What would be a 6 figure turnover

[Yankydoodledandy]

A very small business family member is buying has a 6 figure turnover. Surely that cant be £100,000? No way it could make £100,000 or have I got 6 figures wrong

That is correct. Turnover isn't profit though which is what really Matters.

Yes, that would be an example of 6 figure turnover...but the turnover is the amount of money the business takes, not it's profit. So it doesn't 'make' that amount.

Gosh overheads are low, a bit of a goldmine

What is the business and what are the overheads?

You need to look at the books, things like insurances business rates, tax etc can soon add up to quite a bit!
what is the business?

Turnover isn't profit.

You still have tax etc, so after your expenses, it is probably just a professional salary, less than 100k so not that much at all

Six figures means somewhere between £100,000 to £999,999.

Turnover isn't profit; indeed they could be turning over that much and still losing money.

Turnover is the amount they take from customers, but before expenses (rent, insurance, staff, stock, etc).

Turnover minus expenses = profit.

Or, as I once succintly heard it put, turnover is vanity, but profit is sanity.

Our business is high turnover, but with high overheads. Still provides us with an extremely good standard of living.

Turnover is simply the amount of money that goes through a business.

IE - Business A sells cat beds at £10 per unit, they sell 90,000 per year. Business A buys the cat-beds at £9.50. They pay £5,000 a year for premises. £1,000 a year for professional services. £20,000 a year for staff. £2,000 a year for peripherals.

Business A has a turnover of £900,000 a year.

Business A has £22,000 a year profits, subject to 20% corporation tax. So £17,600 profit on £900,000 turnover.

Business B sells professional services. They charge £1,000 a day. They have three employees that work from home. Their employees earn £80,000 a year. All employees are engaged full-time they have four weeks off a year. NI contribution is £900 pcm. Pension contribution is £200 pcm. Professional services cost £20,000 a year.

Business B turns over £720,000 a year.

Business B has a profit of £447,000 a year. Subject to 20% corporation tax, so £357,680.

They are VERY rough figures.

But a headline high-turnover doesn't necessarily translate into a decent profit. It depends entirely upon the business.

Ah the old profit vs turnover question, this is the classic one that people always fail on The Apprentice and Dragon’s Den before hearing “You’re fired!” Or “I’m out”.

Sandwiche shop in a seaside town.
My Dad is thinking of buying. Seasonal surely.

🤔No food retail shop has "very low overheads". That's a razor-margin business. And the summer would have to pay for the whole year. Rent is still payable in January.

Ok @Yankydoodledandy, no! Very high overheads.

Premises (I don't know which seaside town, but if it's a popular one, this could be high, depending on location)

Staff to serve, cook, clean, open and close up. Staff to write a menu, go to the cash and carry/suppliers, prepare ingredients, bank takings, keep the books. Sandwich shops are labour intensive.

Ingredients, fresh bread every day. How.much would you pay for a sandwich? How much does a sandwich cost to.make?

Premises overheads- fuel bills are particularly notable atm.

I would never buy a sandwich shop. The margins are punishing, the hours long.

If you're still keen, ask for the last two year's accounts and show them to an accountant. See what they say.

It can work as a lifestyle business if you're really into the location and go in with your eyes open.

But it's not a path to riches!

Anyone who thinks that a sandwich shop has 'very low overheads' is likely to lose a lot of money very quickly.

The cost of buying the business
Rent/rates for the unit
Food - we all know how much food has gone up recently and there could be a lot of wastage
Energy - ditto, they are probably selling up because their energy bill increased has wiped out their profit and then some.
Appliance maintenance/replacement
Staff - NMW goes up by 10% in April
Cost of taking cards, banking cash etc.

It might make a good profit on busy days but that has to be balanced against making little or nothing on a rainy Tuesday in November.

Overheads are not low for a sandwich shop in a seaside town

Um?!?

Op, it's probably worth you and/or your dad doing some basic internet research in to how businesses work and what all the terms mean.
A £100,000 turnover in itself means absolutely nothing.

OP, if there's a chance he can back out, he needs to seriously consider it. Over the next few months there's probably going to be a lot of 'sandwich shops' and similar businesses for sale. People won't be able to give them away, literally.

Look how much food has gone up. Likewise energy. On a domestic front, that's had a big effect on people's disposable income, so they're having to cut back on extras. And an obvious one is eating out. People will take a picnic to the coast, rather than buying while they are there.

Especially when that will get more expensive because their ingredients have also gone up.

Their energy has really gone up, there's no cap on commercial energy prices - small businesses that were previously paying around £10k pa are seeing rises to £30/40/50k pa.

That's the owner's profit/salary right there. Gone, unless they increase their prices significantly. At a time when people are cutting back because they have a lot less money to spend so they're less likely to pay close to £10 for a coffee and a sandwich that they could take from home for about a quarter of that amount.

Agreed. Is the seller claiming it has low overheads?

When you think about all the overheads involved it would have to make that kind of money in order to pay them and pay the owner a living salary (including pensions contributions and NI).

Assuming that it only does decent business for half the year, it's equivalent to serving 50 customers a day (so maybe 6 an hour) with a ten pound order for each. Challenging but not impossible me.

The profit is the only number that matters although that will be hard to know as I expect they will be peddling it a bit .
I can't see how sandwich shops make money unless there are zero overheads

@Yankydoodledandy, if you're unsure of what 'six figures' is and think that the overheads would be low, I would recommend that you (or your dad) absolutely do not buy this business.

Overheads would be massive for a sandwich shop!

Don't you think that's with the cost of living crisis people will make their own sandwiches?

It'll have to be VAT registered at that turnover level, so at least £5-£10k of your £100k goes straight to the VAT man.

Food/ingredients will be around 35%-45% (inc wastage etc), so that's say £35k - £45k off it.

Overheads will be £10-£20k, including VAT, water rates, power, insurance, security, bank charges, etc.

Profit before wages could be as little as £30k, and assuming he can't manage it all on his own (long hard days), staffing could easily be £10-£15k.

So basically, he'll probably end up with minimum wage for the hours he'll have to work, and no wages in Winter if it's seasonal and he closes - he'll still have the overheads to pay, so maybe even loss making in Winter.