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Opinions Needed: Ice Cream Business For Sale
Old 10-29-2015, 07:40 PM   #1
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Opinions Needed: Ice Cream Business For Sale

There is a ice cream business for sale in the old city I use to live in. What do you all think of the attached P&L (2014) and current valuation? The business is being sold for 325k. They only accept cash and are open 6 months a year.

I have a few thoughts to share, but wanted to get your opinions!

icecream2015-10-29_1937.png
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Old 10-29-2015, 07:47 PM   #2
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$14K income on $325K is 4%. Couldn't you do better investing it and not work at all?
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Old 10-29-2015, 07:49 PM   #3
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$14K income on $325K is 4%. Couldn't you do better investing it and not work at all?
+1

Invest the $325K in the market - buy on the dips.
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Old 10-29-2015, 07:55 PM   #4
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My thought is, how the hell did he blow through 81k in 6 months!!

I would buy the biz, hire a manager and cut spending! I wonder if it's worth it.
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Old 10-29-2015, 08:05 PM   #5
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Price is way too high considering its sales and profitability. A main problem is its seasonality - half the year, its just sitting around doing nothing. For businesses like that, I'd be wanting a much higher profitability to make up for it being dormant half the year. If Y/Y sales and profits are starting to take off, I might be willing to pay 1-1.5 X sales but I suspect it's not growing that much. I agree with others, better to invest in the market.
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Old 10-29-2015, 08:07 PM   #6
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Does the P&L include compensation to the owner? IOW do salaries include payments to the owner for his work at market rates? If not, that profit is a lot lower or a loss and the business is worth less or worthless (pun intended). A nit, but $3.500 in office supplies for an ice cream shop sounds a bit high.

Seems overpriced to me.

What $81k in six months? I'd want to see more P&Ls than just one year.
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Old 10-29-2015, 08:08 PM   #7
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I have bonds in a mining company that are paying me a 27% return. I would buy more of them before I would buy an ice cream business with a 4% return. Run away!
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Old 10-29-2015, 08:09 PM   #8
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My thought is, how the hell did he blow through 81k in 6 months!!

I would buy the biz, hire a manager and cut spending! I wonder if it's worth it.
I don't think it's that hard: you'll have fixed costs throughout the year and are depending on only six months of actual sales.
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Old 10-29-2015, 08:20 PM   #9
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I would consider saying open 12 months and offering more than just ice cream eventually.

There's some reason why he's blowing through so much cash!
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Old 10-29-2015, 08:49 PM   #10
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My niece had just such a business.. it turned out to be a 'hobby' that she and her friend worked at events.

Not viable if you want to make a profit.
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Old 10-29-2015, 09:07 PM   #11
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I've always heard (and somebody feel free to correct me) a good way to value what a brick and mortar business is worth would be net income multiplied by ten. So in this case the value of the business would be more along the lines of $140K.
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Old 10-29-2015, 09:10 PM   #12
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I don't see this business being profitable enough to be of interest, but if it were (maybe as a nostalgic hobby) I cannot see why you would dump 325k into an existing unprofitable location when you could open a new place for less than that.
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Old 10-29-2015, 09:26 PM   #13
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My thought is, how the hell did he blow through 81k in 6 months!!

I would buy the biz, hire a manager and cut spending! I wonder if it's worth it.
How do you hire a manager and cut spending? Adding employees is not usually the way companies cut expenses.
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Old 10-29-2015, 09:47 PM   #14
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Other than the love of soft ice cream, this makes no sense. Others have talked about the ROzI..
You need more years as well, at least 3 to see what is going on; are sales up or down over that time, is the lease stable, can you find someone to work before school is out in the summer or after school is in session.
That is for starters.
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Opinions Needed: Ice Cream Business For Sale
Old 10-29-2015, 09:53 PM   #15
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Opinions Needed: Ice Cream Business For Sale

Add up the book value of the land and equipment plus two times the net income to come up with a reasonable sales price. Don't pay a dime more.


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Old 10-29-2015, 10:08 PM   #16
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You want to pay $325K for a business that nets <$15K?
I wouldn't.
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Old 10-29-2015, 10:45 PM   #17
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If the business fails, building is probably worth $75k, $20k for the equipment and the value of the business itself maybe 2-3x net profit so $30-40k. So $125-135k total. I wouldn't pay much more than that and it's still only a 10% profit margin at that price. Buy an index fund instead.
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Old 10-29-2015, 11:57 PM   #18
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As others have said, price is WAY too high...

Frayne, it is more like 5X profit or as someone else mentioned 1 to 1.5X sales unless there is something else that has value... and ice cream store does not...


But, let me ask... is it a franchise? If so, then you have to deal with them... if not, you can open one up yourself and call it whatever you want.... just buy the equipment, which if used is very very cheap... I am sure the landlord will be willing to rent the space to you when nobody buys the business....

One last thing... I was only 5 when my dad owned an ice cream store... it is HARD WORK.... you have to open and close the store as you cannot leave it to someone else to do... you have to manage the staff, which will come and go all the time... I remember cleaning was done all the time... my dad had slave labor, so he could get by with less costs, but he was not able to make it.... and we were located across from a high school..


Edit to add... just saw that it included building.... so there goes that thought....
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Old 10-30-2015, 04:20 AM   #19
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Private equity pays for much larger businesses (>10M up to 50M) up to 6xEBITDA (debt-free), if depreciation isn't too much.

At 14k operating income that's 84k. But that's unfairly high because you are sitting on land for free (cf. below).

Land value should be assessed separately. Assuming it's 100k, you're looking at max. 190k price. The land value however could just as easy be half that.

In any case I wouldn't buy the land but rent instead, and for a correct valuation deduct the rental price from the operating income. Assuming that a decent rent (6%) needs to paid, that's 6k per year. So the actual value of the business is more around 30k-50k, which probably equals liquidation value or even less (oops).

In addition like others said, you need multiple years revenue and a recent balance sheet. The ice cream machines for example seem to be valued too high in the books, owner claims less than 10% depreciation vs. new value while one machine is 12 years old, the other two 2+.

Then consider strategy: what's stopping anyone else in opening an ice cream business right next door to you?

A few other observations:
* Do salaries include owner salary?
* I don't understand why the land isn't used the other six months. In my street there is an ice cream business (small shop) that converts to a winter-meal take-out outlet in winter.
* What is the average price and volume here? It doesn't seem that high. Assuming 2$ and 150 days a year open, they sell 320 portions a day. Can it be increased?

Apologies if I sound too strong here, but asking price seems delusional and I wouldn't even want to negotiate with someone that far out the ballpark.

[Edit] Realize you are basically buying land which incidentally has a small ice cream business in the proposed offer.
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Old 10-30-2015, 06:28 AM   #20
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If you are thinking of buying this, and you are not already in the ice cream or restaurant business, forget it.

Businesses like these always seem like a nice way to make a living. They are a lot of work, have a lot of employee turnover, and can be shutdown on a whim by a health inspector.

Regarding the valuation, unless you can make it more efficient on the COGS, the rest of the numbers are somewhat fixed. Can prices be raised? Sales be increased? Can you reduce employee expenses? Will you work the hours yourself to save $10 an hour? If the company took credit cards and checks would the sales increase?

If you really want something like this, spend the money to start your own business. And pick a business you already have expertise in.
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