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formulaic
Joined: 27 Jan 2005
Location: seoul
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 Posted: Fri Nov 06, 2009 4:23 am Post subject: Hagwon Investment |
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Hey,
I'm looking at buying a hagwon that is on the market. It's well run and structured and makes a stable 15 million profit a month.
They want 200 million for it, 40% of which is key money (it's in an expensive area).
According to what I've read a business with a good reputation, returning customers, and record of profitability (as this has) should be valued at three times its yearly profit plus the value of its fixed assets (you should also include owner benefits but I'm not gonna take a salary so I am leaving that out). Accordingly this business is worth 15m x 12 months x 100m fixed assets x 3 multiplier = 540 million Won. So 200 million seems a very good sale price.
What do you guys (hopefully with experience in such matters) think? There was an ad for a hagwon making 9 million a month being sold for only 40 million Won on here in December 2008, that has me wondering if I can't find a better place to invest my money.
http://forums.eslcafe.com/korea/viewtopic.php?t=143519&postdays=0&postorder=asc&highlight=buying++hagwon&start=0 |
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lhasa
Joined: 26 Jan 2008
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| Posted: Fri Nov 06, 2009 4:49 am Post subject: |
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hmm....
stable 15 million profit per month and they want 200 million including key money....
do a lot more research....somethings wrong....they wouldn't be selling or it would already be sold.....definitely don't trust hagwon records. |
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ontheway
Joined: 24 Aug 2005
Location: Somewhere under the rainbow...
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| Posted: Fri Nov 06, 2009 8:20 am Post subject: Re: Hagwon Investment |
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| formulaic wrote: |
Hey,
I'm looking at buying a hagwon that is on the market. It's well run and structured and makes a stable 15 million profit a month.
They want 200 million for it, 40% of which is key money (it's in an expensive area).
According to what I've read a business with a good reputation, returning customers, and record of profitability (as this has) should be valued at three times its yearly profit plus the value of its fixed assets (you should also include owner benefits but I'm not gonna take a salary so I am leaving that out). Accordingly this business is worth 15m x 12 months x 100m fixed assets x 3 multiplier = 540 million Won. So 200 million seems a very good sale price.
What do you guys (hopefully with experience in such matters) think? There was an ad for a hagwon making 9 million a month being sold for only 40 million Won on here in December 2008, that has me wondering if I can't find a better place to invest my money.
http://forums.eslcafe.com/korea/viewtopic.php?t=143519&postdays=0&postorder=asc&highlight=buying++hagwon&start=0 |
The 40 million hogwan had 9mil won gross revenues less 2.5mil expenses leaving 6.5mil monthly according to the owner. The owner and his wife worked there and this 6.5 was actually their pay for working there. This would be a nice pay level for two but it means the school had essentially no profit at all. Everyone gets paid but no real profit.
The investment, however, was only 40mil won, 20mil for the deposit on the rental space, refundable if you close, and 20mil which would essentially cover furniture and fixtures for such a school. This means that this was a good deal. The buyer only had to buy the actual physical assets of the school. They paid nothing for the value of the business as a going concern, no goodwill, no multiple of gross or net.
As for the 200mil won hogwan, this could be a good deal or a terrible one, we need more details:
80mil "key money" but how much is the rental deposit and how much each for leasehold improvements, furniture, and fixtures? (You said 100mil won "fixed assets" does that include the key money? Key money often is greater than the rental deposit as it includes leashold improvements and other assets. What is the real breakdown?)
Is the 15mil monthly the gross revenues?
What are the fixed expenses?
Number of students?
Number of teachers - foreign and Korean?
Number of classrooms
and school size (pyeong)?
How many vans, drivers and fees? |
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pocariboy73
Joined: 23 Jan 2003
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| Posted: Fri Nov 06, 2009 11:24 am Post subject: |
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If you want to buy a hagwon for an investment, make sure you have the uncanny ability to lie, cheat, and steal from the government, the tax office, your teachers and staff, the parents, and of course your students.
