,000 per annum. That eats up another £5.12 of the hourly Gross Profit, so we are down to £18.38 per hour.
We have £18.38 per hour to staff the deli and make a profit. The owner has yet to take a single penny. Surely his/her wages should be considered first? Lets say I decide to take a risk, invest, take on responsibility for shrinkage, health and safety and most of all staffing. I might be prepared to do that for say £10 per hour. If I worked all 4680 of the hours in a year (a 90 hour 7 day week) I would earn £46800 before tax. (Co-owners could of course work 45 hours each and earn half of this amount. An LRT bus driver working those sort of hours would earn about the same)
This would leave £8.38 per hour for the rest of the staffing, which equates to less than 1 and a half people on minimum wage.
The deli is an awkward layout. The kitchen, shop, cafe and for much of the year the outside has to be manned. I would say it takes at least 3 members of staff on duty to be anything approaching efficient. 3 staff on £6 per hour eats up the entire hourly gross profit.
I reckon they should be asking for £20k or less for the lease, fixtures,fittings and goodwill. The place is now a shadow of its former self, most of the light bulbs are out for gawds sake!!. There is no way they will turnover £275,000 if it continues to run in this manner.
If you know anyone thats tempted, please let them read this, even if its to point out that i am miles off the mark.. Buying the deli would be exciting and its easy to take ones eye off the ball in those circumstances.
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cheesaholic
Speculation
Ah, the age old art of speculation - don't you just love it...???
Although I'm a little reluctant to be drawn into the debate, as one half of the current "owners" of Kitchener's Deli I feel the need to put the record straight on a couple of issues...
Why we're selling: 2 reasons really. Firstly - the business has increased in size far more than we expected it to in a very short period of time, and Secondly - other business and family commitments are making it hard for us to spend as much time in the shop as a) we would like and b) our customers deserve. Kath's mum (who lives in Stoke) has been seriously unwell and sometimes you just have to make a decision about where your priorities lie...
Is it profitable?: Graham Kitchener made a living from the deli for 15 years and in the last 2 years turnover has increased by more than 30%. Of course it's profitable. Some of the guesstimates in the discussion are widely inaccurate. For example, the rateable value is actually just over £8,000 but businesses only pay 44p in the pound, so the rates payable are less than £3,500 per year. Heat and light are nothing like £11,000 per year... In the last 2 years we've invested more than £20,000 back into the business - almost every piece of equipment is brand new as well as new floor, new air-conditioning and new alcohol license. We haven't done all that running the business at a loss....
"Most of the light bulbs are out for gawds sake..." - We've deliberately disconnected the halogen lights in the coffee shop at the request of customers who found them too bright. Anyone who visits the shop regularly will see that every light bulb is fully operational - and energy saving in keeping with our ethos...
"It's a shadow of it's former self..." - a healthy shadow then, as turnover is up more than 30% in less than 2 years... We get feedback from customers from the forms in the shop, through our website and through a dedicated telephone line. More than 98% of feedback scores 9 out of 10 or higher for service and overall experience. We're working on the 2%...
"The price of bread has gone up" - As Poppy points out (thanks Poppy) all bread has gone up in price due to a worldwide shortage of wheat. We've actually only passed on a fraction of the increase in prices we've had to face.
"An individual could make a decent £40k - £60k maybe? But to do that they would have to take a huge risk and work bloody hard..." As with anything, you get out pretty much what you put in. We do work hard and we make a decent income. It wasn't much of a risk. Graham Kitchener had built a great business that survived for 15 years (17 now). The shop has a fantastic and loyal customer base. It's a pleasure to work in and we meet wonderful people. It's great fun. We don't work for anyone else. We're lucky to have a great team of staff. We've made some VERY good friends. And yes - it's hard work. Very little that's worthwhile isn't hard work. And hopefully we'll pass it on to someone who will continue to run Kitchener's in the same spirit as Graham created it and we've tried to continue.
We think it's a wonderful business in all respects and we'll be sorry to sell it.
If anyone is GENUINELY interested in buying it, we'll tell you the rough and the smooth, the good and the bad, the ups and the downs. But you might as well get the facts rather than some (pretty poor) speculation.
Hello to all our customers and see you in the shop soon....
Although I'm a little reluctant to be drawn into the debate, as one half of the current "owners" of Kitchener's Deli I feel the need to put the record straight on a couple of issues...
Why we're selling: 2 reasons really. Firstly - the business has increased in size far more than we expected it to in a very short period of time, and Secondly - other business and family commitments are making it hard for us to spend as much time in the shop as a) we would like and b) our customers deserve. Kath's mum (who lives in Stoke) has been seriously unwell and sometimes you just have to make a decision about where your priorities lie...
Is it profitable?: Graham Kitchener made a living from the deli for 15 years and in the last 2 years turnover has increased by more than 30%. Of course it's profitable. Some of the guesstimates in the discussion are widely inaccurate. For example, the rateable value is actually just over £8,000 but businesses only pay 44p in the pound, so the rates payable are less than £3,500 per year. Heat and light are nothing like £11,000 per year... In the last 2 years we've invested more than £20,000 back into the business - almost every piece of equipment is brand new as well as new floor, new air-conditioning and new alcohol license. We haven't done all that running the business at a loss....
"Most of the light bulbs are out for gawds sake..." - We've deliberately disconnected the halogen lights in the coffee shop at the request of customers who found them too bright. Anyone who visits the shop regularly will see that every light bulb is fully operational - and energy saving in keeping with our ethos...
"It's a shadow of it's former self..." - a healthy shadow then, as turnover is up more than 30% in less than 2 years... We get feedback from customers from the forms in the shop, through our website and through a dedicated telephone line. More than 98% of feedback scores 9 out of 10 or higher for service and overall experience. We're working on the 2%...
