Looking to purchase

[Earl Weiss]

Based upon some industry reports average rev is $1500 / mo / ss Bay and $4500 / mo / IBA would be $12,000 / mo or $144,000 a year in revenue. At $200K this would be 140% of average and a stellar performer.

 

[robert roman]

“400K combined 2013 and 2014.”

Changing the income value changes my response also.

$800K price would not be a gift horse in the mouth, at 4 times gross sales.

It’s important to understand gross income multiple is a test or rule of thumb. It is not how appraisers reach opinion of fair market value.

For example, business-only value for similar retail businesses is usually calculated at around 3.0 times available cash flow. Cash flow is a weighted three-year average, adjusted for risk.

Since building and equipment is incidental to this value, adding fair market value of real estate to business-only value will give better indication of true investment value.

“You pay for the business or the land value. Never Both.”

This is a buying strategy not an appraisal technique.

If you apply this strategy to valuation, the guy will never get a bank loan.

 

[Automoglow]

Ok Robert you have all these numbers, so what would you value the business at if you were going to purchase this?

 

[robert roman]

It’s not that I have all the numbers rather its valuation is not straightforward.

I’ve read many reports where the appraiser adjusted the capitalization rate based on the owner’s level of experience.

Good cause for this.

Full-serve that washes 50,000 cars, sold for $4.2 million.

In my opinion, this was too much because business is high risk.

Why high risk? This is mature business. What happens if volume drops by 10 or 20 percent?

Enormously high average ticket equals enormous loss of profits to absentee owner.

Without the information to prepare a formal opinion, I can only speak about test values or the rules of thumb.

At $800K, this passes the smell test if the numbers are true but I would not say this is a gem of a deal.