Business for Sale, Would I Buy It? | Catering Company

In today’s version of “Would I Buy This Business”, we have a Southern California event and production catering company. This is interesting to me because years ago I bought a catering company, grew it, and then sold it. So it’s a space I know a lot about and knowing what I know now I wouldn’t do it again. It was a good business. And my main interest in it – cause I had a lot of experience in restaurants – the main thing I thought would be interesting about a catering company was I wouldn’t have to try to predict how much food to have on hand. Because with catering everybody orders well in advance, so well before you have to get any food you know exactly how much you need. And then I wouldn’t have to wonder about staffing which is the other problem in a restaurant. I know exactly how many events I would have long before I would have to make the schedule and bring staff on. I thought at the time those were the two big problems that a restaurant had that would be solved by being in the catering business. And I was right as far as that went. But what I didn’t anticipate or understand about catering was how mission-critical everything was for every event. If you are a little late in serving at a restaurant, or the service isn’t quite as good, or the meal isn’t quite as good as your normal standards, if people have been there before they’ll probably come back and give you another chance. And nobody’s gonna be devastated about it generally. If you’re a little bit late or a little bit less than you were hoping for in terms of quality or service. But if it’s somebody’s wedding or 50th anniversary or quinceanera or whatever, big deal once-in-a-lifetime kind of event, and you screw it up. Even though to you that may have only been one of eight parties that Saturday, in a year full of Saturdays. To them, that’s a huge deal. That is something they’ll be talking about for years. That is extremely memorable to them. So what I didn’t understand about catering at the time was how much pressure there was to do a great job. And the reality is sometimes things are out of your control. Things that you can’t have an impact on. There’s a traffic scenario, power goes out, or whatever. Something happens you can’t deliver when you were planning to, the way you were planning to. And to you, it’s just another problem to solve but to whoever’s event it was it could be really a huge huge deal. So that I wasn’t prepared for. 

So all that said let’s take a look at this catering business and see how it looks. So alright I immediately see a problem. Well, let’s see. So it says the asking price is 10.4 million. Okay, cash flow [$2,029,587]. So they’re looking for an over five times multiple which may not be completely crazy but the size of it still seems high to me. It probably should be more like between 7 and 8 million instead of 10 but alright, we’ll let that go. But here’s what initially caught my eye was gross revenue [$3,810,579]. So they’re saying that they’re doing more than 50% profit on this catering. And I would say that’s pretty amazing. Either they’re charging really high prices and delivering okay service. Or somehow they’re able to really keep their cost down charging normal prices. Really hard to keep your prices down. The minimum wage kind of sets the floor for catering staff. And food costs aren’t something you can negotiate too much. Even at the size they’re at, you know, over 3 million in revenue still they’re not getting Walmart-style pricings. Let’s see if there’s any clue in the description. Specializes in providing comprehensive catering services to the entertainment industry including film, TV, and production, corporate clients, tours, and promotional campaigns. In a niche market, full service, relocated multiple times. Alright so maybe the answer there is they’re charging these production companies way more than normal catering should cost. Somehow they’ve gotten in maybe these things aren’t getting bid. And they’re able to really price high for what they’re actually delivering. Given that high profit I would really wanna investigate this one further. And then like I said the downside of catering that I didn’t realize, even for TV and film production, right? It’s not somebody’s wedding but still. If they tell the staff and crew lunch will be ready at noon and you get there at one nobody got to eat, they have to go back to work, they’re super pissed at you, they maybe cancel the contract or whatever, you lose out on a lot of revenue. So it’s still a high-pressure business. Not one I’d be likely to jump back into. for somebody with an interest though, this might be good. But the price is really high and the margin is questionable.

More about this series, CapForge’s owner and founder gives us a little behind-the-scenes on what a good or bad business would be. CapForge helps tons of clients either buy or sell business and Matt was a business broker before starting CapForge. Let’s look at some of these businesses up for sale and see if Matt would be interested in buying them.