Leasing an internet cafe: is there a business "equation" I can apply to leasing?

B

Bill Shatner

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This is something Ive been looking at for a few months now as I have some cash availible for investment and Ive always had an interest in computers, the internet and making money in general.

Some Im looking at range from 20 to 60 grand with the premises, the location and the income varying from average to good. So here's the questions:
  • What should I ask for when looking at past accounts and income? Registered accounts?
  • Is there an "equation" I should apply to the price of the lease? I remember reading something in a magazine about putting the price of the lease, the duration, overheads, income etc into it and coming up with what the lease was actually worth in real money. If anyone knows about the equation Im talkiing about could they help me out here.
  • What other legal documents should I ask for from the seller?
I know I might be coming across as a business virgin but Im far from it, having been self employed since I was 18, Im just not overly familiar with leases and what to ask the seller etc.

Any and all input welcome ;)
 
Ok Ive been looking at a few options over the past few months and I was wondering if some experienced hands could look at these figures for me.

A lease of 4 years and 9 months for 40 grand is on offer.

Inclusive is dozens of PC's and a handful of phone booths

Gross income is reputed to be in the regoin of 2 grand a week (lets presume its closer to 1500)

Rent is 2,600 a month


Ive no other information till I meet with the seller.

The same questions from above and any advice would be great.
 
Bill, unless you've some estimate for the other costs involved in running the business (utilities, wages, depreciation of the PCs, the cost of your own time, accountant's fees, etc.), it's impossible to say whether you're getting a good deal or not. You'll be able to determine some of these from the books but other aspects (like you're own time) will be more difficult to estimate - or easy to underestimate, in my opinion. In my opinion, the best tool for looking at something like this is Excel and it's well worth the time becomming familiar with it. I just fired it up there and it looks like you'll need to clear 800 a month pure profit to break even.
 
LOOKS like you will be buying a business that will be leaving you with about 3400 to pay wages, broadband,new pcs, repairs,bank fees, accountants fees, your own time etc. i dont know how you think that this is a runner? maybe ive missed something ?
 
money man said:
LOOKS like you will be buying a business that will be leaving you with about 3400 to pay wages, broadband,new pcs, repairs,bank fees, accountants fees, your own time etc. i dont know how you think that this is a runner? maybe ive missed something ?
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From the vibe I got on the phone Im under the impression that the seller can be bargained to below the 40 grand asking price. Even with the above at what price do you think its profitable? Thanks for your input.
 
Even with the above at what price do you think its profitable?
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Like I said, it's impossible to say without knowing all the overheads required to run the business. If these come to 4000 a month, it wouldn't be profitable even if he gave it to you for nothing. If they come to a grand a month, then yes it'd be profitable at twice the price. A bare minimum for most business investments would be at least a 10% return (i.e. pure profit). However for a small, risky and potentially timeconsuming business like this, I wouldn't touch it unless I was making 50-60% return on my initial investment. And this, like I said, would be pure profit with my own time charged at a very high hourly rate.
 
I know nothing about running an internet Cafe or any other business but here's my tuppence worth anyway.

Your known costs

4 years and 9 months = 57 months cost 4000 = 700 pm
rent = 2600 pm
total 3300 pm.


Some of your unknown costs on top of this which an examination of the books should show will include

ESB
Heating
Public Liability Insurance
Cost of broadband
Repair and service of PC's

Reputed income (bank lodgements should be interesting) 1500*4 = 6,000 pm

6,000 - 3,300 = 2,700 / 4 = 675 pw (less unknown costs and wages)

You are also going into a business with very little barriers to entry. Anyone can open up near or beside you and take your customers. Anyone that is going to spend any serious amount of time on the internet can buy a 2nd hand desktop/laptop for a couple of hundred Euros, broadband will cost them another E25 pm and away they go.

Everyone who wants it can have broadband internet access at home. Many also have it at work. Its no longer a novelty.

Interned cafes in my opinion are a dying business. It's gone to a situation where internet cafes are now an add-on to the main business. Look at Chartbustersfor example. They ran a successful Video Library. The additional cost to Chartbusters of opening an internet cafe was very small as they were already paying the rent, heat and ESB. The serving staff just have one more thing to look after.

The type of peolple I have seen when passing internet cafes are often foreign or poor. These people are in general are very cost consious. If someone offers them the same service nearby for cheaper they will go there instead. They will have very little loyalty to you or your business.

Ignoring your own time, what hours were you thinking of keeping the cafe open. Are there times when you need more than one member of staff on for security reasons. What will be your peakhours and will you need more than one member of staff on at that time. The minimum wage is say 8.00 per hour. Add to this PRSI, brings it up to an absolute minimum of E10 ph. The worker will also be entitled to annual leave and sick leave. Who is going to man the cafe during this time. It's not just a case of taking in anyone, the person who you get in will have to be able to fix minor problems that arise with the computers. What are your staff going to be doing when not actively serving the customers.

Is there a library near you or is there one planned. Your competition would be providing its service free.

Maybe I'm missing something and have completely misinterpreted your figures but with a gross income of E675 pw before your as yet unknown costs and wages I would definitely pass on this business opportunity



Murt
 
Hi,

There's a similar thread on boards.ie about investing in an internet cafe with some interesting points of view.
 
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