Tuesday, March 27, 2012

$3.5M Roast Duck Recipe + Eatery Business - Cheap or Exorbitant?

Came across this headline in the chinese night papers about the old couple retiring since their children not keen to take over their roast duck eatery business. After 40 people eager to buy with highest bidder at $2.8M, the old couple now insist on a minimum $3.5M else they won't sell.

Local food is on the wane in S'pore as the older hawkers with their fine culinary skills are lost with their retirement. Hawker centres in particular are part of S'pore food culture. Construction of more hawker centres is to be resume after a 20 year 'drought' as the incumbent govt has woken up to the fact that much of the populace are squeezed out of affordable food.


Let's suppose you have $3.5M. How would you do a basic evaluation?

Let's compare it to the virtually risk-free investment in S'pore- 10 year govt bond. Average yield over past 10 years is 3.3% & currently the yield is 1.46% in February.


$3.5M at 1.46% bond interest = $51,100/year
Hence 1 month = $4258

Thus $4258/mth is an overly overly simplified minimum baseline of what you need to earn from that roast duck business just merely to stay on par with a 10-year bond investment which you can practically forget about it. If you can't make enough to beat the 10year bond yield, then why bother slaving your ass off?

Of course things are not so simple. There's risks involved so more 'cushion' is needed. Some risks i can think of:

- customers dwindling if the business is too 'corporatised' upon takeover
- regular shopspace rental hikes
- govt acquire the land (think of rochor flats-->road)
- new cog workers lack personal touch of previous bosses
- food poisoning (brief shutdown & reputation damage)
- More competition from new eateries nearby

Just as engineers will add a 'cushion' to maximum allowable weight on a bridge, we need cushion on investment. How much cushion depends on factors such as risk, net earnings, ROI, predictability, future trend etc.

Have you ever wondered how come schools don't teach us how to do a basic evaluation of the above deal? How come schools teach useless stuff like calculus, trigonometry when it isn't applicable to daily life? I suspect is 1 of reasons to keep the populace enslaved. Afterall slavery through debts & financial ignorance are needed so that workers continue to slave away & be obedient interchangable cogs.

2 comments:

  1. > how come schools don't teach us how to do a basic evaluation of the above deal

    Yeah, Singapore school system is about scoring more A's for the school's fame under the blessing of MOE.

    From what I understand from my Canadian colleagues, students learn about managing a budget, writing resume & applying for jobs, the political system, their democratic rights, how to lobby for change, etc, in their high school year.

    Also, new immigrants get to attend a govt-paid (free) 2 evenings seminar regarding managing their personal finances in the Canadian financial system. Topics include: budgeting, govt policies for savings/retirement, managing loans and consumers' rights with respect to loans/bankruptcy, investments, etc.

    Yup, keep the masses dumb to generate cogs to do the work is a good description of the Singapore situation.

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