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CAFES AND RESTAURANTS – VALUE MODIFIERS o Business sales remain strong unlike the housing market where volume appears to be slowing.o As usual the Budget did little for small and mid-sized businesses (SME) except increase compliance costs. o Our exceptional business sales results reflect the strong professional team we have and the great relationships we have built up over the years. o Paul Devcich was recognised as our top salesperson for the 2006-2007 year recently. It was noteworthy that 30% of his sales were at full asking price (or more) and his last 50 sales sold on average at 96% of asking price. o In our hospitality / food division Bill Ming was salesperson of the year. Bill has been with us for 15 years and provides excellent service to our clients. Cafés and restaurants are simple businesses. Cash-and-carry, low inventory level, and generally not requiring great technical skills. Yet they are devilish difficult to value. Their financial accounts are notoriously unreliable and rarely indicate the true earning capacity. As with all business appraisals asset-based, earnings-based, and market-based methods should all be considered. For the smaller ones the Direct Market Data method may be the most persuasive and most defensible. We have statistics on thousands of café and restaurant sales. Average price/sales and price/earnings ratios are readily established. But there is probably no other type of business where it is so important to consider the value modifiers. Applying these will involve subjective judgements - that's valuation, as opposed to calculation. Some of the major modifiers are: - hours of operation - buyers pay more for daytime only and 5 days only - concept / menu - simple food increase value, silver service or complex cuisine diminish value - financial accounts - honest, profitable accounts appeal to the risk-averse, significant variations from industry standards scares them - security of tenure - no secure long term lease at a reasonable market level rent slashes value - location - desirable locations attract premium prices while undesirable ones may be difficult to sell despite solid earnings - trends / potential - entrepreneurial buyers favour businesses with rising sales or obvious potential to grow - plant condition - good plant and presentation impresses investors and impacts positively on price - other factors include labour supply, parking, licensing, competition, finance, accommodation and present owner profile or personal goodwill The retail food sector is one of the fastest growing in the NZ economy - and a fun field to be in. But buyers and sellers need to beware averages and consider many factors when making their buy/sell decisions. |
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