CASE STUDY: California Bakery

My father owned a bakery. Upon returning from an Industry trade show , he called me to tell me about a potential buying opportunity. He had sat next to a lady who told him that her husband had recently passed away and she needed to sell their family bakery. She and her son had tried to continue to run it but it was becoming too much for them. The bakery was located in southern California.

The records of this acquisition have been destroyed. The numbers used in the illustration are the best that I could recall but very close to the actual numbers. The purchase price and financial structure is 100% accurate.

Prior Year 2 Prior Year 1 Current Year
Revenue $4,500,000 $4,000,000 $3,500,000
Net Income $300,000 $160,000 0
Cash Flow $450,000 $310,000 $150,000

Machinery had an appraised value of $750,000 (The M&E had recently been appraised by a certified appraisal firm for estate tax purpose

I flew to LA and spend a couple days observing the operations and meeting. With her accountant. I made her the following offer:

  • $750,000 for M&E and all intangible assets.
  • She keeps the cash, accounts receivables and all liabilities.
  • I would give her $250,000 cash and a $500,000 promissory Note payable over 7 years at 5%.

She accepted my offer!

We closed as soon as I acquired the $250,000 bank loan. Using the assets and cash flow of the business, it took me approximately 45 days to find a bank that offered me the loan. I also hired an experienced bakery operator to run the day to day production. I gave him a percentage of the business to keep him motivated to improve the profitability. Within a year, a large national brand bakery made us an offer to buy our bakery for a handsome profit. We accepted.

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