A close-up look at a business offered for sale, including price rationale and pros and cons of the purchase.
The Business Your business fantasies are sweeter than the same old corporate grind. So why not take a bite from this thriving 22-year-old company built out of, well, cinnamon buns. Ten inches wide, they're legendary among locals and tourists, who help the 7,650-square-foot bakery and restaurant net sugary profits of 15%. The sale includes the recipe for the buns, $350,000 worth of upgraded kitchen equipment and other fixtures, and an unbeatable location along the main route to nearby ski resorts. Other ingredients for success include an 80-car parking lot. The owner is retiring for health reasons.
* * *
Before depreciation, interest, taxes, and owner compensation
* * *
Price $2.4 million (which includes the land). The own-er would sell the business alone for $1.2 million, with a property lease of $7,000 to $8,000 monthly.
* * *
Outlook How sweet it is. Based in a region where tourism is so strong that out-of-towners pay 50% of local sales taxes, this well-known restaurant-bakery handles up to 1,600 customers daily. It also has built tremendous loyalty among the 70 staffers, who benefit from profit sharing. (The owner typically contributes about $30,000 yearly.) Sales have leveled off, but there are plenty of ways to inject yeast into the business's growth recipe, including franchising the buns (the owner has fielded inquiries in the past) and developing sales through either a mail-order catalog or deliveries to hotels and restaurants nearby. You'll have to expand the kitchen if you loosen your belt and think really big.
* * *
Price Rationale Now for a splash of vinegar. The business is strong but pricey, say industry experts. First, consider a market appraisal, frequently used in the restaurant business. It calculates fair price according to a percentage of gross sales. Sixty percent might be right for a proven franchise with brand-new equipment; for this company, 40% seems a better fit, giving it a market value of $600,000 (excluding real estate). Then use the cost approach to figure out how much a buyer should pay, given historical sales. For an independent operation, a revenues-to-sales-price ratio of 3 to 1 is safe and suggests a price of about $513,000. Then, do an income valuation. With a typical restaurant-industry goal -- 30% net-income return on investment -- this deal again feels right at about $513,000. Mix together all three calculations and you'll pull out of the oven a fair price of about $550,000 without land.
* * *
Pros A product that's even more tempting than the company's location. A reputation so well established that the restaurant-bakery already appears on postcards.
* * *
Cons Cash-register realities. If you pay too much, you'll never recoup it with cinnamon buns. -- Jill Andresky Fraser
* * *
Inc. has no stake in the sale of the business featured. The magazine cannot confirm the accuracy of financial or other information offered by the seller. Inquiries should be directed to Bill Jensen, Christopher Webster Real Estate -- Taos, 800-280-2533.