Price Of Restaurant Doesn't Add Up For Buyer

A dedicated business buyer searching to buy a restaurant in San Francisco or in Northern San Mateo County checks in with me occassionally in his search to buy a business and is on the list of pre-qualified list of buyers - his feedback on observing a restaurant for "traffic" to make sure the numbers add up - didn't quite do so with this visit.

Nathan's observations on this matter:

"After signing my NDA, it was off to the physical location of the restaurant to have something to eat or drink and just observe and see if things "add up".
 
This is the most enjoyable, yet challenging step, because you are trying to piece together the day to day operation of this business. You start taking notes as to the amount of revenue that the business is generating, their payroll for their employees, assets and an estimation for their cost of goods. You should already have the hard numbers, such as rent and utilities, but estimating the cash flow and trying to match it with the information that the seller is supplying, can be very puzzling.

For example, one seller was promoting the fact the his monthly revenue was $26K per month for a 5-day a week deli, however after sitting in the deli for 2 hours (during the lunch rush), I estimated that the total revenue was only $91.00 from 13 patrons, which is a far cry from the claim of $1300.00 per day in revenue. I know I wasn't there for the entire day and I did miss the breakfast crowd but as a buyer, this has to be a red flag and I immediately disqualify this opportunity from being purchased. By the way, I went to this same business during the next morning and his revenue was only about $150.00 from 7:30-9:30 am.

This can be very frustrating since I am looking to purchase a 5 day a week deli in the San Francisco Bay Area and I am traveling everyday from the Peninsula to the South Bay and then out to Walnut Creek and Livermore.

When I make a visit with high hopes and then you sit there for a couple of hours and you can obviously see that the numbers aren't matching up, it really is a waste of time, but you have to move on to the next opportunity.
 
I guess that's just part of the process."

Posted on September 16, 2007  |   Email This Blog Post   |   Print This Blog Post   |  All Contributions From Nathan Kohler