Fuzzy and astro have some very good advice.
I see a lot of SME’s and their financials in my job, but I don’t deal with retail, much less food retail at all, plus I am based in Australia. So feel free to take this with a grain of salt.
Most businesses will sell on a multiple of EBITDA (Earnings before Interest Tax Depreciation & Amortisation). That multiple can be anything from 2 times to 5 times, and I believe that food retail would tend towards the lower end of that spectrum. Add to that any Plant & Equipment costs to be considered.
If I am reading between the lines, you may be looking at a franchise store? If so, there maybe a premium attached to the ‘Goodwill’, plus you will likely be up for additional costs in getting approved by the franchisor to be allowed to purchase the business, plus training costs that you will have to incur, before you can even start operating the business.
Two more generic tip in terms of the numbers you’re talking, never take into account potential costs savings/profit improvements when negotiating price. I’ve seen that approach taken by some vendors arguing that you ‘could’ cut x out of the costs and try to add that benefit to the purchase price.
Vendors always, and I mean always, overestimate what their business is worth*. This is particularly so if it is family business that has been in the family for years. Go in to any negotiation knowing that their starting price is almost laughable.
- One exception is if the sale is being brokered through a competent, honest business broker who is forceful enough to set some real price expectations with the vendor.