I am interested in purchasing a cake decorating shop that I have been volunteering at for a few months now. The shop does not bake the cakes, it strictly just decorates, which i have every intention of changing! I have the taxes from last year and want a few opinions on how to determine a fair price for the shop.
It buys pre-made cakes and decorates them, like a grocery store?
Are you buying The Business or are you buying the equipment and then when they vacate the space, you'll sign a new lease with the landlord? There's a big difference.
If buying the business, what assets, other than the equipment, are you buying? Do they have long term contracts in place? Are you buying the accounts payable AND receivables? Does their name and reputation have value that will enhance your sales?
If the answer is no to the above questions, then you should treat it as buying used equipment .... as in "what's it worth on ebay?"
What other business information is available to you? There are some big pieces of the picture that are not shown on tax forms. Don't forget to factor insurance costs, and permits and licenses into your plans. Indydebi makes a great point, are you purchasing debt owed to existing suppliers? Is the existing customer base and other less tangible property included and is it worth paying money for these items. It might be profitable to allow the current business to close, purchase the equipment and open as your own business.
Those were my thoughts also. The business has been there for 3 years and can not pay its bills. There is not much in the way of equipment: a 12 quart mixer, sheeter, 4 ft refrigerated display, comm. freezer, assorted ss tables and shelves, and decorating stuff. While it does not have any debt, it has no real customer base. I was thinking along the same lines that you have posted, but when I got the asking price, I just wanted a second opinion! lol Thank you so very much for your help!
When I closed my coffee shop/cafe, I had an employee who wanted to lease it to continue operating it. At the time, I lived upstairs and didn't want the hassle. She and her partners ended up renovating a different space in town and purchased a lot of my equipment and used a lot of my recipes/ideas. Their business is so much more successful than mine because it is in a better location and seats more people. You may want to consider what others suggested. See about just buying the equipment and look into a better location.
"Good will" is often a term for the buying of the good name of a business and their customers. With a failing business, you may get "bad will"--- that is, customers already have a negative feeling about it. I agree with the previous post- buying the equipment , as IndyDebi says at ebay prices, and run...
Sounds like they might not be in a great location. Location is everything, especially if you are depending on walk-in traffic. Their product might also be a factor as well. I would just purchase the used equipment and find a better location, one with alot of walking traffic.