Adventures with lyrical - buying a business
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Shonuff
Mr. Poopybutthole
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Posting a PM I got, since I get many PM"s that are alike.
These numbers are off the top of my head, but they should be close.
I put down 10% of the total plus fees, so like 90k, the seller put up a note of 70k (that applied to the down), and then I got the loan of 600k. The days of getting deals that sweet are over, some banks are wanting like 40% down now.Anon said:
These numbers are off the top of my head, but they should be close.
Tmac
Adventurer
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Just an update. I"m meeting with a wealthy investor tomorrow who had promised to come in as an angel investor earlier this year. I"m thinking about either asking him to fulfill that promise or to buy out my two partners and come in as a 51% partner.
My two buddies are pretty much over the project and could probably be bought out for $5,000 apiece. I"m already going to ask for an initial $10,000 investment with about $2,000 in monthly expenses, but bringing the initial up to $20,000 probably won"t phase him. Especially when he"s buying into a website worth well over that.
I"m meeting with him tomorrow, so I"ll post an update after, good, bad, or ugly.
My two buddies are pretty much over the project and could probably be bought out for $5,000 apiece. I"m already going to ask for an initial $10,000 investment with about $2,000 in monthly expenses, but bringing the initial up to $20,000 probably won"t phase him. Especially when he"s buying into a website worth well over that.
I"m meeting with him tomorrow, so I"ll post an update after, good, bad, or ugly.
Tripamang
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Good luck. I wouldn"t be too quick to give away that much of your company especially if you"re not sure of the income it could potentially bring in. You"ve got a great idea, and I"d love to do something similar for the Canadian market. The MLS canada website provides garbage for information and it"s terrible to use.Tmac47 said:
Tmac
Adventurer
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Thanks. He"s actually agreed to do it for ROI (angel). I asked for an initial $11,000 investment with $3,000 monthly costs and he was down. He just wants me to send him a report with his expected returns.Tripamang said:
So, I guess all it comes down to is determining what sort of % we want to see him getting and for how long. If we get 75 agents, we"ll be in the black, so there"s a lot of room for growth.
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In other news I have a meeting with a pretty big name in Braves baseball about another website idea, so it"ll be interesting to see how that plays out.
Ryoz
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So, my wife and I are thinking about buying a Subway franchise. She?s not working right now because she?s 7 months pregnant, but prior to that she had been working with her Dad who has opened 3 stores now. She had essentially overseen the entire process from start to finish with two stores now, from construction to hiring and operations. I took over the bookkeeping for his stores about a year ago, prior to the 3rd store being opened, which was a first for me (still in college) but have a pretty good handle on it. Well, we?re thinking about our future, we see a location that would be absolutely ideal, and this is something she is very good at. Once you get a solid staff in place, the stores run themselves, and that would be ideal since she wants to spend time with the baby and also go back to school and finish a business degree (she has a culinary degree, but wants to learn the business side).
I guess this is premature since I?ve yet to speak to a bank about a small business loan, but we just bought a house two years ago (30 year mortgage) so I wonder if anyone would even give us a loan. I guess I also worry that if the subway fails, we will essentially lose everything. I suppose this is the risk with any business, but she?s not a 9-5 person and has always liked running a business. She wants to open a bakery in the future, but Subway is something that is a lot safer, and would help us get our feet wet.
Any thoughts or suggestions would be appreciated. Thanks.
I guess this is premature since I?ve yet to speak to a bank about a small business loan, but we just bought a house two years ago (30 year mortgage) so I wonder if anyone would even give us a loan. I guess I also worry that if the subway fails, we will essentially lose everything. I suppose this is the risk with any business, but she?s not a 9-5 person and has always liked running a business. She wants to open a bakery in the future, but Subway is something that is a lot safer, and would help us get our feet wet.
Any thoughts or suggestions would be appreciated. Thanks.
Shonuff
Mr. Poopybutthole
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Ixnay on the bakery, there was a study done on businesses a few years back showing that the bakery industry tends to deliver some of the worst bottom line profits of any industry.Ryoz said:
Last time I investigated Subway they looked great. Low failure rate, and turnkey once they are open. A classmate of mine in b-school was a Banker, and he looked at the local Subways in the city"s financials, and they netted 40-50k like clockwork. Doesn"t sound like much, but when you have 3-5 of them, it adds up quick.
The problem with Subway is that it is very hard to get a new location if you already don"t own one. When they open up new locations, the closest franchisees get right of first refusal. So the good locations will get snapped up quick. Also, look at the net worth requirements and cash on hand requirements, Subway won"t budge on those.
Ryoz
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We're not looking to buy an existing franchise, but rather start our own. We're looking at a building in a strip mall area, and luckily for us the field consultant who evaluated that location for Subway last year is a good friend (he's now fired, and works for my father-in-law) and reported a low volume during prime rush hours, so no one was really interested. Now, I live in that area, and I know the main reason is because we've had heavy construction in the main stretch of a historic area of our town for nearly a year now. It typically gets a lot of traffic, but the construction restricted it to one lane and people are avoiding it like the plague. He passed on some knowledge regarding how subway determines if a location can be successful, and I've been gathering much higher numbers now that the construction is wrapping up.
