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TOPIC: real profits

real profits 21 Feb 2004 16:37 #7529

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We are reopening a 5 screen theater in May. Everything is going smoothly except the one thing I didn't think I would have any trouble with: a loan. The one bank that I submitted by business plan to said that the movie theatre business is the riskiest business, that theatre owners end up paying the film companies more money than they actually took in and that there are already too many screens in the U.S. I projected that I would profit $1.00 per ticket and $1.50 per person in concession sales. Are these figures realistic? Can anyone help me with some solid figures that I can take to the bank. I have another appointment on 2/26 with another bank (local) and would like some answers if these questions come up again. I know this theatre would work and be profitable. How do I convince the bank? also, my credit rating and credit history are excellent, so that is not a factor. Any help is greatly appreciated.
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Re: real profits 21 Feb 2004 18:18 #7530

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Banks are very risk adverse. It is almost impossible to get a business loan out of a bank for a movie theatre. Banks are loath to loan money where no real collateral is involved. That's why so many successful business start out my mortgaging grandma's house.

We did manage to secure an $85K loan out of our bank but only after showing them 6-weeks of cash flow. So we didn't get our loan till we had been open a month and a half. They still get all a twitter every year and ask for all the personal loan information all over again, this in spite of depositing $2M in the same bank every year and direct debiting our loan payment.

We had more success securing money out of commercial lease companies. You can get a lease for seats, concession equipment, projection equipment and the like. They make you jump through the same hoops as a bank, but they usually approve or don't approve the loan very quickly. However we had been in business 2-years before we got our lease, so we had 2-years of track record.

Also your profit projections may be a bit optimistic. We're doing 10%, which is nice. You will find expenses pilling up much more than you anticipate. Have you gotten an insurance quote yet?
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Re: real profits 21 Feb 2004 22:21 #7531

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I have to agree about those numbers being VERY optimistic--unless your talking gross profit per person--not net. 10% is optimistic some years
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Re: real profits 22 Feb 2004 18:10 #7532

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The good news is that we don't generally pay more to the movie distributors than we took in as they are getting a percentage of the gross. If there are no grosses then we don't pay them. However, we still have plenty of fixed costs to cover even if there are no grosses - shipping the print in and out and paying the staff, heat and lights bill come to mind easily. The bad news is that the banks are right that this is a risky business. We don't control the production of the product that we have to sell. We can't make people come to a movie just because it is available. So we must learn to take both good and bad times and still make some profit. The banks just want to know how you will be paying them when there is no one coming in to your lobby. So how will you be paying them when the money is not coming in?

You mentioned that you are re-opening a 5 screen theater. Do you have the historical grosses for that location? If you don't - get them as those numbers can help you convince that banks that you can make the payments. Once you have them you will need to calculate your costs. You could use the 10% figure mentioned by others here but you would be more convincing if you have specific expenses detailed. BTW, there is usually a reason why theaters have closed. Make sure that you understand what those reasons were and how you are going to address them. Low grosses or grosses not high enough to cover the expenses are usually the problem. Are your expenses going to be manageable with the historical grosses? Banks will believe historical grosses a lot easier than pie in the sky preditions. Many business have assumed that more people would come in than ever did come in and that is what kills them and causes banks to lose money.

Oh yeah - that part about too many movie screens in the U.S. It doesn't matter to you whether there are too many movie screens in the U.S. The only thing that you (and the banks) should care about are whether there are too many movie screens in your particular drawing area and whether you can get the films that you need from the distributors.

Good luck with your next appointment!
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Re: real profits 22 Feb 2004 20:18 #7533

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Question one: is this a real estate loan or a biz loan? Any business without real estate or other REAL collateral will face a tough time to borrow money.

We have a book for sale here an accountant and appraisers guide to Valuing Movie Theatres. That helps.

Movie theatres are the "riskiest" business? Compared to restaurants?? There is too little history on them for most bankers to make that statement.

Michael Hurley
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Michael Hurley
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