"The price of bread has gone up" - As Poppy points out (thanks Poppy) all bread has gone up in price due to a worldwide shortage of wheat. We've actually only passed on a fraction of the increase in prices we've had to face.
"An individual could make a decent £40k - £60k maybe? But to do that they would have to take a huge risk and work bloody hard..." As with anything, you get out pretty much what you put in. We do work hard and we make a decent income. It wasn't much of a risk. Graham Kitchener had built a great business that survived for 15 years (17 now). The shop has a fantastic and loyal customer base. It's a pleasure to work in and we meet wonderful people. It's great fun. We don't work for anyone else. We're lucky to have a great team of staff. We've made some VERY good friends. And yes - it's hard work. Very little that's worthwhile isn't hard work. And hopefully we'll pass it on to someone who will continue to run Kitchener's in the same spirit as Graham created it and we've tried to continue.
We think it's a wonderful business in all respects and we'll be sorry to sell it.
If anyone is GENUINELY interested in buying it, we'll tell you the rough and the smooth, the good and the bad, the ups and the downs. But you might as well get the facts rather than some (pretty poor) speculation.
Hello to all our customers and see you in the shop soon....
I think you show great spirit and good intent in the even-handed way you have entered the debate, respect is due.cheesaholic wrote:Ah, the age old art of speculation - don't you just love it...???
Although I'm a little reluctant to be drawn into the debate, as one half of the current "owners" of Kitchener's Deli I feel the need to put the record straight on a couple of issues...
I stand corrected on the rates, as you say my £7k speculate on a £3.5k reality was wildly inaccurate, 100% out in fact. However, in the scheme of a £280,000 turnover business £3.5k is not going to make that much difference.cheesaholic wrote:Is it profitable?: Graham Kitchener made a living from the deli for 15 years and in the last 2 years turnover has increased by more than 30%. Of course it's profitable. Some of the guesstimates in the GK cist basis wdiscussionare widely inaccurate. For example, the rateable value is actually just over £8,000 but businesses only pay 44p in the pound, so the rates payable are less than £3,500 per year. Heat and light are nothing like £11,000 per year... In the last 2 years we've invested more than £20,000 back into the business - almost every piece of equipment is brand new as well as new floor, new air-conditioning and new alcohol license. We haven't done all that running the business at a loss....
I do stand by my £11k speculate on Heat and Light and other costs, , which I take to include, but not exclusively, : packaging, employment costs over and above the hourly rate, accountants costs, cost of licenses, refuse collection, transport, telephone, insurances, repairs and maintenance etc. I may be underestimating?
Your point about a 30% increase in turnover is noted, indeed I did take that into account in my analysis, along with the significant increase in opening hours.
Much is made of the 30% increase in turnover. However, I'm sure you agree that this is a labour intensive business, and the percentage increase in turnover is matched by a not dissimilar percentage increase in opening hours. This does not suddenly make a lease worth the same sort of money as the bricks and mortar.
Oi! I take umbrage at your casting aspersion on my analysis.cheesaholic wrote: But you might as well get the facts rather than some (pretty poor) speculation.
..
Particularly because I didn't do much speculating, most of the key numbers are published in the Agents details. These being, Rent, Turnover, Gross Profit, Opening Hours; so facts not speculation. (I did overlook the Rateable Value 
) The only key figures missing are; 1) the cost of servicing the borrowing to finance the £165,000 asking price for the lease and 2) Staff costs. The first is easy to quantify as its fairly simple arithmetic. I used a 9% rate of interest over a 10 year period. Staff Costs are more difficult, which is why I worked back to how much was left in the pot to pay staff and owner.
I believe Kitcheners is profitable and has been long-term. However, one would surely have to be wary to simply buy the business on the basis that GK owned it for 15 years and it was assumed to be profitable. After all GK had a completely different cost base to the proposal thats currently on offer.
GK bought the main shop many years ago and then the shop next door a few years later. So his "on cost" was historically lower. He owned the property so did not have to pay the £12,000 pa rent. His risk was also less
as he owned the property, which would most likely appreciate. probably with a mortgage, that would ultimately be paid off. Any new owner who meets the asking terms and conditions could have as much as £36,000pa off GK's equivalent bottom line. Thats a helluva lot of cash from a business with a now £141k gross profit. And you ultimately don't own the business or property.
I'm not interested in buying the Deli but I am interested in the thought process of those that announce that "the place is a goldmine" without really looking at the numbers. The most I can see is a decent living for working hard and long hours.
I don't know what GK was paid lock, stock and barrel for Kitchener's including the property? (I'm sure its in the public domain) Whatever amount it was? It is probably worth more now. 10% a year is reasonable so I speculate around 20% more for LS&B. As for a leased business? On the figures given by the Agent I can't see any justification for more than £20k for the lease, goodwill etc.
I do appreciate that recent investment has been made but in catering once fixtures and fittings are installed they depreciate hugely.This applies across the board and to many other businesses.
I apologise for the "shadow" observation. I was over the top. You have worked hard and made great improvements in many aspects. Think i posted on a day when you had run out of many sandwich ingredients, prior to the rush hour and the lights above the display were out, along with the ones in the coffee shop.
Anyhow I wish you both the best with the sale. And I agree with all you say about it being a good business to own and to work in.
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kings roader
- Posts: 66
- Joined: 17 May 2005, 18:04
I think that the Kitcheners man has shown great spirit in entering this debate. However, if it was my business I would be pretty hacked off that it was being picked apart by folk who have no intention in buying the business. Indeed this would likely put me off as the main posts are suggesting that the business is overpriced.
I am sure that there are many people who frequent here that own businesses who do not like this sort of thing being done on here ??
I am sure that there are many people who frequent here that own businesses who do not like this sort of thing being done on here ??
