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How do I determine the sellers asking price is ballpark fair?

Gym for sale- seller asking $199k. He is willing to finance. Gross revenue of $20k per month, net income after utilities, lease, and payroll is average $1,900 per month. Equipment is owned clear. Great location and its the only gym in town (city population 30k). Please help me determine if the asking price is fair. I dont know how to begin to determine formula to figure fair price.

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Answers (14)
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Jul 1, 2010
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Thank you all who answered my question. I appreciate the replies. Don Barrick, thanks for bring up the question how he came up with the price and thanks for breaking down some rough numbers.
This is my proposition offer and see if it sticks- 5% down, 5% p/i, 7 yr term, lease to be negotiated down from $8k down to $6k. The payroll is averaged about $9k per month, I plan to pay myself for the first few months on this payroll of about $3k per month releasing a couple of employees until I can reposition the business. Owner stated on advertisement 1,500 members which is maybe about half due to actual revenue at $30 membership fees. I will still negotiate price. Thanks again gang.

Jun 30, 2010
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R A

This is definitely not a good deal. I have looked at a lot a business since I have been trying to purchase one and the rule I use is never pay more than 3 times the cash flow. The exception would be if the real estate is part of the deal. Then you would need to know the value of the real estate as well in order to determine if it's worth it. You also mentioned he would finance part of the deal. With such a low income from the business, how will you pay the owner? How much will you have left monthly after you pay him? You should consider that before deciding. On another note, I am still looking for an investor for a business I plan to purchase. I can guarantee you a monthly income of $ 3,000 for every $ 100,000 you invest. I am more than happy to put that in writing. If your interested, e-mail me at rebecca_acosta23@yahoo.com and I can provide you with a short business plan, some financials on the business and some pictures of the location.

Jun 30, 2010
Buy-a- Company

Agreed. Take the $1900 and divide it by the number of hours you expect to work, and you'll most likely discover that this is no "opportunity".

For $200k, you can purchase businesses that make 5 times that much, with far fewer headaches and risk.

Jun 30, 2010
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There are a few business categories that I dont understand. i mean I understand but I wouldn't pay anywhere near what the asking price is.
This is one of those situations. The asking price is 9 years cash flow. It would take you 9 years to see a return on your investment. You could work 40 hrs a week at Walmart with benefits and be WAY better off.
Now if you have money and this is a passion project then, God bless.
One of the other business categories I scratch my head at are liquor stores. 100k plus 100k for inventory to make 35k a year? No thanks!

Jun 30, 2010
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The BAF Group LLC
MD

The real acid test - in my view - is how much time will this business take, in term of your personal effort. Is it 20 hours a week? 30? 60? And how much is your personal time worth? Does that match the income you can expect from this business? That is the minimum expectation. Other issues come into it later, like whether you can build the business and make it a true investment, rather than just looking at it as buying yourself a job. But this is the initial philosophy I would adopt.

You state Net Income of $1,900 after expenses, except that you do not state how much Debt Service per month you will be paying. Since you do not list it, I am assuming the Net Income is $1,900, and you still have to make payments to the Seller for the purchase, and pay yourself.

At a price of $199,000, if you put down 20%, which is $39,800, and he carries a note for 10 years at an interest Rate of 7%, the payments you will make to him are approximately $1,848 per month. You are making $1,900 per month in Net Income, leaving you $619 per year to pay yourself. And that is only available to you if no other emergencies or added expenses occur - which is not likely.

One of the big things I would do is to demand that he tell you how he came up with his price. What rationale did he use? My bet is that he is one of those people who decided he wants a price that reimburses him for what he invested in the place, and that is not practical. For one thing, Gym equipment has a tremendous depreciation - it is almost worthless, once it is installed and used for the first time! If that is what he is thinking, you have three choices: The first is to try to reason with him, which may be impossible, since people who adopt this philosophy are not dealing in reality; second, wait until he fails at selling it at this price, and see if he becomes more practical; and three, look somewhere else!

Jun 30, 2010

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