Would You Buy This Food Truck?

In 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.

Video Transcript: 

Alright so here’s the next one in the series of businesses for sale and I look at it and I decide would I buy it. What do I like? What do I not like about this business? So this one today is a Phoenix Arizona based food truck and mobile catering company. So first thing I look at is asking price $7.9 million so I’m thinking okay that’s not just one truck that’s gotta be a pretty sizable operation and then I look at gross revenue 15.5 million. That is definitely a sizable operation, even a busy restaurant like a busy In-N-Out is only four to five million dollars annually or Chick-fil-A four to five million dollars annually. So you think of the volume that three or four Chick-fil-A is or In-N-Out is doing, you get a sense of the size of of operation that this business is for sale. Then I look at their EBITDA which is basically the amount of money that the owner is benefiting from running this business. And that I see is a disappointingly low 1.2 million dollars. So you got 15 and a half million dollars revenue running through your business only being able to keep one point two million is not a great profit margin, it’s less than 10%. Now you know it’s restaurants don’t always make the most money but you can do well with a restaurant. This one it seems like is on the lower end of the spectrum. 

Here so let’s scroll down a little bit and see if there’s anything else that’ll maybe sway our opinion. Well okay, so one thing I see right here they’ve included real estate of 4.5 million so that changes the numbers a little bit. If they well no it’s gross revenue so it changes maybe the asking price but not the revenue. So the revenue was not the the four and a half million was not in the revenue it just in in the asking price. So if we take four and a half million off the asking price then really they’re asking a pretty reasonable number for the EBITDA. About three times which is what a lot of businesses sell for about three times the profit number. The EBITDA number in this case. But still, I would hesitate because uh I just think the more the higher the profit margin the more safety there is in the business because you can have sales go down. You can have expenses go up. You can invest in growth and there’s still profit left. If your profit margin is under 10% and you’re buying the business using a loan which now you have large loan payments to make, there’s just not very much left to grow the business or weather down turns or pay yourself back for that investment. 

So it says it comes 4.2 acres of property. They which contains improvements. They’ve been established for five decades. Okay and they have a fleet of over 80 trucks including 20 gourmet trucks. Offering daily service via standard routes in Phoenix. I can’t imagine standing in a food truck in Phoenix at noon in August, oh, that would be rough. They also handle catering special occasions, private parties, and corporate events. So I don’t know, I would be on the fence about this business. I definitely don’t love the small profit margins. The price, once you factor in the real estate, isn’t unreasonable for the size of it. But I would wanna see those profit margins be able to improve and if they’ve been running it for 50 years and they’re doing it well then you think maybe they have squeezed everything out of it. Maybe that’s just the margins they run on. I’d wanna look into that more and I just a headache of managing a fleet of 80 trucks. 

That also doesn’t sound like something that would be worth it to me to make a million bucks. Which maybe sounds it not like “if you paid me $1 million I’d manage 80 trucks”, but it’s not just managing 80 trucks it’s the whole business but also it has 80 trucks. Which means at any given time probably five of them are gonna be in repair shop and they’re gonna need oil changes. They’re gonna need DMV registration. They’re gonna need all kinds of you’re gonna get in accidents. You’re gonna have insurance claims. And then you’re serving food with all the hassles and liability that comes with serving food so all in all if I had $4 million say to buy a business with this one be pretty down low down on my list of ones to consider. I think there’s a lot simpler less headache less management-intensive businesses that you could get for the same price and get the same or better return. So for the right operator, this could make a lot of sense but for me personally, there’s way more headache involved in managing this giant operation than the return is gonna provide for it.