The establishment was already trading and the client was experienced in the catering sector but he had no previous experience in running a restaurant, and so wanted us to review the records of previous owner to establish the value of the business and if it was viable going forward.
In particular he wanted to understand what the figures were likely to look like once he had taken over the business and made some planned changes. His worry was that costs were likely to increase and he wanted to understand how this would impact profits and cash flow.
He also wanted to understand what a fair valuation would be.
Our first task was to review the historical accounts form the previous owner and gather information to establish a clear understanding about the way they had run the business. From this process we were able to prepare valuations and also future forecasts to show how the business was likely to look once he had taken over.
With our experience in the sector we were able to model what the business could look like, based on similar size restaurants that we act for. This meant that we were confident that we could establish that the business was underachieving and had the potential to perform much better by implementing better management practices . Investment in a face lift to attract more customers and fill tables was also recommended.
Altogether, this gave the client the confidence to put an offer in for the business.
Our valuation was significantly less – almost 50% less – than the initial asking price. We advised against the sale and after holding out for a period our client was able to secure the business for a viable price.
This in turn meant that he was able to invest £150,000 in the refurbishment of the restaurant, and since then turnover has improved from £360,000 per annum to when purchased to over £1 million, in the space of just 2 years.