Eh? I believe you are mixing up business with personal. I'm discussing information that is in the public domain, I found this information via a big advertising board that is fixed to Kitcheners, which presumably had full countenance from the owners?kings roader wrote:I think that the Kitcheners man has shown great spirit in entering this debate. However, if it was my business I would be pretty hacked off that it was being picked apart by folk who have no intention in buying the business. Indeed this would likely put me off as the main posts are suggesting that the business is overpriced.
I am sure that there are many people who frequent here that own businesses who do not like this sort of thing being done on here ??
I imagine the owners don't give two hoots about what the people who have no intention of buying the business may think.
In any case Cheesaholic has already stated that he embraces feedback in a variety of forms, so I don't get your issue.
BTW I'm not suggesting anything, I'm analysing a set of numbers that lead to the conclusion that the asking terms are way out of kilter with what its worth.
If I came up with an analysis, (maybe based on a set of secret, made up data) that proved Kitcheners was a goldmine and persuaded another TP user to buy it at the asking price, would you be less hacked off?
Isn't it funny how things are now reversed! The first reason for selling the business was the main intention of the owners at the start of their business venture.
After a conversation with one of the owners around the time they were applying for the Public House License, They said the main intention was to increase sales as quickly as possible through the selling of alcohol and later opening hours.
I would imagine it is difficult and time consuming running one business let alone two businesses!
After a conversation with one of the owners around the time they were applying for the Public House License, They said the main intention was to increase sales as quickly as possible through the selling of alcohol and later opening hours.
I would imagine it is difficult and time consuming running one business let alone two businesses!
Whatever the reasons for selling? Based on the available figures the asking price of £165,000 would be about right if the property were included in the deal. According to the sales particulars; its not.
The reasons the present owners are selling are personal, so dont't really see a great need to go there.
The reasons the present owners are selling are personal, so dont't really see a great need to go there.
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cheesaholic
Oh well, in for a penny....
Of course we don't mind speculation, and it's very interesting to hear what people have to say. If some are saying it, others are probably thinking it....
And of course not all the speculation is (pretty) poor. But (and I speak as someone who works with a lot of small businesses) it's almost impossible to determine true profitability without seeing the actual figures, and that's what I would encourage anyone who's thinking of buying ANY business to do.
For example, some of the costs that Porty adds up to make £11k, are actually "cost of sales" and so have already been deducted before calculating the Gross Profit. Most of the other costs are fairly fixed; rent, rates etc and even those that are variable (heat and light) don't vary much even by extending the opening hours. So a 30% increase in turnover can actually add up to a decent increase in profit.
You're right to calculate the opportunity cost of the capital used to buy a business - however it's only "Opportunity" cost if you actually have the capital in the first place. In which case you have to calculate what return you'd get on your money if you were to invest it elsewhere....
In a bank at present on £165,000 you get about 4.5% (let's forget the tax).
We all know the housing market's not great and the "buy to let" market is seriously suffering.
Let's assume that previous estimates are correct and the deli owner could make between £40k and £60k per annum (let's go for middle ground and say £50k). That would be a 30% return on investment which in today's world is pretty good. You would have paid off your initial investment in just over three years.... (Of course I'm neither confirming nor denying the estimates - that would be up to you to speculate on...
If you don't already have the money, then you have to weigh up the return against the cost of capital, and Porty's probably slightly underestimated at 9%, so let's say 11% for capital and interest (over 15 years). In this case the potential return looks different because you have to repay the loan. Let's say you borrow almost half the amount (£80k). At 11% this would cost you £8,800 pa reducing your £50k income to just over £40k. Now it takes you longer to pay off the deli and your retun on investment is slightly lower, but still not bad in todays financial climate.
Add to that of course that you have no risk of redundancy and a great lifestyle...... What's that worth?
Don't get me wrong, I'm not trying to justify the price of the business. As with a house, a business is worth only what someone is prepared to pay for it. However, it's simply not true to say that goodwill and fixed assets are worth nothing - goodwill is what reduces your risk and for a business like Kitchener's that's worth a lot. Fixed assets do depreciate, but of course that also saves you money as you can write the depreciation off against tax. Depreciation on capital equipment is generally over 10 years (the conservative estimate of life span) so the fact that everything is brand new means that the new owner gets a tax benefit without having to make any further capital investment for around 10 years. That's shown on the Balance Sheet, not the Profit and Loss account and it does have an impact on the way the business is valued.
The lease and duration of the lease also have a value - though again without actually seeing the lease it's impossible to calculate the value. If a bank were lending money for the purchase of a business, the lease would be one of the assets that would be taken into consideration.
Kitchener's was independently valued by 3 companies who all came up with slightly different valuations. If anyone out there has a different valuation and wants to offer less (or more..) then of course they're quite entitled to do so. And we'll listen...
We're in no great hurry to sell Kitchener's and want it to go to the right person / people as much as anything. We live in Portobello and like to think that if and when we do sell the business, we'll be among it's best customers.....
Hope to see you all in the shop soon - we have some great new, tasty products on the shelves and all the lights are on...
Of course we don't mind speculation, and it's very interesting to hear what people have to say. If some are saying it, others are probably thinking it....
And of course not all the speculation is (pretty) poor. But (and I speak as someone who works with a lot of small businesses) it's almost impossible to determine true profitability without seeing the actual figures, and that's what I would encourage anyone who's thinking of buying ANY business to do.
For example, some of the costs that Porty adds up to make £11k, are actually "cost of sales" and so have already been deducted before calculating the Gross Profit. Most of the other costs are fairly fixed; rent, rates etc and even those that are variable (heat and light) don't vary much even by extending the opening hours. So a 30% increase in turnover can actually add up to a decent increase in profit.
