Originally Posted by Sean J Hunter
Great points Alex,
It's important to realise that many small companies do not take into account all real costs, and so tend to not run at a "REAL" profit, very typical in low cost of entry markets like CF. When they are valued for sale, the owner tends to find that there is little to no "REAL" EBITA (profit). Add to this a customer base that isn't particularly tied in (only month to month contracts) and the PE ratio might only be x 2 (not x 3-5).
I hate to say it but like in many CF box sales, you may find the goodwill variable in the sale price is vurtually $0.00. So instead you end up taking the equipment off the vendor at second hand or book value depreciation rate, taking the lease liability off their hands as well, they often get tied into a non compete / solisitation clause, making it difficult to go off and start again, and the owner ends up walking away with little to no actual profit from all their hard work.
Lastly as Alex pointed out, why are they only at 48 members, do you know the reason, do you think you can fix that reason? most boxes don;t start making any real profit until they reach 100 - 150 members.
Sean: As you pointed out this box might be worth $0 and they just want to get everything off their hands.
Andy: pointing out the website costs $15 is very trivial that is not a big cost.
I think you need to be careful because you do not want to take over something that will tie you up in debt if things fail for you. You will be taking all the risk.
You know that sometimes you invest money in something and there is no return... this might be the case here for them.... they might take what they can and run with it.
I would also take a look at the local market, where is the competition and what type of competition there is, where is there a box located, can people find it, is the homepage crap, can you find any reviews anywhere on google. You will also need to know what sort of possible clients live in the area, is it a low income area or high unemplyment then the pricing may be out of reach for them. That would mean a change of strategy.
good luck though and let us know how it goes.....