Opinions Needed: Ice Cream Business For Sale

[RunningBum]

Update. Just got this reply from the agent.

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The expenses could be padded for income tax purposes... The listing agent says the 165K business (including brand name which is well established) net is 9%. The 100K for the building is reasonable as is the 60K for the equipment.


[FONT=trebuchet ms, sans-serif]I ran this by my broker who has investment properties all over town. He thinks it's a decent investment for passive income for 6 months.[/FONT][FONT=trebuchet ms, sans-serif]Wages and product costs can be controlled. The location is excellent as North ******* is really hot now. ***** neighborhood is booming and the ice cream shop is right across from the new ***** Estates residential development. The value of the building and land will only go up.
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Thoughts guys?
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You're not tying up $165K to make whatever it is that gives you a 9% return. You're tying up $325K, which brings the return way down.

If commercial real estate is so valuable there, invest in that instead. Most likely the building on this site would come down for someone to use it for another purpose, so really it's only the land value.

If you really want to separate out the real estate and call that it's own investment, the $60K in equipment is absolutely a tied up cost, bringing the return part way down. If the business fails or you decide to get out, you may get pennies on the dollar for any of it. There is no possible way that is going to increase in value so you can't call that an investment.

If it's what you really want to do and you think you can run it better to make more money, go for it. Some of those places do well. There's a place in Raleigh/Cary we used to love to go to, and they were packed every summer evening. Multiple locations. Just looked, they are up to 9 now. Our company also used them for some on-site events, so there are day time commercial possibilities too.

 

[aja8888]

I would certainly want to see past tax returns and ask where the expenses were padded and where they got the receipts for those padded expenses.

$60 K for used ice cream making equipment? While I'm not an authority on used equipment costs, that cost seems unrealistic.

 

[growing_older]

I would certainly want to see past tax returns and ask where the expenses were padded and where they got the receipts for those padded expenses.

IRS has a bounty program for reporting tax cheats. If you get documentation of the expense padding, you can make a lot more money turning them in than you can running a marginal business.

 

[Rustic23]

Back to my pizza friends. They thought they had a manager when they started the business. Turns out the manager wanted to sit in the office and manage. No work on the pizzas, sales, or anything. So they got rid of the manager. It took three months for them to install cameras. They then found that their 'New' manager, and all the other help were stealing them blind. Pizzas to friends, cokes for the help, and supplies walking out the door. Needless to say, large turnover in employees. Now, even with cameras, one of the two are at the shop while it is open.

I know another neighbor that had a bar. Problem, it was 500 miles away. That's even worse than an ice cream parlor and pizza for goods leaving out the front and back door.

So, if you decide to go through with it, double the amount of time you think, or are being told you will have to put in, and I think that may be conservative.

Edit to add: As far as paying for the business, and good will. Unless one can demonstrate a loyal customer base, that is guaranteed to transfer with the sale, I would not pay for it. Let's say this place closes, or a new one opens a block away. Will customer still come to your shop? When they find out their old friends no longer own it, will they still come? Or, will they come because of location, product, and price. If the last is true, then, IMHO, their business value is zelch.

 

[Texas Proud]

I will just say that if this price is SO GOOD, then it should have sold by now...

How long has it been on the market



Also, if you REALLY want it... then offer $200K and see what they come back with.... you might be the only one bidding.... do not bid against yourself... do not take them at their word that the business is worth what they say... and even if it is, discount it anyhow....

 

[nwsteve]

With the uncertainty in the numbers from the owners, and you are really really interested, suggest you run your own pro-forma using industry averages for expenses. It has been a very long time since I used, but there use to be publications that showed expenses by category by sic numbers. Sales numbers validated from the federal returns should be good but I would validate by looking at purchases levels and see if volumes bought makes sense for sales.
Definitely separate the value of the business from the real estate decision so you understand which element is driving what returns.
Nwsteve

 

[Daniel J]

Run away from this deal, the numbers are very poor IMHO.