Restaurant Purchase "Maybe" (small business, sales, profit, accountant)

[Woundedknee]

Today I was approached by a restauranteur about purchasing his establishment. (the short of the long) We have small business that provides a fire preventive service to commercial kitchens, so I know many in the industry.
His initial asking price works out to 95% of his annual net . (What are your thoughts here?)

We'll talk more later this week and go over the books. I mentioned it to my better half and she gave me that "look".

[MrRational]

Originally Posted by Woundedknee

We have small business that provides a fire preventive service to commercial kitchens, so I know many in the industry.

Then you *know* which is the right side of the industry to be in.

I mentioned it to my better half and she gave me that "look".

And next comes the kick in the pants.

[Woundedknee]

Originally Posted by MrRational

Then you *know* which is the right side of the industry to be in.

You would think that wouldn't you?

[sunsprit]

Is there any hint here that Wounded Knee knows anything about the restaurant business?

Absent training and experience in this business, you're just setting yourself up to throw away a lot of money ... even if the seller gave you the keys and walked away from the place.

95% of the annual net may ... or may not ... be a fair price. You need an accountant familiar with this industry to review the books and someone to review the operation that knows the restaurant business who can realistically assess what it is you're buying.

You do realize that this business will take over your time?

[Woundedknee]

I've owned a restaurant in the past (it's where I meet my better half) I had it for about 4yrs then sold.

[harry chickpea]

Obviously not enough info. 95% of net is different between $20K and $500K. Net before he pays himself or after a salary. Location? Changes? You know the drill.

[Woundedknee]

Net comes out 370K this derived after expenses and all salaries. He only open 6 days a week for 5hrs a day (lunch) highly desirable central corridor Phoenix. Changes would probably be an addition of breakfast right off.

[Wilson513]

Try again on your numbers. They make no sense so far. The average restaurant, with liquor, is lucky to profit 4-10% of gross sales. You quote $370K?

[Woundedknee]

You have a very valid point we'll be going over the books probably Thursday.

[cpg35223]

I'd call a restaurant consultant. There are guys out there who are experts on restaurant valuation who will let you know what the right asking price should be and what questions to ask.