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TOPIC: price for 2 screen theatre/cafe

price for 2 screen theatre/cafe 17 Feb 2009 20:12 #30905

Hi everyone.

I am a newly registered user but have been reading the threads on here for months looking for info.

I am looking for advice on an valuation of a theatre and any comments in general.

Theatre is in a small town ~75,000. 2nd run. First run competitor with 10 screens is ~10 miles away but technically in same town - opposite end.

The theatre has 2 screens w/ every other row of seats replaced with tables so that people can eat food while they watch. Concession stand is expanded to include full kitchen that prepares food of a typical sandwich shop. Combined total seating for theatre is ~350.

Gross revenue of ~550,000 with a profit margin of ~40k. The current owner also takes out 25k in salary. Sales are split about 50-50 between ticket and concession and because it is second run gross margin is 65%.

The current owner is asking for 275,000. Includes all equip but building is leased. He is selling becuase he owns another business and can't run both. The theatre has been in business for 16 years and has strong local ties.

I figure i can get the business for ~240,000. Does this seem like a reasonable figure? The owner will take a 20% note, but i will have to go to the bank for the rest.

Any help would be greatly appreciated. I tried to include as much info as concisely as possible, but let me know if you need any more info.

Best,
~Blake
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Re:price for 2 screen theatre/cafe 19 Feb 2009 12:02 #30920

  • lionheart
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I am no expert at valuing businesses, but I can say that one of the most common ways that business are valued is as a simple multiple of net income. The multiple varies by the kind of business it is. The riskier the business, the lower the multiple. So, if the business has a net of $65K then, the multiple would be about 3.7, (3.7 x 65K = 240K). A common multiple used is 3. So, a risky business would probably have a smaller multiple. I've seen some businesses such as independent restaurants valued as low as 1 times their net income. Restaurants are typically risky ventures. Very safe businesses may have very high multiples, much higher than 3. But, I don't think anything is as simple and clear cut as this.

Of course the business assets, such as equipment are probably not included in the equation. So, maybe you would subtract them off the purchase price. Say they had equipment worth $40,000, then maybe you should be dividing $200K by 65K to arrive at a multiple of almost 3.1.

If it was me, I would also have to consider what my debt load was going to be. I'm guessing that the people who are selling this business don't likely have nearly as large a debt load as you will have spending $240,000 for it. Figure out how much your payments are going to be, then subtract them from that $65K, then see if there is anything left for you. All this assumes that their stated income is correct. You should really have somebody qualified examine their financial records or statements to see if there are any hidden pitfalls.

I won't say if the price is fair or not. That's up to you, but I tend to want something concrete for my money. Paying for a business over and above the concrete value of assets, is called paying for "blue sky". Something to think about.
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