Calculating Goodwill/Key-Money

xertpo

Can anyone tellme how I calcluate what the key-money for a leasehold business should be? I have all the information from turnover to store size but I'm uncertain as to how to use it.

Thanks in advance.

markymac

xertpo wrote: »

Can anyone tellme how I calcluate what the key-money for a leasehold business should be? I have all the information from turnover to store size but I'm uncertain as to how to use it.

Thanks in advance.

Are you selling the business as a going concern or just selling the leasehold on the premises?

EKRIUQ

How long is the lease and is it worth it?

antoinolachtnai

The key money for the lease can depend a lot on when the next rent review is. There is also a matter of how scarce street-space is in the particular locations. If there are leases for sale on the same road without any premium, there's no reason to pay very much for this one.

If you want to value the actual business, you can basically value it on the basis of the break-up value of the tangible assets (for example the lease) or on the basis of the expected cash flows. The business or the lease may also have some 'strategic' value to someone and this raises the value. On the other hand, the lease could be problematic for some reason, and this reduces the value. Similarly, it could be a business in a market that has strong cashflows for now, but which will drop off over time (for example, dvd rental).

Valuing a privately-held business is a hard thing to do.

xertpo

Thanks for all the replies.

I'm looking to buy a freehold retail business (Spar, Centra, etc). I was more inquiring as to whether there was some sort of formula that could be used. Obviously, items such as location can't really be factored in but surely there must be some form of scoring or weighting system in use out there that can applied.

antoinolachtnai

If it's freehold, it's going to be the value of the shop to start with, which is going to be a lot.

For the business, it's hard to really say. You can't really separate the business from the shop. One approach would be to figure out what would be a market rent for the shop, subtract that from the profit and use this figure as the basis for valuing the business.

Its going to be some multiple of that value.

A ready-reckoner for rent is going to be about 4 to 6 percent of the value of the property.

I would then add that to the value of the freehold.

But really, you have to do your business plan, and figure out what the maximum you could pay would be, and then try to get the whole thing for less than that.

This should be possible if you have all those figures and they are correct. Mind you, you are going to need some help from someone who knows the sector quite well.

a.

Bandara

xertpo wrote: »

Thanks for all the replies.

I'm looking to buy a freehold retail business (Spar, Centra, etc). I was more inquiring as to whether there was some sort of formula that could be used. Obviously, items such as location can't really be factored in but surely there must be some form of scoring or weighting system in use out there that can applied.

I've a few differents units similar to these type, including a busy Spar unit.

I'd be thinking long and hard before taking this particular plunge, if your not razor sharp in retail your going to lose a lot of money. The market is in a shocking state with huge numbers of SPar, Centras etc in great danger of folding with large losses. Dublin City center has several shops that are not yet a year old in prime locations that are losing over a hundred thousand a year.

Not being a smart arse but it is NOT a business to get into without a lot of expertise, and hiring a 'manager' to run it for you is a quick route to financial disaster.

"Retail is Detail", "If you don't live in it, you can't live out of it" and the other old cliches are very true etc etc

I work close to 75 hours a week, it a sick but very rewarding industry if you do it right. But it takes over your life.

Good Luck

Bandara

Sorry, didn't answer your original query,

You calculate the value of a leasehold by multiplying the turnover (ex-agency) by about 15.

Freehold is calculated approx between 35 / 40 times the turnover (again ex-agency). For example, if you have a site doing 50k ex agency, your talking about 1.8m freehold.

Strange as it may sound the building location/size/condition is not really a huge aspect in valuing, obviously its a factor but the turnover is the key.

Other items of relevance are the site having the full lotto and also an off licence on the premises is going to add 150-200k in value.

xertpo

thanks everyone

Mickk

Hammertime wrote: »

Sorry, didn't answer your original query,

You calculate the value of a leasehold by multiplying the turnover (ex-agency) by about 15.

Freehold is calculated approx between 35 / 40 times the turnover (again ex-agency). For example, if you have a site doing 50k ex agency, your talking about 1.8m freehold.

Strange as it may sound the building location/size/condition is not really a huge aspect in valuing, obviously its a factor but the turnover is the key.

Other items of relevance are the site having the full lotto and also an off licence on the premises is going to add 150-200k in value.

Are you sure these figures are right, seems crazy to me. Unless the turnover you are talking is weekly?