How to price a existing mat that's been closed for awhile?

[pheedog]

Can anyone help me with what to look for, pay and negotiate when buying a mat the landlord owns and that's not currently open? Apparently it's a 2800sqft mat that the landlord has owned for a long time and recently renovated with new machines. He is willing to sell for $160k, and lease for $2800/month for 5 yrs w/option(it's all negotiable, so I wanted opinions on terms I should get etc). I basically will be starting a new business, and a source claims that he doesn't have accurate returns because he's definitely skimming $. What do you guys think? I know I should ask for water bills etc, a longer term lease with cap, lower monthly rent, what else? How's the price determined? Is it better to buy something cheaper, but gamble on return/upside etc or pay the piper (say $400k for a known $ maker)?
Thanks,
Phil

[Jim]

Phil,

First question that comes to mind is "How long has he been closed?" If it has only been a few weeks his books should be accurate....

Ignore the skimming part.....you price the mat by what is on the books....you don't count what you can't see...

[Anonymous]

Originally posted by Jim
Phil,



Ignore the skimming part.....you price the mat by what is on the books....you don't count what you can't see...


Sounds good on paper, but not in the real world. If you try to do this you will miss out on 90% of the good businesses out there. In the real world people skim money from cash businesses and because a potential owner has a holier than thou attitude they will be laughed away by all but the most desparate sellers. Do your due dilligence and come up with your best estimate of what the business does - don't take an owners word (high or low). Remember it is very easy to a smart person (or one that has the help of others here) to be able to count what the IRS is "unable" to see.

[TotoMongo]

Phee, a few questions to ask:

1. Why is the store closed? Ask other mats owners and store owners in the area. Dont just trust what the landlord tells you. If the store was viable and profitable it wouldnt be closed for any length of time.

2. What is the condition of the equipment and the store? Is the equipment hypothicated? Why would a store owner close his store after buying new machines?

3. Ask the landlord how you may contact the previous owner. His unwillingness to facilitate your contact may tip you off about a problem.

4. If you still get no relief, walk into another mat and subtly ask the customers (be conversational - no need to piss off another mat owner) their thoughts on the store.

Good luck!!
Toto

[MSKLAUNDRY.]

Is the landlord the original owner or did he get the store under default?

[pheedog]

The landlord supposedly has owned the building and business for a long time. He's supposedly a very wealthy Chinese business man that doesn't need the $ or hassle of the business. In fact, I'm going to try and buy the building, which has 2 residential units also vacant(they don't want to sell the building). I think long term this is he way to go, with rates going up and a home loan easier to get. Any thoughts? My only guess, until I meet them is that they had to change the machines because of old age and is thinking maybe we'll sell it while it's new and if we can get the $ we want?
Phil

[pheedog]

What should I use to estimate income? Water/utility bills and ? Especially when the machines are now new and the old ones were really old? Tax returns? What are normal leases for our business and is $2800/month too high?
Thanks,
Phil

[mike]

Let me get this straight,

A guy who already owns the machines and building
can't make enough money to keep his doors open !

Helloooo, earth calling dreamer !

Run, don't walk.

Don't look at any figures,
because you sound like you want to justify this purchase.

He has all the cards, you have none, don't play with him !

[Jim]

pssst...mike... he never said he could not keep his door open...he said he just renovated the mat....

Kirby... He have had this argument before...and you lost last time too....lol (joking)

[Anonymous]

Jim, I seriously don't understand why people say they "won't pay for it if the IRS does not see it." Sure a ultra conservative buyer can take that attitude, but they will miss out on MANY very very lucrative opportunities if they do. Why would you care what a previous owner does in terms of paying taxes? Sure its a safe bet to try this, but most folks won't sell to someone that acts that way, they will just wait for a better offer and will get one. When I was looking at businesses almost all the owners were only reporting a small fraction of what the mat was grossing. I did my due dilligence and determined that the business was highly viable and bought it. I'm very happy with it and would have lost out on a great opportunity had I taken the approach of only paying a given multiple on what they declare.

[pheedog]

I'll get the financials in the next week or two then decide from there. Apparently it was open about a month ago and only closed to renovate/change machines. Drove by today and seems like a good location, pretty long/deep place, worth checking out, especially with no broker involved and an inside track on buying before on the market.
Thoughts?

[Jim]

Originally posted by kirby
Jim, I seriously don't understand why people say they "won't pay for it if the IRS does not see it." Sure a ultra conservative buyer can take that attitude, but they will miss out on MANY very very lucrative opportunities if they do.

That is problably where I am on the scale of business buyers...I have always been conservative when purchasing a biz...

I do my due diligence and go by my numbers alone and if mine don't match the sellers thats ok because mine are what counts...
I always take into consideration that there is money off the books but I alone make the choice on wether it is viable or not.

[pete f]

It seems this deal is a bit of an asset sale, so my questuion m would be, how much is the equipment worth??
Is it all new?
I would not want more than 25% of gross going towards lease, maybe you can write that into the deal.

[pheedog]

Pete,
is that normal to get that added on a lease, or just something to shoot for in an ideal situation?
I believe most of the machines are new(from what I've seen in the window)? Top loaders though!

[pete f]

If the guy owns the building and is selling you the mat I would try to write that in, as a cap on the rent. New toploaders are cheap in comparison to the cost of outfitting a mat. I do question, as Mike did, why he is selling not being able to make any money on his own,. though I kow of a similar mat I tried to buy last year in the same situation, though that one had all crappy stuff. We never came to terms, someone did buy the place and renovating slowley, he is busier.

[Pete_tx]

I'd try a short term (6 month) lease with an option to buy.

You can revise your offer after running it for six months.

my thoughts,

pete