Any hagwon owner who tells you differently is full of crap. Period.
Like it or not, it's just my opinion...  |
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meangradin
Joined: 10 Mar 2006
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| Posted: Fri Nov 06, 2009 7:03 pm Post subject: |
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when we looking to buy a hagwon, it seemed that the number of students was what you paid for. typically, the asking price was 3 months of tuition. so if the school has 100 kids paying 100,000, the owners would ask for 30 million won, plus key money and perhaps some more to pay for tables and such.
also, be careful that the school is up to the various codes, which are forever changing. we looked at a nice school that had 60 students and was very affordable, BUT it did not meet the new standards regarding bathrooms. the cost to upgrade this would have been huge as the school was not large, and we would have had to reduce classroom size, which would have affected the regulations regarding size of the school. anyway, you obviously have to do your research. |
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formulaic
Joined: 27 Jan 2005
Location: seoul
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| Posted: Fri Nov 06, 2009 7:49 pm Post subject: |
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| Quote: |
The 40 million hogwan had 9mil won gross revenues less 2.5mil expenses leaving 6.5mil monthly according to the owner. The owner and his wife worked there and this 6.5 was actually their pay for working there. This would be a nice pay level for two but it means the school had essentially no profit at all. Everyone gets paid but no real profit.
The investment, however, was only 40mil won, 20mil for the deposit on the rental space, refundable if you close, and 20mil which would essentially cover furniture and fixtures for such a school. This means that this was a good deal. The buyer only had to buy the actual physical assets of the school. They paid nothing for the value of the business as a going concern, no goodwill, no multiple of gross or net.
As for the 200mil won hogwan, this could be a good deal or a terrible one, we need more details:
80mil "key money" but how much is the rental deposit and how much each for leasehold improvements, furniture, and fixtures? (You said 100mil won "fixed assets" does that include the key money? Key money often is greater than the rental deposit as it includes leashold improvements and other assets. What is the real breakdown?)
Is the 15mil monthly the gross revenues?
What are the fixed expenses?
Number of students?
Number of teachers - foreign and Korean?
Number of classrooms
and school size (pyeong)?
How many vans, drivers and fees? |
Thanks for all info:)
To answer ontheway's questions the 100 million fixed assets/key money is the deposit on the rental space.
The total monthly expenses are 25 million and they take in 40 million. Profit is 15 million monthly.
This means an ROI of 90% (and more when you consider that half of the investment is a deposit). That is obviously amazing but i just need to decide if it is best to pay a lot of money for what seems a great investment, or a much smaller amount for a school that can make half the monthly profit with a far lower investment; Investing 200 million to net 15 million profit per month sounds great, until you hear that an investment of 40 million can net 6.5 million per month for only four hours of teaching... |
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Whitey Otez
Joined: 31 May 2003
Location: The suburbs of Seoul
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| Posted: Sat Nov 07, 2009 2:09 am Post subject: |
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I haven't seen many of those sales end up too well short-term for the buyers. I'm watching it unfold in my last days where I am now, where the owner is selling the place claiming he's ready to go out to pasture, but in reality the student numbers are half what they were two years ago and dropping by the day. There isn't another foreigner coming in to replace me right away, and the buyer will likely pay a fortune in franchise fees. He will be a bitter man for many months while my director is sipping green tea from his resort.
The last school I was at sold out under similar circumstances of dwindling numbers and all the teachers fleeing. I was shocked to see that they are not dead, and seem to be doing fine, thus proving recovery is possible.
