Thanks to you all for your responses. The business that we're trying to buy is a language school in Madrid. No heavy machinery, not reliant on tourists.

[it's not a place in a western suburb beginning with the letter 'S' is it? If so please PM me, as I may be able to give you some background info]

It's funny. I'm normally on here pointing out that not EVERYTHING has gone bust in the last few years. Indeed the numbers of tourists has actually increased this year, including big cities like Madrid. Plus, exports in things like
furniture, defence&weapons, railway technology, automotive components, aerospace technology and components, machinery&equipment, renewable energy tech&components, construction materials, wine, have done well this year. Additionally Madrid is probably the biggest market for teachers of English in Spain (definitely in Business English) as so many international businesses (as well as the Spanish companies) have head offices there.

However. Like most businesses, you have to know what you're doing. If you don't have relevant experience in the TEFL/TESOL game, my advice would be to keep well away. In fact I've known people with a lot of experience who've struggled with the competition when they tried to set up a business. There's a huge difference between taking money for imparting English lessons, and getting individuals or companies to fork out serious money. It's a question of serious marketing and sales skills in the Spanish market - can be far different to the way the UK market works. It can also be difficult to know how to get the better kind of teacher working for you. In summary, I really don't think it's the kind of business that a novice could succeed in, no matter how good the existing good-will custom is. As I say, it's just my opinion, so good luck with whatever you choose to do. If you do choose to go ahead, don't be afraid to ask for advice here - there are several posters here who either work or have worked in this field. But my advice (and I could be wrong) is to avoid this tempting offer.

I can believe that business has improved by that much, as i know how big the teaching English game is in Madrid. However past results do not mean the good times will continue. As soon as the big clients hear about a change of ownership, you could lose half your clientele overnight, particularly if it's perceived that the quality of your teachers has fallen.

Having done a few courses, and registered with a few sites, I keep getting cut price offers from language schools in my e-mail. And they are big companies, it sounds to me more like they are very keen to sign people up.

I know a of a lot of business for sale, where the owners are doing OK, they both work in the business and both earn quite a good wage.

But if they were to sell the business on the new owners would be almost certainly doomed to failure if one of the following happened:

If only 1 of the new owners worked instead of the couple (because wages would still have to paid to an outsider to do the work.

If they need to finance the purchase price with borrowed money, as the repayments would be an extra expense that the previous owners did not have.

This can happen when the business being puchased is a profitable one for the present owners, but due to the newcomers having bigger outgoings (which is most cases) they are unable to make it pay.

The same can be said with sellers who own the property freehold and then sell the business on a lease, where the original owners made a profit, the new ones often do not factor in the increased expenditure needed to make up the amount charged in rent, and after trading for a while the shortfall becomes evident.

I have never worked in the Lang school business, but surely a good indicator (to start with) of the profitability would be to concerntrate on the staffing levels and the type of contracts they have.

My OH works in the language industry in Spain, so I can give you some feedback.

Whether you buy the business or not should be quite a simple decision really based on:
1. your experience in the language industry, and
2. the growth in number of student weeks the school has experienced over the past 5 years

Additionally you must be fluent in Spanish and English to make it work, plus hopefully some other languages, if for example, you are teaching Spanish to foreigners as you will need to target the German market for example

If you havent run a language school before or at least worked in the industry for many years I'd say forget it. It is a competitive market in Spain, both for teaching English for Spaniards and teaching Spanish for foreigners and you will need the expertise.

A few years a big company went but, it might have been home English, or Wall street something like that.

All classes were stopped, after only a few months, but the registered pupils had to carry on paying because the contract they had signed for the year, was actually a "finance agreement"

The acadamy had been paid all the money by the bank or finance company concerned up front, and so they were still owed the money.

If I remember rightly this was the one of the reasons whey the acadmy was set up, to get the money off the finance company, knowing that if they failed, they had nothing to lose.

They had branches all over the country, and made quite a killing, .eaving the "pupils" to carry the can.

What CricketMan said. A lot of schools teaching Spanish in Madrid struggle, as foreign learners of Spanish either head to the coast or choose scenic cities like Granada or Salamanca. It means there are great prices to be found if you want to take a course in Madrid (for one example see the link), but not such good news for the language schools themselves.

http://www.williams-school.com/horarios+precios.html

the language school in my local town (there's a few but only 1 I know about) does ok only because they have council contracts for kids clubs. I think as an outsider you wouldn't have a chance of being awarded one of these unless you are the Mayors brother etc.

Funny really, I keep asking my bank mgr where all these repos are - his nose grows as he says there aren't any!!! What he means of course is that there aren't any for you.

Lots of food for thought from you all, thanks very much. The school we're interested in has been around for nearly 20 years and in my salad days I was a TEFL teacher so do have some rusty experience of working in the industry in Madrid.
Anyone brave enough to volunteer a figure we should offer to open proceedings? My husband thinks 50,000 should be our opening figure but I feel that would be seen as insulting and we'd be seen as unrealistic potential buyers.

i suspect you've just made a lot of posters laugh out aloud. My advice would be to offer a low price, and hope it gets rejected._ Then you can wait for the person who does buy, to fail, and then buy at a cut price! If this doesn't happen, look elsewhere in Madrid for a badly run school you can purchase. I really fear there is too much risk of losing customers in this scenario.

So StevieDelux, how about volunteering a figure, a realistic one that would give us a negotiating credibility?

Given that you have supplied so few details, IMHO nobody could give you a valid answer. There is so much to consider, it would be impossible, at best it would be a wild guesstimate. Sounds like you are determined to go ahead though, although a rusty TEFL hardly sounds like adequate experience to me. What does it matter if they consider £50k insulting, have they got other likely buyers queueing up to offer them the money? You have nothing to lose starting at a low figure, you can go up but not down.

I am going to be a bit mean here, but hopefully it will give you a reality check.

What a company is worth depends completely on its ability to generate fututre profits. What the future profits may be you can predict by looking at its past profits (and turnover), seeing how the company was run (i.e. well/badly) and then predicting market growth by studying the current market and predicting what may happen to that market over the next 5 to 10 years.

To this, you need to factor in what you personally can add to the business in order to improve it.

Do not give anyone any money for a business unless you understand the concept I have just explained. You will be just throwing money down the drain and giving yourselves heartache.

Throwing figures around in the air like you are dooing shows to me that you dont know much about business or about the language industry. This is what you should be focussing on. Spend 6 months increasing your knowledge, then think again.

The language school currently gets 60% of its business from companies in the city with the remainder being students who visit the school. There is also a 2 week summer school where students are taken to London. This generates around 8,000 Euros profit. The current owner believes that there is potential for expansion of student numbers in the school and assures me that the contracts with the companies are binding and likely to last.