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BUYING A SMALL BUSINESS

Business for Sale: Grounds for Optimism

A group of specialty coffee bars in Idaho, starting at $5 million
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Though Idaho has historically been one of the least populous states in the country, the state has seen an influx of new residentsmany of them eager for a good cup of coffee. Indeed, roughly 100 coffee bars have opened in this part of Idaho, including this six-store business. The company is independent but operates under a license as part of a chain that has 90 stores in all. It buys coffee through the parent at a cost of about $200,000 a year. In return, the company is provided with drink and pastry recipes and $10,000 for co-op marketing. The cafés that have been open for a year or more gross $1,550 per day, on average, which is in line with the rest of the industry. Inside, they have fireplaces, free Wi-Fi, and seating for 60. Outside, they have patios and drive-through windows. Three of the stores are attached to frozen-yogurt shops, which draw customers in the afternoon, an off-peak time for coffee sales. Two stores were opened last fall; the sellers estimate the stores will turn a profit by the end of the year. A seventh store is set to open this month.

Company Financials 2005 2006 2007
Gross Revenue $2 million $2.4 million $2.4 million
EBITDA* $218,000 $274,000 $411,000
Net Income As % of Sales 10.7% 11.3% 16.9%

*Earnings before interest, taxes, depreciation, and amortization.

Inc. has no stake in the sale of the business featured. The magazine does not certify the accuracy of financial or other information provided by the seller. Inquiries should be directed to Meg Carlson of Carlson Hall at 800-956-0991. Inc. also publishes paid business listings in the back of the magazine.

The Asking Price:

From $5 million to $5.5 million. The deal includes the cafés, a license for two coffee territories, three smaller yogurt franchises, $2.25 million in real estate, and $1.4 million in fixed assets. The owners will entertain an offer to split the chain in two.

Price Rationale:

There are many ways to value a coffee shop. Here's one: Add gross revenue ($2.4 million) to fixed assets ($1.4 million), and the business would be valued at $3.8 million. Add in real estate ($2.25 million), and you arrive at a sum higher than the asking price.

The Pros:

Idaho is one of the top five states in terms of population growth, and this business serves a suburb that has nearly doubled in size since 2000. Given the number of locations, the licensing company pegs the business's local market share at 40 percent.

The Cons:

Competition. Starbucks has 31 stores within 20 miles, and McDonald's has 25. Two of this company's stores are new and not yet profitable. And the company's net income has lagged the industry average, which is 18 percent (see chart).

The Bottom Line:

Running a coffee bar can be a grind. Brewing starts at 5 a.m., and the stores stay open until 10 p.m. Still, as a licensee with exclusive territories, this business is poised to grow. A buyer who eyes expansion should plan on spending $300,000 to open each new store.

Last updated: Jul 1, 2008




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