You're right to calculate the opportunity cost of the capital used to buy a business - however it's only "Opportunity" cost if you actually have the capital in the first place. In which case you have to calculate what return you'd get on your money if you were to invest it elsewhere....
In a bank at present on £165,000 you get about 4.5% (let's forget the tax).
We all know the housing market's not great and the "buy to let" market is seriously suffering.
Let's assume that previous estimates are correct and the deli owner could make between £40k and £60k per annum (let's go for middle ground and say £50k). That would be a 30% return on investment which in today's world is pretty good. You would have paid off your initial investment in just over three years.... (Of course I'm neither confirming nor denying the estimates - that would be up to you to speculate on...
If you don't already have the money, then you have to weigh up the return against the cost of capital, and Porty's probably slightly underestimated at 9%, so let's say 11% for capital and interest (over 15 years). In this case the potential return looks different because you have to repay the loan. Let's say you borrow almost half the amount (£80k). At 11% this would cost you £8,800 pa reducing your £50k income to just over £40k. Now it takes you longer to pay off the deli and your retun on investment is slightly lower, but still not bad in todays financial climate.
Add to that of course that you have no risk of redundancy and a great lifestyle...... What's that worth?
Don't get me wrong, I'm not trying to justify the price of the business. As with a house, a business is worth only what someone is prepared to pay for it. However, it's simply not true to say that goodwill and fixed assets are worth nothing - goodwill is what reduces your risk and for a business like Kitchener's that's worth a lot. Fixed assets do depreciate, but of course that also saves you money as you can write the depreciation off against tax. Depreciation on capital equipment is generally over 10 years (the conservative estimate of life span) so the fact that everything is brand new means that the new owner gets a tax benefit without having to make any further capital investment for around 10 years. That's shown on the Balance Sheet, not the Profit and Loss account and it does have an impact on the way the business is valued.
The lease and duration of the lease also have a value - though again without actually seeing the lease it's impossible to calculate the value. If a bank were lending money for the purchase of a business, the lease would be one of the assets that would be taken into consideration.
Kitchener's was independently valued by 3 companies who all came up with slightly different valuations. If anyone out there has a different valuation and wants to offer less (or more..) then of course they're quite entitled to do so. And we'll listen...
We're in no great hurry to sell Kitchener's and want it to go to the right person / people as much as anything. We live in Portobello and like to think that if and when we do sell the business, we'll be among it's best customers.....
Hope to see you all in the shop soon - we have some great new, tasty products on the shelves and all the lights are on...
I'm about to make reference to "you" and "me" but I don't mean to be confrontational. Lets proceed as if we are going to a deal on the terms advertised.cheesaholic wrote: Let's assume that previous estimates are correct and the deli owner could make between £40k and £60k per annum (let's go for middle ground and say £50k). That would be a 30% return on investment which in today's world is pretty good. You would have paid off your initial investment in just over three years....
The "previous estimates" of between £40k and £60K pre-tax profit were mine. However, they were estimated before I analysed the bigger numbers. It MAY be possible to turn a pre-tax profit of £50k but not if you just invest money and don't work in the place. To make such a profit an owner would have to work in the business a significant percentage of the approx 86 hours a week the business operates (as advertised plus 1 hours prep each day). Agreed?
I don't know if that would be 40,50, 60 or even 70 hours a week? Lets be kind and say 40 hours and lets stick with your middle ground of £50k. So the plan is:
I give you £165,000, you tell me that at a £50k per annum profit is achievable so in just over 3 years I will have paid off the £165K and to quote "That would be a 30% return on investment which in today's world is pretty good." I trust my understanding is correct?
Because by my calculations : if the £50k pre-tax profit is earned evenly each month ( I know its likely not) then I would have to work a 40 hour week for 3 years and 3 months before I earned £1 more than I had given you. I make that working a total of around 2400 hours a year before I earn a single £ more than I invested. I gave you £165k and the business gave me it back in exchange for working for 3+ years. I'm still on ground zero.
As the present owner you are proposing to take more than 3 years POTENTIAL profit, upfront in hard cash and I have had to work 2400 hours each year for no return on my investment. Its not sounding like a particularly good deal to me. There is 0% return in that period and a helluva lot lot of unpaid hours. Plus no guarantee that the profit level can be achieved. Its a mega negative return and a huge risk to wait for so long on any return.
And as you have identified above, If I have to borrow any or all of the £165k to give you, it reduces the profit and the day I see my first £ return will be even further into the future. Perhaps into Year 5 of my ownership?
I feel like I must be missing something but I'm certain that I'm not. Help?
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cheesaholic
Ok, some fair points - and yes you have to look at the term of your investment, as with any investment. Let's say you buy a house with the money and stick tenants in it. In Porty just now, £165,000 will just about buy a 2 bedroom flat for which you'll get about £550 per month rent.
Forget the capital growth (because you're ignoring it in the deli calculation - if you continue to run a business at a profit the value of the business increases and you can sell it on for a profit).
Now at £550 per month that's £6,600 per year, so to recover your £165,000 takes you 25 years.... You still don't have access to your original capital but the investment might still make sense if what you want is the long term investment and a better monthly return than you'll get from the bank.
Sticking your money in the bank you'll get 4.5% which is about £7425 per annum so you're slightly better off each month but you get no capital growth.
You have to assume that in each of these cases you don't touch you're original £165,000 - you're using it to provide you with a monthly income. Which one is best? I think it's pretty clear that the business - if you make it work, is a much better (but maybe riskier) investment.
The point is that you're investing your £165,000 to provide a monthly income. In each case you still have your £165,000 - it's just working for you in different ways. You can sell the business, sell the house or remove your money from the bank. It's still your money.
