QUESTIONS ON FINANCIALS
Common Questions asked by buyers:
Buying a Coffee Shop or Buying a Café, can seem daunting when trying to find the right business.
It is best to look for a business that will allow you to not only make a profit, but that also allows you to pay off your investment within one to three years.
When the Financials are difficult to understand:
When a business cannot clearly show the turnover via the financials, or the financials are incomplete, it makes it difficult to decide whether the business is is a viable purchase.
The good news is that there are ways to conduct due diligence on a business allowing you to make an informed decision and not lose out on what might be a very profitable business.
Follow these steps to assist in conducting Due Diligence when there is missing financials:
The Trial Period:
To prove the turnover of a business a trial period is often performed which consists of the buyer being in the business to observe the actual daily and weekly income of the business.
Both the buyer and seller agree on the turnover to be realised over a certain period with a variance of somewhere between 5% - 10%.
A trial period is only performed once an offer has been made based on reported profits and a deposit paid. This is a difficult time for the owner as he must now tell his staff that the business is for sale and he is exposing the inner workings of his business to a potential buyer.
Visit and Evaluate:
Another form of verifying a vendors reported income is to visit the cafe at different times of the day to see the foot traffic visiting the cafe. This will allow you to easily see if the reported figures are accurate.
Bad weather has an impact on all businesses so be mindful when evaluating the income of a business in bad weather.
Spreadsheets and POS Printouts.
Cafe owners often only work on spreadsheets and printouts from the point of sale systems in the business. Your accountants can be a great help at this stage to work through the information and to present the financials to you in an understandable format.
Please be mindful of the owner being reluctant to part with the information as in most cases it is the only copy they have.
The Handover Period
The handover period takes place a week or two prior to the settlement date and after the contract and the assignment of the lease have both been signed off with no special conditions outstanding.
This is the time the previous owner introduces the new owner to the staff and suppliers, as well as the customers. The previous owner also uses this time to show the new owner the operation of the business and to make sure that the transition to the new owner is smooth and without incident.
The Coffee Shop Brokers are here to assist you along the way and will make sure you have access to all the information you require to make an informed decision on purchasing a business.