I'll have to do a bit more research, unfortunately I used most of my savings towards the down payment of our home, and in the past two years haven't been saving as much as I'd like to, so the determining factor will be how much they want down. Looking at the books, the amount of franchise costs, getting a building up to subway standards, is about 200k, and that doesn't include extra we'd want to operate the store incase business starts off slowly. If they want a larger down payment, I guess it's time to start knocking at the parents' doors.
I'll have to do a bit more research, unfortunately I used most of my savings towards the down payment of our home, and in the past two years haven't been saving as much as I'd like to, so the determining factor will be how much they want down. Looking at the books, the amount of franchise costs, getting a building up to subway standards, is about 200k, and that doesn't include extra we'd want to operate the store incase business starts off slowly. If they want a larger down payment, I guess it's time to start knocking at the parents' doors.
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Again pardon my retardation, but wouldn"t that mean that given adequate capital, you could buy a business for say $200k that makes $50k a year, which is a 25% return on your investment per year? As opposed to say, buying an ETF or other fund which might pay 7%?Eomer said:
Granted, you"ve got considerably more risk in the business, but am I seeing these numbers wrong?
I think the biggest hurdle you will probably have is overcoming the net-worth requirements. I wouldn"t be surprised if they required you to have $1mil + in personal assets just to get in (info isn"t on their website, so could be lower). I also have to say that those franchise fees are brutal, 12.5% of gross (industry standard is around 8% net just for reference). But I do hear those suckers are little money makers so I suppose those fees aren"t breaking the backs of current owners.Ryoz said:
One other thing I"d just warn you about now, is that you both should expect to spend a lot of time initially getting the place up off the ground. You put in your post "once you get a solid staff in place" but you have to realize that does not happen overnight. Especially since you are starting fresh and don"t have other locations you can pull some management-material workers from, getting a good staff in place could take 1+ year easily, and being able to afford to pay a manager could take even longer as you try to get off the ground.
Shonuff
Mr. Poopybutthole
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Correct. That"s why you measure the risk, ask yourself what you bring to the table that would help the buy/sell succeed, and pray you made the right decision. My first year in business I netted 50% of what I paid for the business, and asked myself why I spent 15 years making investments in the market.Cad said:
Not quite the same as the VC market, but the VC guys expect somewhere around 70% of the businesses they invest in to be a bust and that"s after they"ve done due diligence. It worked out well for lyrical but that"s the exception rather than the rule.Lyrical said:
I have a buddy which got out of the automotive industry, and along with a buddy of his bought into 2 subways somewhere in Florida.
Its a pretty rough business. He works tons of hours 60+ and is making about $45-50K a year. He told me that you need to own like 2-3 by yourself to make enough to consider yourself wealthy.
Now granted certain locations are better than others, etc. but this is in no way to become wealthy. The problem he says is that he has to buy subway shit which is sold at a markup, instead of shopping around for cheaper suppliers. For example meats, cheeses, veggies etc... Another thing thats fucked up is he is forced to spend a certain % every year for marketing.
You are better off StartingRyoz Subs. All you need is a good location, some rudimentary equipment like a grill, fryer, and maybe a small pizza oven, and you can start creating your own fresh subs which dont suck like subway.
Its a pretty rough business. He works tons of hours 60+ and is making about $45-50K a year. He told me that you need to own like 2-3 by yourself to make enough to consider yourself wealthy.
Now granted certain locations are better than others, etc. but this is in no way to become wealthy. The problem he says is that he has to buy subway shit which is sold at a markup, instead of shopping around for cheaper suppliers. For example meats, cheeses, veggies etc... Another thing thats fucked up is he is forced to spend a certain % every year for marketing.
You are better off StartingRyoz Subs. All you need is a good location, some rudimentary equipment like a grill, fryer, and maybe a small pizza oven, and you can start creating your own fresh subs which dont suck like subway.
Eomer
Trakanon Raider
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No, you"re seeing them right. But like I said, that"s for a small business where chances are the owner/manager is relied upon 100% to keep the business operating and profitable. It"s not like you can go around buying up small businesses and just leave them to operate themselves.Cad said:
And as you mentioned, there"s a ton of risk with small businesses. One bad project or lawsuit or employee or illness or god knows what can cause a business to fail almost overnight if it"s completely unanticipated.
When I was coming to terms with my dad on the last 10% of the business I was buying from him, we agreed to use a multiple of 3.25 and the average of the past 5 years of profits as the previous 2-3 years were significantly higher than normal due to the construction boom and some very good projects, and also tossed in a guesstimate for what 2010 would be in to the average. The ratio we used was somewhat on the low side for a construction company, they were trying to give me a deal and also recognizing that the previous couple years were very out of the ordinary.
Unfortunately because the construction market didn"t pick up as quickly as expected and also due to some bad projects, the company in the 20 months since 2010 started has barely made half of what we expected it to in 2010 alone. At this rate it"s going to take me a decade to recoup what I paid for that last 10%.
This. My uncle owns several out on Vancouver Island, and he said pretty much the same thing. Until you own 2-3 at least, you can"t afford to pay anyone else to manage it or do the books, just the minimum wage "artists." He didn"t mention specifically how much each one makes, but from what I took away from him they"re worthwhile if a) you"re only going to have a couple of them and are fine doing all of the management or b) if you"re going to have half a dozen or more of them and will be hiring someone to do the management for you or c) you"re Chinese/Indian/Asian with a huge family that will staff the places for you.Mkopec1 said: