"How much can I make out of this thing?" Is one of the most common questions a prospective purchaser asks when they're looking to buy a business.

If they're buying an existing business (the location is already operating), it's a fairly straightforward exercise.

1. Get the figures from vendor,

2. Add back non-business related expenses,

3. That's the profit they could potentially make.

(This assumes the figures are accurate, there's no cash (?!) and the new guys can keep the customers. Also doesn't allow for plague, famine or flood).

New locations

But it's a lot harder for a 'greenfield' (brand new) site. This is where there is no established business, customer base or trading record.

In this case, the best approach is to start with what IS known and work it up from there.

For instance, we should know, or be able to estimate fairly accurately the following:

- Rent,

- Wages,

- Cost of Goods Sold %,

- Lease payments or finance costs,

- Insurances,

- Admin and smaller operational costs.

From here, we gross up by the Gross Profit % to determine the breakeven point for the business. 

This is the Sales Target the business needs to achieve in order to cover all of the costs of running the business, pay its financing costs and pay you the income you desire.

Can you achieve it?

The question then becomes this:

How confident are you that you can achieve that number?

From here you can check comparative businesses, ask other local business owners, check foot traffic (if relevant).

If it's a franchise, you can request comparative data for other start up 'greenfields' and put your estimate together.

You can also have a far better conversation with the franchisor. 

Find out about:

- Their marketing plan for your business,

- The sales strategy,

- Their SEO plan for the website,

- Their launch ideas for your business,

- What will they do to help you achieve your breakeven point.

This places you in a far stronger position to make an informed decision before you buy.

Let me know if you'd like to discuss your situation, or use this link to our Pre purchase Review, which covers the process outlined above.

Contact Peter Knight for HELP