Most people interested in purchasing a yogurt business can anticipate many of the things they need to know about the shops under consideration. The right choice among these offerings should be a business that has a busy location, is well maintained and shows a profit on a consistent basis. But there are additional guidelines the prospective buyer needs to understand, in order to determine not only whether an establishment is really worth owning, but also how much it is worth.

Here are a few guidelines to help prepare prospective buyers in this industry during the search and the purchase.

Rental Cost

The problem with some great locations is that paying the monthly rental leaves the owner with little to show for his or her work and investment. And it can be difficult to figure out what the rent should be because there are a number of factors involved in setting appropriate rates. A large and active shop might come with thousands per month in rental expenses. Alternatively, the owner of a yogurt business operating out of a kiosk may struggle to cover the few hundred due to the landlord each month.

By analyzing the books of a number of franchised and independent yogurt shops, many analysts, bankers and due diligence professionals conclude that an owner paying out over 20% of gross sales in rent, is providing great benefit for the land owner, but not taking care of him or herself adequately. In fact, total occupancy costs, including insurance and utilities, should not creep much over 20% if the proprietor wants the business to be successful.

Product Cost

Like rent amounts, there can be a wide variation in the cost of goods among yogurt retailers. And determining what is an appropriate amount to pay the supplier for the frozen dessert that will go into cones, cups and cartons, depends on the type of business.

Lower product costs, in the range of 20% to 25% of gross sales, are usually associated with yogurt companies that offer a wide variety of flavors scooped by hand for customers who tend to be a bit discriminating and who pay top prices for their treats. Another yogurt business model relies largely on machines that extrude the product. It is likely to be doing a large volume with lower prices and smaller margins compared to the other model. It’s not unusual for the owner of a company in this category to incur product costs at or above 30% of gross sales.

The Bottom Line

The buyer interested in this industry should be aware that typical owner earnings before interest, taxes, depreciation and amortization (EBITDA) range between 12% and 17% of gross revenues. That’s a useful guide, because a purchaser who encounters a business for sale that generates less than this range will know that there is likely something wrong in the way the company is structured or operated. It may not represent a desirable purchase.

Meanwhile, the enterprise showing earnings approaching 20% should prompt quick action on the part of any interested buyer. If priced right, and if other factors are sound, this yogurt business will probably sell without delay.

Business Pricing

The general valuation rule of thumb that applies to small retail businesses–2.5 times seller’s annual EBITDA–offers a reasonable approach for valuing a yogurt business. The factors that might influence this figure, up or down, include condition of the equipment and facility, the level of risk involved and the ease of purchase. Contributing to a business opportunity’s value is a deal in which the seller is willing to carry back 25% or more of the purchase price. Seller participation in financing gives the buyer more confidence in the future of the company, and makes it easier for him or her to arrange a purchase.

About The Author:  Peter Siegel is a SCORE Counselor specializing in consulting those selling or buying a small business.  He is the Founder of BizBen.com – Businesses For Sale In California and has written three books on how to buy and sell small businesses. If you have questions about the buying or selling a business process please feel free to phone Peter Siegel at: 866-270-6278

It is commonly understood by owners of small and mid-sized companies that when they put the business on the market, they need to follow basic practices, such as pulling together financial information for review by the buyer, and making sure the business will come with a good premises lease. And while doing some things right, owners often make serious mistakes that impact their ability to conclude a deal. Here are three of the worst mistakes made by entrepreneurs selling a business.

1. Being difficult to contact: It is not true, as some sellers believe, that buyers remain motivated and cooperative if they have to find owners and “chase them down” to get information and responses to their offers. In fact, with all of the business opportunities on the market, any buyer having trouble communicating with a seller will simply go on to other opportunities available.

Playing “hard to get” might be an effective way to attract the interest of another student in high school, but that tactic doesn’t belong in a business search in the 21st Century. The most successful sellers make sure to provide at least two phone numbers–home and mobile–to prospective buyers and various brokers, along with the assurance that they are available 24/7.

2. Playing the “open listing game”: Some business brokers, anxious to get listings, will get the seller’s agreement that the broker will earn a commission by bringing the buyer who purchases the business. But only then. And under this open listing, the seller is free to find his or her own buyer without responsibility to the broker, and can even list with other brokers on a non-exclusive basis.

From the standpoint of someone selling a business, the idea of having several brokers, all on open listings, might seem like a great strategy to expand the marketing effort. But the seller has little control over how the business is offered for sale, which can readily compromise the need for confidentiality. Besides, most brokers are not motivated to put time or advertising investment into promoting non-exclusive listings.

It might seem like a clever idea, but the seller who engages brokers with open listings, is more likely to encounter misunderstandings and problems than to achieve a successful sale.

3. Pricing based on unreported income: The seller with a secret–that some of the money coming into the business goes directly “to pocket,” never getting recorded on the books–should take care to keep that secret. It’s a mistake to reveal it to prospective buyers, with the explanation that the asking price may seem too high, but that it’s based on actual profits–including the unreported income, which total more than the figure shown on the income statement.

After demonstrating this lack of honesty, a seller will find that his or her other statements about the business are not readily accepted by prospective buyers. And anyone who destroys his or her own credibility when selling a business is very unlikely to find someone willing to make a deal.

If actual income is used as the basis for determining asking price for a business, that income should be apparent to someone examining the company’s books. All of it.

By getting fully ready with the necessary documents and commitments when offering a small or mid-sized business for sale, the owner increases the chances of finding the right buyer and completing a transaction. It’s a shame to undo that effective preparation by making major mistakes such as the three mentioned here.

About The Author:  Peter Siegel is a SCORE Counselor specializing in consulting those selling or buying a small business.  He is the Founder of BizBen.com – Businesses For Sale In California and has written three books on how to buy & sell small businesses. If you have questions about the buying or selling a business process please feel free to phone Peter Siegel at: 866-270-6278.