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Industry

February 12, 2015

Have you over capitalised?

Are you a cafe owner that is seeking that opportunity of a cheap site with a view to fitting out, renovating or just a face lift?

If this is your option over buying an existing site with proven figures and fit out ready then take note. One of the biggest issues we see today from business owners in the hospitality industry (but not limited to) is:

OVER CAPITALISING!

 

Before spending on that illustrious fit out here is something to think about this:

• In simple terms hospitality businesses are valued by EBITDA x multiple of an average of 2 times (no greater than 4 times).

Or

• For every $1,000 in turnover per week x $10,000 to $40,000 value on the goodwill of that $1,000 turnover.

So take an average cafe fit out with kitchen as an example. Based on empty store take over (new lease) – $200,000 fit out (at least for something decent).

As a minimum without adding in cost of financing, marketing, opportunity cost of income loss during fit out, operating costs upon opening whilst sales not covering expenses,  the minimum required sales per week to justify the above $200,000 fit out is: $12,000 per week for break even only.

Most operators don’t think carefully enough about the exit strategy. When the ‘need’ to sell comes along, owners who have over capitalised are unable to recoup what they have spent. A cafe business like any business should be about net profit but also about the value added on exit. As the old saying goes, “buy low & sell high”, not the other way around. So, before going ahead with that fit-out, face lift or renovation get some advice from a business strategist.

Think smart, numbers don’t lie.

Emil Parthenides
Specialist – Food Service Division
Benchmarkbusiness.com.au
Tel: 1300 366 521





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