Buying A Yogurt Business? Here Are Some Important Guidelines

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. Its 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. Thats 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 sellers 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 opportunitys 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.

by: Peter Siegel, MBA

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