Business investment analysis

[Runum]

Hey guys I have come across an opportunity for investing in a small business. It's a seasonal flower stand. I am attaching a spreadsheet that has the projected financials. The business owner is asking for a $10K investment to get his starting inventory. I have not seen many small business opportunities analyzed on the forum. So I thought I would post it here for discussion.

If the deal were proposed to you what would you require? Documentation? % return? Portion of profits? How could you do this deal to minimize your risk and come out smelling like a rose?

FWIW, I asked for last years financials and can't get them. The past owner is not running the stand this year due to transportation problems.

Anyone game?

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[andviv]

so the past owner is not running it this year because he does not have access to a van needed?

And the business gives him 4X the investment....

why not just buy or rent the van for the season and still work on it?

In any case, thanks a lot for posting this exercise. Rep++

 

[Runum]

so the past owner is not running it this year because he does not have access to a van needed?

And the business gives him 4X the investment....

why not just buy or rent the van for the season and still work on it?

In any case, thanks a lot for posting this exercise. Rep++

Clarification...the past owner has too many irons in the fire. This stand was the one the most out of his way. He chose not to rn the stand this year. New owner is the one with the van question. Good observation Andres. Thanks for your input. ++++speed

 

[Bilgefisher]

Couple off the cuff items I notice. Sales seem to be low for Mothers day weekend compared to the rest of the spring. Years ago we held Mothers day flower sale fundraisers. I got a chance to talk to the local Nursery owner. He said they did the majority of sales on that one weekend. It was their Black Friday so to speak. That weekend would make or break their year. This was the largest Nursery in town with over 100 greenhouses.

Also, I see no mention on returned items. I'm not certain, but I think many nurseries will replace plants that die a short time after purchase. (I know the local one did, but maybe that is why they were the best in town)

What local nursery will provide the flowers and what will their guarantees be? To they have a reputation of quality. This is huge. We found customers that simply would not buy from one nursery or another(even at our non-profit fundraiser). Your big customers are very very picky. One person can easily drop $1000 on flowers and one dead flower can hurt reputation.

No credit card processor?

Water utility fees?

The markup appears to be over 100%. Are they getting a great discount from the wholesaler? Or can a normal customer get the same lower price directly from the nursery? In these tight times, Little old ladies will know where the best deals are.


BTW I'm not saying this is a bad deal. Its hard to say without past financial info. Just some questions I would ask. I know we profited over 6,000 dollars in one weekend. The nursery sold to us at cost though and even took back unsold flowers.(another question to ask) Treat flowers just like a perishable food item. The nursery owner was a member of the church where the local boy scout troop that did the fundraiser was located. We certainly got a better deal then most.

This was back in the mid to early 90's.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Kung Fu Steve]

I guess I've never been in the "flower stand" business. Can a flower stand really do 110k in 3 months? Let's see... that's 36.6k a month... $1,220 a day. Hm... I guess that's not totally UN-reasonable... But that's a lot of damn flowers!

I personally don't think I would judge as much on the numbers as I would the person running it.

Are they reliable?
Are they a go-getter?
Are they going to close sales and ask for upgrades? (more flowers, bigger sets, etc.)
Are they going to be consistent? (ALWAYS closing sales and asking for upgrades)
Do they have a strong enough emotional attachment to succeeding with this?

Maybe those questions are a little off the wall...

Bilge does bring up some good points about credit cards and water supply.

 

[Kung Fu Steve]

Oh and I forgot -

They say it's right on a 6-lane highway? Is there even any place to stop or park?

 

[Bilgefisher]

Oh and I forgot -

They say it's right on a 6-lane highway? Is there even any place to stop or park?

Its amazing what different people catch. Never even noticed that.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Runum]

Oh and I forgot -

They say it's right on a 6-lane highway? Is there even any place to stop or park?

Yeah it's in the parking lot of a hardware store located on the busy highway.

 

[Runum]

Its amazing what different people catch. Never even noticed that.

Bilge, you're absolutely right. That's why I wanted to post this. We can all learn from stuff like this.

 

[phlgirl]

Cool Runum. I love looking at stuff like this.

Is there more than one person working this operation? Any idea how many hours a day? Days per week?

What is the basis for the estimates? Does the proposed owner have experience with flowers/plants? Any idea how many years someone has been selling flowers in that location? Is there signage?

Is the rent $1800 for all three months?

First impression - if the proposed owner is the person who put together the spreadsheet, at least they appear to be pretty well organized and have an attention for detail.

If I were considering investing, I would want to review the sales/purchasing – at least for the first month or so. I would be afraid of waste (dead flowers). I would want to be cashed out as quickly as possible and I would also want a portion of profits.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Runum]

The rent is 600 per month and that includes water and electric, and wireless. I have been getting credit card rates and they should run about $250 per month depending on volume and believe me I don't mind paying more because that means higher sales.

 

[1mancrew]

You can have the best product in the world, at the best location, at the best prices, with all the advertisement you can place, but you will get only half the business if the customers don’t get service need.
Big sales come down to the people involved working with the customer, willing to adjust what they are doing and how they are doing it to better serve the customer base and demand. Going the extra step to make sure the customer is proud they just spent $400 on a bunch of flowers they will have to spend all weekend planting, digging in the dirt on their hands and knees. Then coming back for more to finish up a bare spot they forgot about and thanking you for being there.
Yes product quality and price are important, but if they are equal to others around, service will weigh in strong into the sale.

 

[Runum]

145 views and only a few comments. Anyone else see anything we're missing? Some of this analysis would also pertain to seasonal fireworks stands.

