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TOPIC: should I buy this theater pub?

should I buy this theater pub? 20 Mar 2007 15:54 #14637

  • eop8
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Please help!!! I'm a bit of a newbie to the industry but I'm seriously considering placing an offer on an existing 2 screen theater pub business in Massachusetts. The business sells approx. 42000 tickets/yr at $5 each and sells pub style food, beer and wine. 42K in tickets doesn't count revenue from birthday parties and other "groups" which he pockets right away (these are some of the off book revenues). Reported revenues have been growing very slightly and are around $575K/yr. After running some valuation calculations on the biz, and feeling out the owner and business broker, I feel I might be able to get this biz for around $350K - $450K.

My concerns:
1. As you know this is very much a cash based business, and the owner claims to have around $100 - $150K of revenues "off book", however he has the actual checks to show he used his cinema checking account to buy personnal items (effectively this became his owner draw). I'm not sure how much of these off book revenues to count, if any????

2. I'm really afraid of all the talk on this site regarding the "window" between movie release and DVD release - especially for 2nd run. Is this window really going away, and if so will all these types of theaters essentially go belly up? Perhaps you'd have to find an alternate use such as a comedy club or music stage?

3. The other issue I read a lot about is that movie theatres in general are seeing declining revenues and ticket sales - and are thus highering prices to make up for it. I think the high prices of the local megaplex drives customers to this cinema pub. However if Netflix and onDemand keep growing, what is likely to be left of the theatre industry?

The business overall seems to do a really good business and is well known and liked locally. My question is whether or not I should consider really buying this thing? I really like the business, but if the future is bleak, then why bother? Your thoughts are most appreciated!!!

[This message has been edited by eop8 (edited March 20, 2007).]
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Re: should I buy this theater pub? 21 Mar 2007 00:01 #14638

  • HollywoodOz
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The future has always been bleak. Yet it still grows most years.

What you should be paying most attention to is not what the business is earning now, but what it will earn when you 'do it right'. And if you don't have a plan to do it better than the current guy, perhaps that should raise a red flag for you.

Not having experience is one thing. Not having a plan is another.

Lastly - and most importantly - why is he selling?
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Re: should I buy this theater pub? 21 Mar 2007 08:39 #14639

  • dsschoenborn
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The MPAA has posted last years numbers. Attendance and Revenue look good. The window is moving but in a different way. The stats they gave at showest show the window on block busters is increasing but on bad films it did shrink. So if the movie is bad it gets to DVD faster than if it was a hit.

There are lots of new theatres in the planning stage. You are looking at only 2 screens so you should be able to find enough product and it sounds like the place has a good reputation now. The Pub aspect gives it a boost too in my mind. I keep meeting more and more people asking why we don't have a pub theatre around us.

Put the numbers together and see what you think you can do.
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Re: should I buy this theater pub? 21 Mar 2007 09:20 #14640

  • eop8
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He is selling in order to pull out capital to finance the building of a first run theatre in a different part of the state (not nearby). This new venture is of course at a greater scale than the 2 screen cinema pub and he has business partners he is going in with. He says he'd like to do the deal sooner rather than later due to schedule for this new venture of his. Sounds pretty legit, however proving the trail of the unreported revenues is a worry. He has two restaurants which he wrote checks out of the cinema business to pay off the restaurant bank debt. This worries me because how will I ever know that he didn't move money from the restaurant to the cinema, then buy personal items - claiming the money came out of the cinema. Unless I also ask for account statements on the other businesses in order to prove he did or didn't do this.... Does it sound right that a cinema pub doing about $575K per year would provide him with around $150 - $200K in cashflow (assuming lease of $90K/yr and payroll of about $100K/yr)?
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Re: should I buy this theater pub? 21 Mar 2007 09:29 #14641

  • slapintheface
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i would not be as concerned about the paying bills out of the theater account ..that does go on all the time if one has several bsns.
WHAT YOU CAN ASK FOR IS TAX RETURN AND PURCHASE INVOICES FOR PUB GOODS.Pay for whats on the tax return and take all cash as suspect maybe it will be there maybe it wont!
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Re: should I buy this theater pub? 21 Mar 2007 09:42 #14642

  • eop8
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"maybe the cash will be there, maybe it won't" - but I need to value the business somehow. If I assume the cash will be there, I'd be making a higher offer and then if it doesn't materialize, I'm screwed! One fellow I know said to discount all non-reported cash 50%. This should help to minimize risk.... any opinions on this?
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Re: should I buy this theater pub? 21 Mar 2007 09:55 #14643

  • slapintheface
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only value whats on the tax return andad a little!
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Re: should I buy this theater pub? 21 Mar 2007 09:57 #14644

  • slapintheface
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sorry for the typos in a rush .....
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Re: should I buy this theater pub? 21 Mar 2007 09:59 #14645

  • slapintheface
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never pay for what YOU can make IT INTO !
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Re: should I buy this theater pub? 21 Mar 2007 10:28 #14646

  • rufusjack
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Never include these so-called off the book cash flows. Think about it. Anyone can claim they made more than they did.

I would want tax returns and purchase invoices for food and concessions. I would also ask for box office reports (from the studios) as one could doctor up there own.

I would not include any off-book revenues.

Personally it sounds a bit suspect that the guy wants to sell a business that is bringing in "such a good cash flow", especially since he says he wants to do it sooner than later.

Find a good spot and watch the business one night and count customers. Check receipts. Most will be numbered so you can get an idea of the revenue. Ask the owner if you could shadow the workers for a while.

Most important be patient.

[This message has been edited by rufusjack (edited March 21, 2007).]
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Re: should I buy this theater pub? 21 Mar 2007 10:37 #14647

  • eop8
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Great suggestions!!! Keep it coming!!!
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Re: should I buy this theater pub? 21 Mar 2007 10:43 #14648

  • slapintheface
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how long is the lease?
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Re: should I buy this theater pub? 21 Mar 2007 10:47 #14649

  • eop8
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12 more years, increasing by about $2K per year.
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Re: should I buy this theater pub? 21 Mar 2007 15:20 #14650

  • slapintheface
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thats a good lease 12 year with 2k year increase....how many sq ft how much a month rent ,
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Re: should I buy this theater pub? 21 Mar 2007 15:24 #14651

  • eop8
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8000 sq ft. total, monthly rent is based on a $90K rent for last year (this yr would be $2K more than last yr., etc.)
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