Seeking Advice on Investing in a Banquet Hall and Event Center Business

[jasonrego]

Recently came across an opportunity in the event center and banquet hall business and wanted to seek valuable insight and advice.

A close friend of mine who happens to be a chef at a popular banquet hall recently shared a promising business info with me. A already running banquet hall and events business is up for sale, and my friend is suggesting I become a financial partner in the business . However, as a potential investor and business operator, I would have to secure a down payment of $300,000 to $500,000.

Here are some facts I have gathered about the banquet hall and event center:
Location: GTA, Ontario, Canada
Asking price: $1.5 million
Revenues: $2.4 million in 2022; In 2023, it is expected to reach $3-3.4 million
Rent: $25,000 per month
Owner takes home: $400,000
Reason for sale: Owner Retiring

Although I have some business experience under my belt, it has never been on this scale. So I am seeking guidance from the knowledgeable members of the Fastlane forum. I want to make sure I approach this opportunity with clarity and caution.

What are the most important things to keep in mind when considering this opportunity?

Arrange finance in the best possible way, given the down payment requirements of the loan?
Due Diligence: What specific information do I need to gather to make an informed decision about the feasibility and risks of this business? What insights can you provide on the banquet hall industry in the GTA region? Is there anything else I need to be aware about in order to be successful in this business?

 

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[MJ DeMarco]

Profit of $400K and 1.5 asking is a 3.75 multiple, what is normal in this industry?

 

[theag]

banquet hall and events business is up for sale

Revenues: $2.4 million in 2022; In 2023, it is expected to reach $3-3.4 million

Until the next covid happens and businesses like this are shut down again, now that there are precedents on how to do it. Something to at least keep in mind for your risk assessment.

In Germany they are already talking about "heat/climate shutdowns", although we are especially stupid here, so hopefully not relevant to the rest of world.

Also, you mention that the business is "new". How new? Revenue/profit numbers and/or growth might not be sustainable if the business was started in the post-covid boom of in-person meetings/events, because people couldn't do them for 2 years. In fact, that might explain why the owner is selling now, after everything slowed down due to inflation etc.

 

[WJK]

Recently came across an opportunity in the business world and wanted to seek your valuable insight and advice.

A close friend of mine who happens to be a chef at a popular banquet hall recently shared a promising relationship with me. A new banquet hall and events business is up for sale, and my friend is suggesting I become a financial partner in the business. However, as a potential investor, I would have to secure a down payment of $300,000 to $500,000.

Here are some facts I have gathered about the banquet hall and event center industry:
Location: GTA, Ontario, Canada
Asking price: $1.5 million
Revenues: $2.4 million in 2022; In 2023, it is expected to reach $3-3.4 million
Ground rent: $25,000 per month
Owner takes home: $400,000
Reason for sale: Owner Retiring

Although I have some business experience under my belt, it has never been on this scale. So I am seeking guidance from the knowledgeable members of the Fastlane forum. I want to make sure I approach this opportunity with clarity and caution.

What are the most important things to keep in mind when considering this opportunity?

arrange finance in the best possible way, given the down payment requirements of the loan? Due Diligence: What specific information do I need to gather to make an informed decision about the feasibility and risks of this business? What insights can you provide on the banquet hall industry in the GTA region? Is there anything else I need to be aware about in order to be successful in this business?

You said "ground rent". Will you own the building and the business on rented land? How long is the ground rent? What happens at the end of the land lease? What happens if there is a disaster with the building? There are a lot of IFs here.

 

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[jasonrego]

Profit of $400K and 1.5 asking is a 3.75 multiple, what is normal in this industry?

don't know what multiple such businesses selling in the area I am looking at, will have to contact commercial realtor regarding this matter! Hoping someone here might have some knowledge about this industry.

Until the next covid happens and businesses like this are shut down again, now that there are precedents on how to do it. Something to at least keep in mind for your risk assessment.

In Germany they are already talking about "heat/climate shutdowns", although we are especially stupid here, so hopefully not relevant to the rest of world.

Also, you mention that the business is "new". How new? Revenue/profit numbers and/or growth might not be sustainable if the business was started in the post-covid boom of in-person meetings/events, because people couldn't do them for 2 years. In fact, that might explain why the owner is selling now, after everything slowed down due to inflation etc.

Its not new, current owner had this business for 20 years; he is in his sixties and want to retire now due to personal reasons! Regarding revenue just have the last year and current year projected revenue information! Owner is able to provide past 10 year history in order to make decision!

You said "ground rent". Will you own the building and the business on rented land? How long is the ground rent? What happens at the end of the land lease? What happens if there is a disaster with the building? There are a lot of IFs here.

Real Estate is not included in the sale; will be taking over the current lease! 12 year left on the lease!

 

[WJK]

Real Estate is not included in the sale; will be taking over the current lease! 12 year left on the lease!

So, how many years of work will it take for you to pay for the business before you actually make a true profit?

 

[jasonrego]

So, how many years of work will it take for you to pay for the business before you actually make a true profit?

with current cashflow it will be 3.75 years!

 

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[WJK]

with current cashflow it will be 3.75 years!b

So you will have 8.25 years left to make hay on your investment. If I was considering this, my attention would be on the lease. The business is dependent on the location and the facilities. You cannot move the business because it is totally dependent on that lease. Can you get an option to extend the lease before you buy the business? This is a moment when you need to hedge your bet or find another facility that will work just as well.