Normally a good estimate for a business is the equivalent of 10 years profits. There are a lot of variables however.
This is how I would value a school and just represents one opinion.
Add all the expenses throughout the year up + 12 monthly payments for a 10 year loan for the purchase of the business + 10-15% of the first two numbers(x). The 10-15% represents the extraordinary expenses that come with doing anything. My motto is, “Don’t make plans, plan for contingencies.” It’s not what you planned that will mess you up, but what you didn’t plan for.
Compare this number to how much cash the school will generate in a year(y). If y>x and comes with a non-competition with the former owner for the area that the school is in, then think about it and look at the advanced part of this post.
If x>y, negotiate down till y>x or walk away. I would advise the same if it comes without a non-competition agreement. They can easily sell the business to you, then take the cash and purchase a new building and keep all the students, you thought would come with the business. Fraud must be taken into account and the reasons for selling the business. Under no circumstances should purchase if x=y. Also make sure your students aren’t being sold(redirected) to another buxiban.
You must know about all of your competition, where they are, how they teach, what materials they use, who they are and why they are doing what they are doing. Joining the buxiban association is a must.
You should PM Durin’s Bane. He’s a fountain of information about everything involved and should definitely get a “dude chop” for sharing the info with us. I think he would advise you to purchase your building or space.
Do not invest in a business that will not generate a return greater than what you would get in risk free gov’t bonds in your home country. An example, US treasuries are currently generating 4.4% interest risk free. Therefore I will not invest in something unless I feel that I would be making more than 4.4% interest at an acceptable level of risk versus reward. A lot of otherwise smart people fail at this one more often than not
Make sure you draw a salary. Small business owners have made this mistake before. They work for free for themselves, yet strangely refuse to do it for other people :shock: .
Check out www.sba.org for tips, ideas, and info. They’re in business to make sure small businesses succeed and prosper. I’m not sure of your citizenship, but the US has a lot of info for small businesses and a lot of it is about everyday problems that you’ll face anywhere you have a business.
Make friends with the elementary school teachers as they can direct business your way and let you know what they are teaching and testing. It will probably pay off for you to tutor them for free or at reduced rates.
Make sure your closest elementary school isn’t going to run its own in house anchingban program.
Is the elementary school called Haishan?
Why are they selling?
How many other similiar franchises like yours? Say your thinking of buying a Kid Castle franchise, so how many of them are in your area.
Why do they have their students? Important question when you realize everything here is done with personal connections.