Quick Lube - Oil Change, Inspections, Tire Rotate & Balance, Fuel Injection Cleaning, Air Filters, Wiper, Blades, Batteries, Radiator Flushing & Fuel Filters.
A recent appraisal of the property places the value at $570,000. The high real estate value means we can get you 10% down long term financing.
When the seller this Quick Lube dropped the asking price of the business $100,000 to $483,000, it created some compelling values for investors. Let’s look at the returns offered at this price from several perspectives.
Cap Rate – Often used in commercial real estate and because the property’s appraised value is $570,000, we should include it. In commercial real estate they are thrilled to get a 10% cap rate but 8% would be more common. The average small business sales at a cap rate of 33%. Our calculation looks like this. Seller’s discretionary earnings (SDE) is $104,354 then subtract manager’s expense of $37,302 = $67,052. Then $67,052 is divided by the selling price of $483,000 give us a cap rate of 14%
Business with Real Estate Multiple – A transaction with 50% value in business and 50% in real estate sales at a multiple of discretionary earnings of 4X to 5X. In our case the multiple is $483,000 divided by $104,354 (SDE) = 4.6. This ratio is in the middle in spite of our real estate appraisal showing the real estate value at 118% of the asking price.
Return on Invested Capital – Often called a cash on cash return, we are looking at a high percentage return for this type investment. This is partly due to the low down payment financing we were able to obtain. Calculate this by starting with Seller’s Discretionary Earnings (SDE) $104,354 and subtract the manager’s salary expense of $37,302 to arrive at $67,052. Now to determine the cash available to the buyer we have to subtract debt service of $36,996 leaving $30,056 profit after all expenses. To get your return on invested capital divide your profit by your investment like this:
Profit $30,056 divided by cash investment $59,900 = 50% Cash on Cash Return
Earnings Upside – The sellers admit that almost all their marketing attention is directed at their other locations. Quick Lube has trained employees and a good manager. What it does not have is local marketing. This would include addressing the local community with everything from Facebook advertising to being in the high school football program. Fleet accounts are a big opportunity because they have not been pursued historically. They can provide consistent traffic. The seller’s believe that the business can be grown. If sales grow 15% at a 67% gross profit, cash in cash return goes to over 100% per year! With continued nurturing and effort, it can go a lot higher than that.
Summary – At the current valuation levels this business purchase offers a strong current value with significant upside potential. I invite you to make an offer to turn this opportunity into a reality for you.
Debt Service – The monthly payment of $3,083 on this business is based upon a 6.25% rate SBA loan. That loan includes $25,000 in working capital back to the seller. Broker is confident we can obtain this loan for a good credit buyer.
A tremendous opportunity to buy a business and the real estate at just 10% down. Marketing to the local community will bring instant rewards because the company does not emphasize this concentrating on its other locations.
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