Little Loan Shoppe

The following case study is designed to give prospective business buyers, business owners, financiers, advisers and an overview of the role of an independent valuation of the company may have in identifying errors asset valuation and expectations for the grounding of price and value.

The cafeteria is a restaurant and pub serving local franchisees quality meals at reasonable prices at ten points in the Tri-City. The franchise is well known throughout the region and has a solid customer base, ranging from mobile professionals to retirees and local students. The canteen area locations of five years are organized as individual companies are, in turn, owned and operated by Thor Holdings, LLC, a local company that also owns several other franchise restaurants, Ice Cream Shoppes, and Gourmet coffee houses. Louie Peters, Helga Stevenson, and Harvey Rogers own Thor Holdings, LLC and seek to sell two of the Canteen locations that are outside their immediate territory. They had started two places there are about eighteen months as part of an expansion plan incentive offered by the parent company of the canteen. Since then, Thor Holdings declined additional franchise rights in remote locations.

The Canteen two places that Thor Holdings is looking to sell had revenues of approximately $ 750,000 each over the last year compared to other places that everyone has revenues of over $ 1 million per year. Both places have had trouble maintaining a quality staff, and managers have largely failed in business management and cost control. However, the sites are in high traffic shopping malls where the rent is about $ 10,000 per month. Both places have suffered net losses for the previous year of about $ 50,000 each.

Mark and Diane Jones both work at one of the most profitable areas of the canteen. After hearing rumors that Thor Holdings is considering a sale of two underperforming sites, they approached Louie Peters to discuss the possibility of buying franchises. All parties agree that this would be an ideal situation, given Marc and Diane background with the canteen and their commitment to increase the revenue of franchises by the additional marketing and cost reduction. Thor Holdings offers to sell two franchises for a total price of $ 1,000,000. Mark and Diane agreed in principle on the price. The transaction is subject to their ability to obtain financing for the acquisition.

Mark and Diane see Lee Davis, a local business consultant and former head of the State of Small Business Development Center, which has extensive experience in negotiating contracts and working with contractors to develop a plan viable business. After reviewing the statement of income (which has no record) provided by accountants Holding Thor, Lee has several concerns about the viability of the plan. Mark and Diane believe they will be able to increase its sales of over $ 200,000 at each location within twelve months. In subsequent years, they expect sales to grow 8% annually. They expect to do so through increased advertising initiatives that will have a marginal cost of $ 10,000. In addition, they believe that employee retention and training programs help reduce turnover costs of approximately $ 20,000 per location. They also believe they will be able to reduce their sales costs by 35% to 30%, saving 50 .000 dollars every place, through better employee training and inventory management. The canteen elsewhere have cost of sales by approximately 32%.

As a means of evaluating the acquisition of the canteen and locations to facilitate the loan process, Lee suggests that Mark and Diane start a business valuation firm to provide a fair estimate of AD.