The key to it isn't how the place is doing, it is what you can do to make it better. 15 million profit now may or may not be true, but how do you turn it into a sustainable 25 million profit without getting your leaseholder to kill your business? Or perhaps your vision is to take it in a different direction, and make sure you have motivated students in small classes getting great value, even if that cuts into your bottom line? You ought to have a realistic picture of the place as it is paired up with a realistic goal for the future. |
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meangradin
Joined: 10 Mar 2006
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| Posted: Sat Nov 07, 2009 2:34 am Post subject: |
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| Quote: |
| The key to it isn't how the place is doing, it is what you can do to make it better. 15 million profit now may or may not be true, but how do you turn it into a sustainable 25 million profit without getting your leaseholder to kill your business? Or perhaps your vision is to take it in a different direction, and make sure you have motivated students in small classes getting great value, even if that cuts into your bottom line? You ought to have a realistic picture of the place as it is paired up with a realistic goal for the future. |
this is very true. you have to ask yourself what level of service can you provide. what are you going to do that somebody else doesn't already do? from experience, it seems a heck of a lot easier than it really is. tale as old as time, but be prepared to log some serious hours, even if you are only teaching 4 hours a day. you'll soon discover that the teaching is the easy part. your business will become your life, have no doubt about it. saying all that, i wouldn't change a thing, and i am so glad we took the risk.
ps, in all honesty, a lot of the credit for our success is due to the fact that my wife is an extrordinary teacher, and no one in our area can come close to her abilities. plus we spent a long time preparing materials and choosing books and developing our program before we opened our doors. |
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big_fella1
Joined: 08 Dec 2005
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| Posted: Sat Nov 07, 2009 5:00 am Post subject: Re: Hagwon Investment |
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| formulaic wrote: |
| I'm not gonna take a salary so I am leaving that out. |
Let me tell you from personal experience (not Hagwons but) You must take a salary
You must think of the businesses money and your money separately (even though it is your business), otherwise you could find yourself in the situation where all the profits get spent.
You are entitled to be paid even if it is your business, and if you don't work you then pay this money to someone else.
You should also setup the business so that part of the profits each month cover the interest or return on your investment, or even the return of capital if business is good. Assume that at the end of your lease your investment will become zero and you will only be pleasantly surprised.
Some of the expenses you will incur are rent, telephones, internet, electricity, gas, books, stationary, marketing, buses, taxes, registration charges, accountants fees, bad debts, depreciation, possible franchise fees, cleaning, waste, administration, teachers salaries, pension, health insurance, workers compensation. Even if you are doing some of these jobs they are an expense that must be costed.
My final piece of advice is do not do this if you have to borrow the money, the returns may kill you. An old boss of mine borrowed the money for her hagwon and the business was great, but the interest bankrupted her and her parents. |
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meangradin
Joined: 10 Mar 2006
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| Posted: Sat Nov 07, 2009 4:07 pm Post subject: |
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| you have to take a salary, as salaries are tax deductable. if you don't take a salary then your taxes are going to be quite high. let me assure you that business tax is much higher than 3.3%. |
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cruisemonkey
Joined: 04 Jul 2005
Location: Hopefully, the same place as my luggage.
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| Posted: Sat Nov 07, 2009 5:01 pm Post subject: |
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| meangradin wrote: |
| ...let me assure you that business tax is much higher than 3.3%. |
LOL... not to mention the 'gifts' you will be expected to bestow on a plethora of Ks who would never lie or 'cook the books'. 
Have you ever heard the expression "If it's too good to be true..."  |
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KoreanAmbition
Joined: 03 Feb 2008
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| Posted: Sat Nov 07, 2009 5:17 pm Post subject: |
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[quote="formulaic"]
| Quote: |
The 40 million hogwan had 9mil won gross revenues less 2.5mil expenses leaving 6.5mil monthly according to the owner. The owner and his wife worked there and this 6.5 was actually their pay for working there. This would be a nice pay level for two but it means the school had essentially no profit at all. Everyone gets paid but no real profit.
...
Investing 200 million to net 15 million profit per month sounds great, until you hear that an investment of 40 million can net 6.5 million per month for only four hours of teaching... |
Where did you get the 4 hours of teaching number?
9,000,000 won revenue per month... let's say 40 students at 250,000 won. So 4 classes of 10 students? You teach them 1 hour per week for that payment? I don't think so.
