Business selling price and ROI

[Shorco1]

What would an old 3-hole jockey know about flying. But, if flying is the metaphor, my espresso drive-thru experience was of the BD-5 (a la Jim Bede) variety: Lots of money thrown at an awkward plan that never quite got off the ground.

Good Morning Baron, check your 6 . I remember the BD-5 very well. It was a great looking aircraft. Too bad about your Espresso. Ours does well. Happy Holidays.

 

[Red Baron]

Good Morning Baron, check your 6 . I remember the BD-5 very well. It was a great looking aircraft. Too bad about your Espresso. Ours does well. Happy Holidays.

The timing on our espresso drive-thru was bad. For years I tried to entice Sonic to build a new restaurant next to my car wash - I even offered to give them the land. The impression they gave was that they didn't want to be in our little town. Out of the blue they built right across the highway. My espresso plans were too far along - I thought then - to back away - and the new Sonic opened up a few weeks after our espresso drive-thru opened. It killed the business, and having grown up in a small Sonic town, I wasn't surprised.

Fortunately, we built a 24-hour fitness center in the same building as the espresso business, and it did well. A loss at the espresso could be justified because the girls looked after the gym. I eventually sold the fitness/espresso and feel lucky about that timing.

 

[robert roman]

What is so unique or overly complex about determining an opinion of value of a self-service carwash? The method used to develop an opinion of value of an income producing property is a function of purpose.

If you build a new wash, the bank will require a full summary appraisal report. The owner pays for the report but the lender is the appraiser?s client because the purpose is to assess the viability of the loan request. In this case, the method is based on the appraised value of the assets at the anticipated date of the proposed improvements completion, without a history of operations.

If the deal doesn?t include land (i.e. gas, c-store and carwash), the buyer usually pays a price for the ?cash? business plus inventory and acquires a triple net lease; rent, insurance and property taxes. Since the assets are incidental to the business as a going concern, the buyer would want an opinion of value based on expectations of future profits and ROI. Reaching a value based on these considerations would require capitalization techniques and the overall operation?s net revenue would be the income to capitalize. This means you would need to get from earnings to EBIDTA.

If the deal includes land, building and equipment, the buyer/seller would want an opinion of value without a history of operations and an opinion of value if at a stabilized level of operations with history. This means determining value based on market conditions, estimating the replacement cost of improvements less depreciation and capitalizing income. Addition would be necessary to reach a value.

Regardless of the purpose, an opinion of value should be developed by an independent and unbiased third party who has no interest in the property or parties involved.