Now I'd like to add a different perspective. You wake up one morning and decide that you want to run a deli (it does happen..!!). There are three ways you can do this:
1) Start from scratch
2) Buy a franchise
3) Buy an existing business
A deli franchise at present is available for an upfront cost of £50,000 plus fitting out costs of £30,000. You then have to pay between 5% and 15% from your turnover to the franchisor, for which you get - not a lot..!! I've had a franchise and I'd never have another. So you've spent £80,000 and you still don't quite own your business, you work very hard and you pay a cut of your earnings to someone else - no thanks.
Starting from scratch - if you take a lease on an empty shop you still have a fitting out cost, say conservatively £20,000. You then have to equip the shop (Deli fridges x 2 = £5k, coffee machine = £2.5k, other fridges x 5 = £3k, oven = £2k, microwave = £1.2k, dishwasher = £2k, CCTV = £3k, etc etc. Let's say £30k all in (and that's conservative). Your drinks license is £3k, Fire certificates, Environmental Health etc another £2k, stock about £7k, dishware, crockery etc another £1k. It's a LONG and EXPENSIVE list.
Let's be very conservative and say that for £60,000 you could fit out the shop and buy everything you need. So potentially a much smaller investment. Now what about the risk...???
2005 figures show that over 70% of new businesses make a loss in the first 4 years and only 34% survive into their 5th year. If they can make it to the end of year 5, the odds get better. So let's just say you break even in years 1 to 4. If you need £40k a year to live on that's cost you another £160k - not looking so rosy now... Overall by the end of year 4 you've spent £220k - and you still might go bust. Now that's a huge risk...
So your third option is to buy an existing business. Kitchener's has been established (as you know) for 17 years now - it's not risk free but it's much less risky than a new business. In context £165k isn't such a lot.
But you still might not be able to argue a case in pure financial terms - and that's where we maybe differ. Owning your own business is also an emotional purchase - it's about a lifestyle as well as an investment as well as an income. I've watched 3 houses in Porty come on the market in the last 3 months at offers over £225k. All of them went for well over £300k. Are they worth £300k - not in a true sense, but they are because people want to live in Marlborough street or Bath Street and so attach a higher value. A similar house on the prom is expected to reach close to £500k - are the bricks and mortar worth any more than those on Bath Street? Of course not - it's the view and the lifestyle that people will pay for.
So if you don't want to run a deli, Kitchener's will NEVER be worth £165k - and I suspect Porty that running a deli is not your biggest dream.....
If it was, maybe the security that buying an existing, well established, profitable business with good staff and great, loyal customers would make you look at it differently.
As I said before, any business is only worth what someone will pay for it. To you, Kitchener's isn't worth very much (but I'm glad you're not in the business valuation and sales trade). I'm not sure I'd get you to sell my house either.
Now if anyone wants the business badly enough and we think they're the right people, we'll listen to any reasonable offer and consider any practical terms. And we'll give it proper consideration.
In the meantime - EVERYONE - please do keep using Portobello's independent shops. They're precious and they're part of our community. Without them we'd all be forced into Tesco and I don't relish that...
Sorry this response has been so long but I'm away for 2 weeks at the weekend so may not be able to take part in the discussion until I get back.
The lights may be on but there's no-one at home...
Forget the capital growth (because you're ignoring it in the deli calculation - if you continue to run a business at a profit the value of the business increases and you can sell it on for a profit).
Now at £550 per month that's £6,600 per year, so to recover your £165,000 takes you 25 years.... You still don't have access to your original capital but the investment might still make sense if what you want is the long term investment and a better monthly return than you'll get from the bank.
Sticking your money in the bank you'll get 4.5% which is about £7425 per annum so you're slightly better off each month but you get no capital growth.
You have to assume that in each of these cases you don't touch you're original £165,000 - you're using it to provide you with a monthly income. Which one is best? I think it's pretty clear that the business - if you make it work, is a much better (but maybe riskier) investment.
The point is that you're investing your £165,000 to provide a monthly income. In each case you still have your £165,000 - it's just working for you in different ways. You can sell the business, sell the house or remove your money from the bank. It's still your money.
Now I'd like to add a different perspective. You wake up one morning and decide that you want to run a deli (it does happen..!!). There are three ways you can do this:
1) Start from scratch
2) Buy a franchise
3) Buy an existing business
A deli franchise at present is available for an upfront cost of £50,000 plus fitting out costs of £30,000. You then have to pay between 5% and 15% from your turnover to the franchisor, for which you get - not a lot..!! I've had a franchise and I'd never have another. So you've spent £80,000 and you still don't quite own your business, you work very hard and you pay a cut of your earnings to someone else - no thanks.
Starting from scratch - if you take a lease on an empty shop you still have a fitting out cost, say conservatively £20,000. You then have to equip the shop (Deli fridges x 2 = £5k, coffee machine = £2.5k, other fridges x 5 = £3k, oven = £2k, microwave = £1.2k, dishwasher = £2k, CCTV = £3k, etc etc. Let's say £30k all in (and that's conservative). Your drinks license is £3k, Fire certificates, Environmental Health etc another £2k, stock about £7k, dishware, crockery etc another £1k. It's a LONG and EXPENSIVE list.
Let's be very conservative and say that for £60,000 you could fit out the shop and buy everything you need. So potentially a much smaller investment. Now what about the risk...???
2005 figures show that over 70% of new businesses make a loss in the first 4 years and only 34% survive into their 5th year. If they can make it to the end of year 5, the odds get better. So let's just say you break even in years 1 to 4. If you need £40k a year to live on that's cost you another £160k - not looking so rosy now... Overall by the end of year 4 you've spent £220k - and you still might go bust. Now that's a huge risk...
So your third option is to buy an existing business. Kitchener's has been established (as you know) for 17 years now - it's not risk free but it's much less risky than a new business. In context £165k isn't such a lot.