9,000,000 won revenue per month... let's say 20 students at 250,000 won. So 2 classes with 10 students? You teach each class 2 hours per week for that payment? Impossible.
No students are as stupid as these numbers suggest. You were teaching a lot more than 4 hours a week to earn that money. |
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youtuber
Joined: 13 Sep 2009
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| Posted: Sat Nov 07, 2009 10:43 pm Post subject: Re: Hagwon Investment |
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| formulaic wrote: |
Hey,
I'm looking at buying a hagwon that is on the market. It's well run and structured and makes a stable 15 million profit a month.
They want 200 million for it, 40% of which is key money (it's in an expensive area).
According to what I've read a business with a good reputation, returning customers, and record of profitability (as this has) should be valued at three times its yearly profit plus the value of its fixed assets (you should also include owner benefits but I'm not gonna take a salary so I am leaving that out). Accordingly this business is worth 15m x 12 months x 100m fixed assets x 3 multiplier = 540 million Won. So 200 million seems a very good sale price.
What do you guys (hopefully with experience in such matters) think? There was an ad for a hagwon making 9 million a month being sold for only 40 million Won on here in December 2008, that has me wondering if I can't find a better place to invest my money.
http://forums.eslcafe.com/korea/viewtopic.php?t=143519&postdays=0&postorder=asc&highlight=buying++hagwon&start=0 |
If the guy is making $180k per year, why would he sell it? Did you ask? I think a good idea would be to talk to current customers, past customers, and some of the competition to see what they know about the hagwon and its reputation. |
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formulaic
Joined: 27 Jan 2005
Location: seoul
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| Posted: Sat Nov 07, 2009 11:09 pm Post subject: |
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Thanks for your thoughts. I shall act on some of them.
Youtuber: he's selling because he's leaving the country.
Korean Ambition: those are not my numbers, they were posted by someone selling another hagwon last year. |
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Juregen
Joined: 30 May 2006
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| Posted: Sun Nov 08, 2009 5:24 pm Post subject: Re: Hagwon Investment |
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| formulaic wrote: |
Hey,
I'm looking at buying a hagwon that is on the market. It's well run and structured and makes a stable 15 million profit a month.
They want 200 million for it, 40% of which is key money (it's in an expensive area).
According to what I've read a business with a good reputation, returning customers, and record of profitability (as this has) should be valued at three times its yearly profit plus the value of its fixed assets (you should also include owner benefits but I'm not gonna take a salary so I am leaving that out). Accordingly this business is worth 15m x 12 months x 100m fixed assets x 3 multiplier = 540 million Won. So 200 million seems a very good sale price.
What do you guys (hopefully with experience in such matters) think? There was an ad for a hagwon making 9 million a month being sold for only 40 million Won on here in December 2008, that has me wondering if I can't find a better place to invest my money.
http://forums.eslcafe.com/korea/viewtopic.php?t=143519&postdays=0&postorder=asc&highlight=buying++hagwon&start=0 |
If a hagwon isn't making 20.000.000 a month, I wouldn't even look at it. I am not talking about study rooms here, but actual hagwons. study roons have a different valuation.
The problem is not the revenue actually, If I were you I would ask if you can take a look in their books. Depending on their cost profile, and opportunities left for growth coupled to the revenue would make for a far better assessment to establish a price.
Visit the place, go see with your own eyes, spend a few hours their during the peak times, etc ....
With the little information you have given me, I would be very doubtful in taking it over, but you never know.
| pocariboy73 wrote: |
PostPosted: Fri Nov 06, 2009 11:24 am Post subject:
If you want to buy a hagwon for an investment, make sure you have the uncanny ability to lie, cheat, and steal from the government, the tax office, your teachers and staff, the parents, and of course your students.
Any hagwon owner who tells you differently is full of crap. Period.
Like it or not, it's just my opinion... |
Then I am full of crap, would love to meet you over coffee. |
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