Oh yeah, I would like for ya'll to meet my brother Mike. He's 1mancrew. This is his project. He can fill in the answers better than I.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[MattThomas]

Maybe I missed it, what is your percent of the profits? Or are you unsure of what compensation you would require? If you're unsure, I would think percentage of profits would probably be best.

Other than that, you would really want to know the projected profit growth each year. Is profit even expected to grow at all? Will it shrink? Having a better idea about what the future cash flows are (not just next year) well help to determine if the $10k investment is a viable one.

I would also what to know how stable the yearly cash flows are. Are they volatile or are they pretty steady each year? I'm not referring to seasonality, but rather is the total annual profit relatively similar each year or does it vary dramatically? Answering this would give us a better gauge on the safety of the profits/cash flows so we know if you can expect steady income year after year.

 

[randallg99]

If the deal were proposed to you what would you require? Documentation? % return? Portion of profits? How could you do this deal to minimize your risk and come out smelling like a rose?

FWIW, I asked for last years financials and can't get them. The past owner is not running the stand this year due to transportation problems.

Anyone game?

red flags I see:

1. does the past owner have transportation problems because he lost too much money in the biz? I mean really? you can't get past financials? (right away a big red flag)
2. get last year's financials if you're investing in an existing biz
3. a 10k loan is cheap - why is he soliciting investors for only 10k?
4. 10k for inventory is bankable
5. when dealing directly with flower importers or distributors, I would only imagine that the suppliers would offer an inventory financing program
6. only $350 for one time start up adv? that's it?
7. cell phone $60 for 3 months???
8. 0% interest on the loan????
9. any extra costs for soil or fertilizer? (this got pricey in the past couple of years)
10. why are check fees and cc fees omitted from the equation?
11. how long does floral inventory last? what if it doesn't sell? throw away?

there are some websites that you can compare businesses and their expenses... very helpful. BizStats - business statistics, industry statistics, financial ratios

I would create a 50/50 split for profits, but the problem is that it's a cash biz with only one person running it... probably better off creating a short term loan with a personal gurantee at an above market interest rate in this case.

 

[Runum]

Thanks for the observations guys. Here is the latest spreadsheet. I agree, I would like to see last years financials.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[bflbob]

Did the seller give you these financials?

They look pretty wacky to me.

I used to own and operate 13 greenhouses and a flower shop, along with my wife.
She's still in the business, but not ours.

First, I assume you're talking bedding plants and vegetables, not cut flowers.
For the holidays, you're probably talking bulb crops (lilies, tulips, hyacinths) at Easter, pot mums and hanging baskets for Mother's Day.

Here are some problems...

I assume you're a bit more temperate than we are. We always had a problem with the bulb crops "blowing" at Easter. They HATE the heat. We had big walk-in coolers to store them in until we were ready to re-stock (several times per day). Without those, the shelf life of a tulip might be as short as 1-2 days in the heat.

Next, I don't see water expenses. Our greenhouses were on a well and pump system. It sounds like you might be in a city water area. You'll go through a lot of water with these plants.

I also see a problem with the spread of sales week-by-week. Easter sales are usually OK, but they were better in the old "Family get-together" days. It would definately be a bigger weekend than average, but not huge.

In most areas, there is a locally known "frost-free" date. In our area, that was Memorial Day. The week leading up to that day was always HUGE compared to others.

Mother's Day is another BIG day. Not so much the week of, but the Saturday/Sunday of. You'll need lots of stock and help for that weekend.

I'm not sure how Memorial Day sales would be in your area. Up here, it was big. But that's when everyone was buying vegetable plants, as well as flowers. The actual purchase of flowers or what we called "Combo Pots" for the cemetery, were limited.

Finally, the end-of-season is a killer. It seems like you'd just be selling off inventory. But what you'll find is that the plants at that point are overgrown, yellowed, missing leaves, and overall pretty ratty. So, not only does the volume drop, but the price plummets. And at the end, you'll likely need to toss about 1/3 - 1/2 of the stock from a couple of weeks earlier...it just won't all sell.

On the good side, when the economy was bad, flowers sold well. People don't travel, so they spend time at home. Gardening is a beneficiary of that. Likewise, many people will plant vegetable plants to offset food costs.

One final thing...a plant stand is like a farm. You can't ignore it. An hour delay in watering can cost you dearly in dead plants. A late-season frost can be devistating. Not having shade for shade-loving plants can kill them. There is no day off.

Similarly, a wet season can kill your business. Think what will happen if it rains heavily on Easter, Mother's Day, and another peak weekend or two. The stock will rot. Customers won't show up. But the bills still will. There isn't much you can do about it, but it still needs to be factored in -- sort of like vacancy in real estate.

What sort of inventory are they selling you for $10,000? Bagged soils, fertilizers,etc? (UV destroys those bags in a season.) Post a bit more about this item, if you could.

 

[Bilgefisher]

bflbob,

Great response. I'd rep ya again if I could. Even more planning involved then I initially thought. Gotta love the resources on this forum.:icon_super:

 

[1mancrew]

Thank you for the kind words. It has been great seeing all the comments, questions and ideas others have.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[randallg99]

have any decisions been made?

 

[1mancrew]

have any decisions been made?

Thanks for asking, no one has stepped forward and said yes. All of the questions asked can be answered or explained in a written statement.

At this point, I am not sure the spot is still open as another person was wanting to lease the ground for the same business.

This has been a great learning experience if nothing else happens and I thank everyone that participated for the questions, but I am still open if someone wants to step up and work something out.