But you still might not be able to argue a case in pure financial terms - and that's where we maybe differ. Owning your own business is also an emotional purchase - it's about a lifestyle as well as an investment as well as an income. I've watched 3 houses in Porty come on the market in the last 3 months at offers over £225k. All of them went for well over £300k. Are they worth £300k - not in a true sense, but they are because people want to live in Marlborough street or Bath Street and so attach a higher value. A similar house on the prom is expected to reach close to £500k - are the bricks and mortar worth any more than those on Bath Street? Of course not - it's the view and the lifestyle that people will pay for.
So if you don't want to run a deli, Kitchener's will NEVER be worth £165k - and I suspect Porty that running a deli is not your biggest dream.....
If it was, maybe the security that buying an existing, well established, profitable business with good staff and great, loyal customers would make you look at it differently.
As I said before, any business is only worth what someone will pay for it. To you, Kitchener's isn't worth very much (but I'm glad you're not in the business valuation and sales trade). I'm not sure I'd get you to sell my house either.
Now if anyone wants the business badly enough and we think they're the right people, we'll listen to any reasonable offer and consider any practical terms. And we'll give it proper consideration.
In the meantime - EVERYONE - please do keep using Portobello's independent shops. They're precious and they're part of our community. Without them we'd all be forced into Tesco and I don't relish that...
Sorry this response has been so long but I'm away for 2 weeks at the weekend so may not be able to take part in the discussion until I get back.
The lights may be on but there's no-one at home...
Last edited by cheesaholic on 01 Feb 2008, 01:14, edited 1 time in total.
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cheesaholic
Sorry Porty - one other point but it's an important one and worth re-iterating. Even if you buy a business leasehold, you own the business. You can sell it on. It still has a value. So it's exactly the same as buying a house. You pay your money but you still have something of value.
Most businesses (over 90%) are sold leasehold. The landlord can't kick the leaseholder out at the end of the lease because all business leases are renewable (otherwise I agree you'd have a problem). You can sell the lease on, assign it, sublet it etc because it's now your lease.
And there are strict legal protections as well in terms of rent increases etc - all commercial property is subject to independent rent valuations and the landlord can't increase rent above the established rates.
Just wanted that to be totally clear...
My lights are now going off whilst I pour a small glass of wine and munch on a piece of our excellent cheese....
Most businesses (over 90%) are sold leasehold. The landlord can't kick the leaseholder out at the end of the lease because all business leases are renewable (otherwise I agree you'd have a problem). You can sell the lease on, assign it, sublet it etc because it's now your lease.
And there are strict legal protections as well in terms of rent increases etc - all commercial property is subject to independent rent valuations and the landlord can't increase rent above the established rates.
Just wanted that to be totally clear...
My lights are now going off whilst I pour a small glass of wine and munch on a piece of our excellent cheese....
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cheesaholic
My brother's out in Singapore so I'm off to visit him for a couple of weeks leaving Kath to mind the store so to speak.
I've just found out that my brother has wireless broadband so I will (intermittently) be able to reply to new posts, though it looks as though it's just you and me now.....
Feel free to keep analysing and put in an offer any time you waken up dreaming of your own deli...!!!
I've just found out that my brother has wireless broadband so I will (intermittently) be able to reply to new posts, though it looks as though it's just you and me now.....
Feel free to keep analysing and put in an offer any time you waken up dreaming of your own deli...!!!
I see this thread has been "noticed": http://edinburghnews.scotsman.com/edinb ... 3735150.jp
I'd say "slow news day", but sadly this the norm for the EN these days!
I'd say "slow news day", but sadly this the norm for the EN these days!
You've made a lot of points and arguments and I'll take time to consider them prior to responding, however I have to address this:
You are keen to underline that leases can be valuable assets. I totally agree. Indeed in 1999 I sold a lease on a retail shop for £100k. However, that shop was on a pitch the equivalent of princes street and Orange doled out the cash.
Coincidentally, that transaction was related to a franchise we owned and I'm almost 100% with you on your attitude towards franchises. (From a money making perspective I'm aware of only 2 exceptions; McDonalds and Subway )
The track record for people handing over "key" money for retail leases here in Portobello is zero, it simply doesn't exist, even in the prime pitch, which Kitcheners is certainly not.
(edit: bit about lease value)
It may appear to you that I'm ignoring capital growth. I'm not. At a purchase price of £165,000 without the property I believe there will be significant capital shrinkage not growth. I reckon the price is at least 4 times what it ought to be for goodwill and a lease on portobello high street. And this is backed up by the figures advertised by the agents. I agree that the fixtures, fittings and goodwill have a value but not the lease. I don't feel I need to actually see the lease to assess its value, there is a well-established retail property market here in Portobello. The lease would have to be peppercorn or reducing rent for it to be worth anything.cheesaholic wrote:Forget the capital growth (because you're ignoring it in the deli calculation - if you continue to run a business at a profit the value of the business increases and you can sell it on for a profit).
You are keen to underline that leases can be valuable assets. I totally agree. Indeed in 1999 I sold a lease on a retail shop for £100k. However, that shop was on a pitch the equivalent of princes street and Orange doled out the cash.
Coincidentally, that transaction was related to a franchise we owned and I'm almost 100% with you on your attitude towards franchises. (From a money making perspective I'm aware of only 2 exceptions; McDonalds and Subway )
The track record for people handing over "key" money for retail leases here in Portobello is zero, it simply doesn't exist, even in the prime pitch, which Kitcheners is certainly not.
(edit: bit about lease value)
Last edited by Porty on 01 Feb 2008, 17:27, edited 2 times in total.
Popular? Yeswangi wrote:I see this thread has been "noticed": http://edinburghnews.scotsman.com/edinb ... 3735150.jp
I'd say "slow news day", but sadly this the norm for the EN these days!
