How to evaluate a fully operating business for sale?

[Eddie Gonzalez]

Restaurant & Hookah place on the works to putting under contract. I have a list of potential buyers but they want to know the liquids, cash flow and a run down of numbers. I’ve never done it before so looking for hints and tips 

Thanks 

[Frank Chin]

Originally posted by @Johnny Kang:

@Jordan Berry

Hmmm, yeah the ones I looked at definitely didn't have returns like that; Thanks for sharing. I'd love to check out your site. You can send me a DM. Thanks again. 

I looked at several types of businesses, restaurants, dry cleaners, laundromats before purchasing a auto repair and servicing center that's been around for years in the neighborhood.

Margins can vary tremendously based on business, economic, local developments, and emergence of local competitors. The changes could be sudden, like doubling of rent when renewing a lease, or someone opened up a laundromat a block away can affect margins. It happens.

The business at my auto repair shop went up tremendously when someone opened a used car dealership on the same block and the prior owner took steps to engage in the servicing the dealership's cars. The seller didn't mention any of this to me, and not long after I took over, I got work from the dealer the seller never got before, and being the best known tire dealer in the area, sold many more tires as the dealer put new tires on cars for sale. It was on the border of a Russian area, and Chinese area, the prior owners being Russian has heavy Russian clientele, not many Chinese. When I took over, I advertised in the Chinese papers, and  I got tons of new Chinese customers. One man was glad that he can now take his car to be serviced without having his son to tag along as interpreter. Whereas before the shop has little business in August before, everyone's away for vacation, August turned out to be the busiest month that year for me. When I try to wrap my head around it, they tell me, Chinese people had jobs where they're not away in the whole summer.

Naturally, margins went up. Then several years went by, everything going well, when two of my Russian technicians suddenly quit, and bought their own repair place, half a mile away. Turns out the used car dealer funded the purchase, and thinking about it, if I was in his shoes, I probably do the same, have my own repair place. What happened to my margins? It went down. Then these two guys ran their shop miserably, and the used car dealer bought back some business. Finally, NY State passed a law that prohibits second had car dealers from leasing second hand cars which is 50% of his business, and he was forced to close. Rumor has it he got the Russian mob chasing him for debts, walk around the neighborhood disguised as an Orthodox Jew. Meanwhile, my margins went down.

What finally happened? After six years, I figured it's time to sell. My aim was to run a on the books business, and in that neighborhood, everything is off the books. I include sales tax on my receipts, people assume it's a ripoff, I collect the tax and pocket it. I thought it was only me, but a takeout Chinese restaurant in my neighborhood made a mistake once, when they printed out receipts when I pay, a $10.00 order for something that get regularly. The receipt I got instead of showing only $10.00 total, shows 80 cents for sales tax, and $9.20 for the food (I could be off a few pennies), totaling $10.00. I questioned it, and was told, oh sorry, we gave you our copy by mistake, your copy doesn't have the sales tax on it, but we pay it. I said "I understand". I was at a Chinese bakery, someone bought one pork bun, was charged 86 cents, went ballistic when the owner said it's 80 cents for the bun, and 6 cents for sales tax. To shut the customer up, he took 80 cents. So I told the owner my experience, just charge 90 cents for for the bun, say nothing about the taxes which is what he did. So he sold pork buns for 90 cents since.

BTW, when I sold the auto business, sold it to one of the Russian technicians who quit, knew most of the older customers, and really really want to do it. Why? Had a big fight with his partner, the other Russian technician, and figured, take business away from his former partner. Revenge? Feels like I'm in the middle of a soap opera.

I also ran around with a laundromat broker for two years checking out laundromats for sale. Had me check out two of them in downtown South Bound Brooks NJ. One was a dumpy old one, old machines, when I visited had one customer doing a wash and reading the paper. The customer was unshaven, looks like he needs a bath. Then he had me visit another one, about a block away. It was a new place, about 50% larger, bright a cheery, and had a dozen clean looking customers. Said he knew the owner was trying the dumpy place, had no luck. Guess it was low margins. Since the laundromat broker was also a store broker, rented an empty downtown store, installed the machines all financed, gave the place a nice cheery look, and figured the downtown need a good laundromat and he was right. He said he planned to sell his laundromat in six months time, as he had it less than a year, and buyers normally want at least a year's history.

He also had me compare two laundromats that's a mile away from a residential development. They were in the same area, but one was a straight drive, the other about the same distance, almost across the street, but some twist and turns to get there. Ask me to compare the business of the two. Believe it or not, one did better than the other when I visited, more customers, because it was easier to get to. What I did was visit the two and different times, weekdays, and weekend, for the comparison.

I have to say, margins can range for good to not so good, based on a number of factors.