How to Buy a Yogurt Business - Three Guidelines

Considering the popularity of the product and the industry’s history of maintaining solid business during recessions, it should come as no surprise that many entrepreneurs seek to buy a yogurt business. And with warm weather approaching, the opportunity to sell cold refreshment is an added incentive to get involved in this industry--either with a franchise company or an independent enterprise that sells yogurt in carton, cone and cup.

To buy a business in this category that will succeed and provide a reasonable return on investment, an entrepreneur needs to be prepared with a bit of knowledge, including these three guidelines.

A critical ingredient in a successful yogurt business is a high traffic location. But a visible position on a popular street or in a busy strip or shopping mall often comes with lease terms that benefit the owner of the property rather than the business.

The smart buyer seeks businesses with long-term leases--at least seven years--at a rate that is readily supported by the business income.

Rent Ratio

A small shop with a low level of business may struggle to support a rent amount of a few hundred dollars per month. Meanwhile, the operator of a large yogurt business with high volume may have no trouble writing a rent check in the thousands.

Rather than getting confused by the wide variations in rent amounts, the informed investor seeking to buy a yogurt business looks at the rental amount--more specifically, the total occupancy costs--in terms of their relationship to gross revenues. The sum of rent, maintenance and utilities should not exceed 20% of total income. A business owner paying in excess of that ratio is probably working more for the landlord than for him or herself. The operator enjoying a solid return on investment is probably incurring occupancy expenses that add up to less than 18% of total revenues.

Product Cost

The amount an owner spends on product also can vary widely as a percentage of gross, depending on the type of business. A high volume store that sells mostly prepackaged product, or sweet dessert extruded by machine, and pays close to minimum wage for employees to handle the transactions--the fast-yogurt approach--can afford to expend up to one third of its total gross sales on its product.  The other way of looking at this, of course, is that this model yields a slim margin, and the company will need to maintain that high gross to cover overhead and be profitable.

By contrast, the company offering more flavor choices and requiring more labor to serve the product will probably collect a higher dollar amount per transaction than the fast-yogurt model, and will need to keep its inventory costs closer to the 20% to 25% range.

Business Pricing

Many business appraisers and experienced brokers believe that the best rule-of-thumb approach for valuing a yogurt business is to use a factor of 2.5 times owner’s annual net earnings, as calculated before the deductions for interest, taxes, depreciation and amortization.

The owner making $100,000 per year according to the EBITDA formula will likely be justified asking $250,000 for the business.

It may be appropriate for the investor who wants to buy a yogurt business to pay more than the rule-of-thumb figure if the seller is earning in excess of the 15% of gross, standard in the industry.

Added value is also indicated by a longer-than average lease--10 years or more, and a particularly attractive rental rate.

Willingness of the seller to carry back 25% to 35% of the purchase price also contributes value to the business. The price can climb another 10% or so if the package includes attractive financing terms offered by the seller.

The entrepreneur looking for an investment with a good future should consider the idea of buying a yogurt business, using these three guidelines to help determine the viability of each offering.

If you are searching to buy a yogurt business make sure you see all yogurt, frozen yogurt shops for sale throughout California that are currently on the market.

About the Author:  Peter Siegel, MBA is the Founder of www.BizBen.com (established 1994 - 7000+ California businesses for sale, 200 new listings daily) and the Director of the BizBen Network (16,000 business buyers, 4,000 small business owners, 1,800 California business brokers & agents). He consults daily with business buyers, business owners, small business advisors, business brokers and agents on selling and buying California small businesses. He is also the author of three books on the topic of how to buy and sell California small to mid-sized companies. For a FREE consultation on the best way to buy or sell a California business, phone Peter Siegel direct at 866-270-6278.

Posted on March 28, 2011  |   Email This Blog Post   |   Print This Blog Post   |  All Contributions From Peter Siegel, MBA