Established for 15 years? Yes
A deicattesen called Kitcheners? Yes
So for the customer its just a change of face behind the counter? Yes
And the same for the owner? Most definitely not.
Up until now Kitcheners has always been operated by the people who owned the premises. Now the asking price for goodwill is much higher than has ever been paid even when the property was included in the sale.
As CheeseA has already stated; a business is at its most precarious in the first 3 years. The current proposal means that new owners will probably have to give up more than 3 years profit just to get the keys and they have to pay rent. No previous owner has faced such a challenge. to the naked eye it looks and feels the same but commercially speaking its a totally different ballgame.
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cheesaholic
That's not strictly true Porty. It would be inappropriate for me to comment on anything prior to us acquiring the business and equally inappropriate to go into details of the current situation or indeed anyone else's business, however you are assuming that the deli and the property are now under the same ownership.
Unless you are either GK (possible but doubtful), one of the lawyers involved in the sale (hopefully not) or Kath (my partner - in which case you should know better) you can't possibly know the details of the previous sale.
What I am prepared to say is that Kitchener's currently pays rent at full market rate and this is taken into account in all calculations, including profitability. The new owners will be operating on the same commercial basis.
Unless you are either GK (possible but doubtful), one of the lawyers involved in the sale (hopefully not) or Kath (my partner - in which case you should know better) you can't possibly know the details of the previous sale.
What I am prepared to say is that Kitchener's currently pays rent at full market rate and this is taken into account in all calculations, including profitability. The new owners will be operating on the same commercial basis.
I suppose it really doesn't matter how much you or whoever else paid, its more relevant to look at the proposal being offered. If the business already pays rent then fine. It doesn't change my Gross Profit per hour and how its eaten into by the various costs of the business. And I'm taking into account the increased turnover.cheesaholic wrote:
What I am prepared to say is that Kitchener's currently pays rent at full market rate and this is taken into account in all calculations, including profitability. The new owners will be operating on the same commercial basis.
And it doesn't alter the fact that the lease itself is worth little or nothing.
One thing that may be being overlooked here is the GK factor. There has been four owners of the Deli up until now, your goodselves included.. If you leave GK aside, and he was a special case, the average life expectancy of an owner is around 3 years.
Anyway no more analysis for now as its Friday night, I'm all dressed up in blue. .......
I should say that in the lease sale I mentioned above (Orange paid £100k for the keys) The passing rent at the time was £57,500pa a year so we got a little less than 2 years rent to walk away.
BTW I'm not saying that a leasehold Deli cannot work, it probably can. Its just that it is very unlikely to survive paying a rent AND paying an entry price thats roughly equivalent to the value of the bricks and mortar.
Whilst there is no track record of "key" money in Portobello, I'm not saying that there are no valuable leases on the High Street., which an investor may wish to buy. There's probably a little over a handful including the better pitched charity shops.
An example may be the Semi-Chem lease ? They operate from a near prime pitch. When Fords moved out of that premises into the old Crawfords outlet that they now occupy, they let to Semi-Chem. If my memory serves me correctly, it was quite a number of years ago, the rent was around £25,000pa. with upward reviews.
Semi-Chem, a retail chain, are owned by Co-Op a national company with a good covenant,. This means that they are a very safe bet to pay their bills. They have a track record of paying rent on multiple outlets across the UK. If Sem-Chem signed a 15 Year or longer lease then the lease becomes a desirable and valuable commodity, as it is a virtual guaranteed income stream. There is a fairly simple formula that would tell an investor, (perhaps a pension fund) that was looking for X% yield on an investment, how much they would pay for that lease?
The same rule would be unlikely to apply to a single unit, individually owned, small business like Kitcheners that was located in a much poorer pitch, paying a much lower rent.
You seem certain that the lease is worth something. I guess the acid test would be how much a bank is prepared to lend against it? I'm thinking one wouldn't have to go to the large transaction counter to pick up the loan in cash.
However, I am prepared to be educated. We know the passing rent is £12,000 and that its a market value rent.. What makes the Kitcheners lease worth money to a third party and approximately how much do you think its worth?
I'm trying to establish what portion of the £165k asking price is in return for the value in the lease?
BTW I'm not saying that a leasehold Deli cannot work, it probably can. Its just that it is very unlikely to survive paying a rent AND paying an entry price thats roughly equivalent to the value of the bricks and mortar.
Whilst there is no track record of "key" money in Portobello, I'm not saying that there are no valuable leases on the High Street., which an investor may wish to buy. There's probably a little over a handful including the better pitched charity shops.
An example may be the Semi-Chem lease ? They operate from a near prime pitch. When Fords moved out of that premises into the old Crawfords outlet that they now occupy, they let to Semi-Chem. If my memory serves me correctly, it was quite a number of years ago, the rent was around £25,000pa. with upward reviews.
Semi-Chem, a retail chain, are owned by Co-Op a national company with a good covenant,. This means that they are a very safe bet to pay their bills. They have a track record of paying rent on multiple outlets across the UK. If Sem-Chem signed a 15 Year or longer lease then the lease becomes a desirable and valuable commodity, as it is a virtual guaranteed income stream. There is a fairly simple formula that would tell an investor, (perhaps a pension fund) that was looking for X% yield on an investment, how much they would pay for that lease?
The same rule would be unlikely to apply to a single unit, individually owned, small business like Kitcheners that was located in a much poorer pitch, paying a much lower rent.
You seem certain that the lease is worth something. I guess the acid test would be how much a bank is prepared to lend against it? I'm thinking one wouldn't have to go to the large transaction counter to pick up the loan in cash.
