This post has generated some good advice! Regarding the price, the best way to establish a value for the business is to look at their cash flows from operations. To construct a proper free cash flow model, you will need the business' balance sheet and income statement, which should be made available to you. This method of establishing a value for a business is the most accurate as it does not assume some arbitrary multiple and it is based on the actual cash generated by the business. There are quite a few sources on the web where you can find more information about constructing a cash flow statement or feel free to contact us for a few pointers. Another good indicator of how well a business is run is customer satisfaction. Satisfied customers are a good indicator that the staff are well trained, the business is reputable, the product is worthwhile and that there will be repeat customers when you take over. Good luck! Edward Shelton ---This post was edited to remove a commercial link. Read our discussion policies for more Community best practices.

Determine a valuation for the business. Most industries have a standard method and concentrate on a multiple of the previous year's revenue (the exact multiple will depend on the industry). If the business has a lot of capital equipment (a manufacturer, for example), the market value of the equipment is taken into account. Fast-growing businesses in a hot market are usually valued higher, as future potential is factored into the selling price.

Buying something without any info on the turnover, debts, land lease, licence to run the food industry business and etc. is like buying a cat in a sack. Be carefull and do not rush to sign the contract. You might want to ask some people who live around it (if that's possible) about this cafe.

As you said you are eyeing to put a bid in the cafe. So I assume that you have an idea on the amount of traffic (customer) that the place, do get. Most owner wont openly show their financial statement, unless you show them that you are really interested if the price is right. Do some work and crunch up some numbers! Check the value of all the furnishing and equipment as this are fix in terms of quantity (coffee maker, tables, chair, coolers and etc.). Value them from 60 - 80%. Then open discussion for the stocks and value of the business (profit per month or annum). This type of negotiation just dont happen overnight, this usually are dont over time. Unless one of the parties is desperate

Often times small businesses do not have steller financial records. You should be looking at Point of Sale (POS) monthly print-outs if they have a computerized cash register, State Sales Tax monthly returns and Income Tax Records but don't expect to see real numbers that show what the business has done. Small business owners do their best not to pay taxes.   In the contract we use in Florida, there is a due dilegence period built into the contract and if the numbers show to much of a difference than what was presented in the initial business information then you walk away from the deal or lower your offer.   A good way to judge how well a cafe is doing is look at how much inventory they carry and receipts for how much they buy on a monthly basis. Also, if you can get your hands on The Business Reference Guide, that will give you rules of thumb for just about every business out there.   Here are a few rules for coffee shops, adjust these based on what you see. 4 times monthly sales plus inventory... 40 percent of annual sales plus inventory... 2 to 2.2 times SDE (sellers discretionary earnings)...   Food costs should not exceed 30 - 33% of sales   It is not uncommon for sellers not to provide you with every piece of paper showing all of their financials. Business sales are nothing like house sales, business sales are confidential sales and the business owner won't hand over tax returns to anyone but a very serious buyer. By the way, tax returns are the worse way to value a business, they are never accurate.   Use everything, monthly expenses... look at the bills, lease, POS, cash register tapes, sales tax returns, bank account statements, receipts for inventory, any leases for leased equipment like ice machines?. Buying a small business is a risk, you just need to do your homework.   You can go on you county health inspector site and see reports, it will point out what you need taken care of before you buy the business. Make sure you use a contract that states you are buying the business clear and free.   Good Luck   Jerry

Your hesitation should already tell you that something is not right. Tax returns may be OK for you - also ask for monthly and annual financial statements - audited perferred. If they are unwilling to provide this - this may not be the business for you.

You should by able to see all paperwork up front. Your realtor is blowing smoke. All the paperwork should be available just because of foreclosure did you check all public records as well.

doesn't sound right to me, how can you evaluate the worth of a business without knowing its turnover etc?