Don't let people lie to you, and don't lie to yourself when running numbers, that is not how net income works, you need to be paying employees and including royalties in this number to understand if the business is worthwhile...
For instance if that 200k comes from 1MM in sales then roughly 80k is going to be subtracted from that to pay for royalties... and if you are staffing the place with say 3-4 people so its open 7 days a week at $15/hr that's another 80-120k gone depending on how full time the staff is... Suddenly your 200k is 0-40k...
As an aside I'm making some assumtions here for your numbers... but even still I probably would never buy a food franchise that had 8% royalties... most food businesses survive on between 5-10% margins and if your franchisor is taking 8% of that, then unless you happen to have an absolute dream location or you are an owner operator working 24/7 slinging boba as a sole operator to reduce costs. These types of franchises are pretty much just a trap for immigrants looking for employment but don't have a way to showcase their qualification in the U.S. market but do have net worth.
So the 200k(out of the 500k) is the income before payroll and royalty(but covers expenses like insurance, rent, utilities, cost of product...ect???)
what would you anticipate labor costs to be? Have you talked with lenders about how much cash they require down and what kind of loan terms you'll have? What do you get for the royalty costs? The breakdown of royalty costs is odd though I'm not sure how they are trying to market their franchise. The low fee's on low revenue seems weird to me because a store would be broke doing 50k/year or less so while it is nice to have lower franchise fee's on revenue less than 50k. If they wanted to provide a 'ramp up' period they should make the 'discounts' be by year.
larger franchises might have a 5% royalty fee and then a 3-4% advertising fee. the 8% seems kind of high as I'm sure they are also making money from the product you are selling
I can't say 358 is a fair price or not. What are the lease terms. Do you anticipate any real competition that might cut into your revenues? you'll probably have to come up with 70k down and finance the rest. Do you think you can afford a loan payment of 4k/month?
@rongold I’m unsure if the industry but got that royalty structure is god awful. Most franchises royalties fall with revenue growth, to you know, incentivize growing your revenues lol
@rongold look at the financials and MOST important is net income(proper) from the income statement, then look at assets and liabilities, if they assets are less than the total liabilities presented the price goes way down as they aren't liquid and looking to cash out before the bank take it all.
The guy you want to be is the person your paying those 8% fees too....and find out WHAT they provide for that, it should be marketing, training, branding, etc. not just "my idea you pay now"
@rongold I lurk here and don't own a business, so take this with some salt.
If the franchise is only 3 stores, it isn't established. Why should you pay for it then? The reason people open MCD franchises instead of their own fast food burger place is because the franchise is immediately recognizable and draws people in. It seems like this franchise brand doesnt do that while costing you an up front fee and a good chunk of gross (not net) revenue
People already started on the renovation costs in that they aren't something you should consider in the price and that since its probably a rented space you could lose all of that if the landlord decides not to renew. I'm more concerned that they actually spent 250k. How do you even do that? You paint a bit, put in some better lighting, get furniture, done.
What actual equipment do you need for this? It seems like it's just a couple big fridges and some misc stuff. I don't know how that was 50k. Even if it was 50k new, it's not worth 50k now.
Someone mentioned it here once with regards to buying a gas station. Sometimes you're not buying a business. You're buying a job. I feel like a bubble tea place is much more in the job than business category. Can the business run if you're gone for 2 weeks with no input?
If you're serious on doing this, I would pass on this offer and just start your own. It seems like the amount that the current owner wants you to pay and what you should be paying are so far apart that there isn't a middle ground.
Happy to chat more. I drink a shameful amount of bubble tea but the places I go are more takeout vibes than coffee shop vibes