However, I am prepared to be educated. We know the passing rent is £12,000 and that its a market value rent.. What makes the Kitcheners lease worth money to a third party and approximately how much do you think its worth?
I'm trying to establish what portion of the £165k asking price is in return for the value in the lease?
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cheesaholic
That's a good question and I'm afraid I don't have a current answer. If memory serves correctly, 2 years ago a bank placed a value on a lease at about 25% of the rental value per year over the remaining period of the lease.
It's a tricky one, as the value of the lease to some extent depends on whether the business continues to trade in it's current form.
It's worth pointing out however that less than 2 months ago, Roma - the small sandwich shop opposite Kitchener's was sold on a leasehold basis for a little over £60k. Given the size of that shop, the current turnover and growth potential, that's probably not much different to the ratios being applied by selling agents in valuing Kitchener's.
It's an interesting debate, but to some extent academic. If three agents give broadly similar valuations and the valuations are in line with other similar businesses being sold by the same agents (and we checked that out in each case) then SOME people must put a greater value on the goodwill, lease and assets than you believe they're worth.
But it's still true that the business is only worth what someone will pay for it and for us it's as much about getting the right people as it is about getting a particular price. There was much debate about whether the business should be marketed at an "offers over" price (as it was when GK sold it) but advice (which I'm prepared to follow at least for the time being) was to go for a "suggested offer" price. For the right people, we're prepared to be very flexible in terms of how a transfer of ownership might be structured so to some extent the "suggested offer" price is of less consequence.
We're not in any particular hurry so it will be interesting to see how things pan out.
It's a tricky one, as the value of the lease to some extent depends on whether the business continues to trade in it's current form.
It's worth pointing out however that less than 2 months ago, Roma - the small sandwich shop opposite Kitchener's was sold on a leasehold basis for a little over £60k. Given the size of that shop, the current turnover and growth potential, that's probably not much different to the ratios being applied by selling agents in valuing Kitchener's.
It's an interesting debate, but to some extent academic. If three agents give broadly similar valuations and the valuations are in line with other similar businesses being sold by the same agents (and we checked that out in each case) then SOME people must put a greater value on the goodwill, lease and assets than you believe they're worth.
But it's still true that the business is only worth what someone will pay for it and for us it's as much about getting the right people as it is about getting a particular price. There was much debate about whether the business should be marketed at an "offers over" price (as it was when GK sold it) but advice (which I'm prepared to follow at least for the time being) was to go for a "suggested offer" price. For the right people, we're prepared to be very flexible in terms of how a transfer of ownership might be structured so to some extent the "suggested offer" price is of less consequence.
We're not in any particular hurry so it will be interesting to see how things pan out.
For clarity, are you saying that a new owner of Kitcheners could take his lease, the one that his/her business is obligated to pay rent on and the bank would value it as say £12,000 x 0.25 x term and then lend on that basis? And logically, if a bank valued it like that then any future owner would hand over that value as key money? Its simply beyond the realms of credibility for a secondary site on PHS.cheesaholic wrote: That's a good question and I'm afraid I don't have a current answer. If memory serves correctly, 2 years ago a bank placed a value on a lease at about 25% of the rental value per year over the remaining period of the lease.
Thats it in a nutshell. If the business fails or the owner loses interest the lease is worth nothing. The capital growth you envisage ain't gonna happen on a lease. Even if your formula did apply the value would go down not up as time passed. Theres no supportive evidence that a lease on a secondary site on Portobello will attract bidders who are prepared to buy a lease rather than just take over the liability and tenancy.cheesaholic wrote: It's a tricky one, as the value of the lease to some extent depends on whether the business continues to trade in it's current form.
I looked at the particulars of Roma and I'm familiar with the business, I believe it did go for the £60k asking price. I have no problem with that price, it looks like a good opportunity. And its closer to what I believe Kicheners is worth on a leasehold basis.cheesaholic wrote: It's worth pointing out however that less than 2 months ago, Roma - the small sandwich shop opposite Kitchener's was sold on a leasehold basis for a little over £60k. Given the size of that shop, the current turnover and growth potential, that's probably not much different to the ratios being applied by selling agents in valuing Kitchener's.
Roma has been established for only 4 Years compared to Kitchener's 15 or 20,its smaller, turnover will be significantly lower, it has far fewer assets (no CCTV, no air con, no chrome furniture, less display cabinets etc, etc), As a business its not particularly sexy and unlikely to provide the same opportunity for social interaction. However, I feel i could confidently put forward an argument as to why Roma is worth more than Kitchener's.
You focus on turnover; turnover is not profit and profit is not cash. There are several ways that a business can be valued and I suspect turnover and Gross Profit percentage figured prominently in the valuations that you got. This would explain the inflated values.Do you know the method the valuers used and will you share it? (not the specific figures)cheesaholic wrote: It's an interesting debate, but to some extent academic. If three agents give broadly similar valuations and the valuations are in line with other similar businesses being sold by the same agents (and we checked that out in each case) then SOME people must put a greater value on the goodwill, lease and assets than you believe they're worth.
If the particulars and information available to you from the same agents were in the same format as those on Kitchener's, with the same level of detail, I am surprised you can identify them as "similar businesses", although they may well purvey the same type of goods. Out of interest do you class Roma as being a similar business?
You've said that several times and I agree. I'm not really concerned about what someone does pay. I'm more interested in how the asking price was derived?cheesaholic wrote: But it's still true that the business is only worth what someone will pay for it a.
I also agree that any prospective purchaser will be keen on running a deli. They will likely be after a lifestyle business and may not look to deeply into the numbers. As you say it will be emotional choice and not just financial. However, if they go anywhere near a bank or other adviser then scrutiny will apply. If the adviser is any good at all they will identify the numbers that are a major cause for concern. The numbers that are as scary as the £165k asking price.
