Any tips for buying a business?

[Gate Opener]

We are looking at buying a business. It is established, been in business 17 years. The owner is retiring. I have been doing business there myself for probably 10+- years.

What all would you look at in your decision process?

 

[Susie David]

Is it something that you want to do...
Do you want to work extra hours for below minium wage?
Does the current business have an established customer base or is the current owner "the business".
Will you get a decent return on your investiment.
Check the balance sheet....does it balance?
Read the business plan....did the growth follow the plan/
What liability will you take on by asuming the business....debt?

Could go on for awhile but some times things just fall in your lap and you can't turn it down....good luck.
DMc

 

[mitch2]

Hopefully they are able to provide some financials. Have an analysis done, if your accountant is not qualified, find one that is. No matter how much of a "good deal" it may be, or appear to be, it has to be able to sustain itself.... "good deal" or not... and should provide return on investment as well as your wage, essentially that is what you are doing is buying a job....is it worth it?

For example - A land appraisal was done on X property and came back at $1.2 mil. But Seller was "only" wanting $850k for an established business... Buyer - what a "good deal"! Seller did not provide financials, and Buyer did not ask for any...

Buyer now may be losing house as well as business....

 

[dun]

Running your own business will require man more hours of your time then you think it will.

 

[Cattle Rack Rancher]

Well, from what I remember from university, they usually recommend not spending much more than 6 or 7 times earnings to buy a business. Of course, if its a manufacturing business, then there will be alot of equipment and such and so that formula sometimes doesn't work. You'll have a hard time getting financing for what the bank calls 'good will' or basically just the fact that the business is an operating entity. I remember one other thing and that is that you should have some skills that are going to add value to that business if you are going to buy it. For instance, I knew some people awhile back who had a very successful restaurant business for alot of years. They sold it and bought a strawberry farm. They knew nothing about the maintenace and care of strawberry plants and tehy were bankrupt within two years, so apparently management skills weren't enough. They also recommend that you do something called a SWOT analysis which is short for Strengths (personal strengths and strengths of the business), Weaknesses (things you would need to work on that could be a problem for yourself or for the business), Opportunities (what opportunities are there for you to grow and expand the business), Threats (What changes are there in the economy, legislation, or demographics that might affect your bottom line). Hope that helps. Good Luck.

 

[Running Arrow Bill]

JMO...

Anyone contemplating "buying (an existing) business" SHOULD have first hand experience in managing, working in, selling the business products. Otherwise, "buying a business to have a business" is in all probability an exercise in futility.

Probably the most in demand business category is the "Service Business"...will only work if one knows him/herself how to do the "service" and/or has some qualified people lined to do the service stuff.

Probably some of the most "dangerous" business ventures to get into include Restaurants, Retail Products, Nitch Market businesses (e.g., novelty balloons & gifts, tanning salons, etc.). Nightclubs and bars are another high hazard business, due to clientele preferences, etc.

just some thoughts to consider... ;-)

 

[ollie?]

Just say no!

 

[CSM]

No business can go bankrupt if you do not owe anyone. Stay out of debt.

CSM

 

[Brute 23]

Look at the financial records for the place. If they are going down every year you probably know why the person is retiring.

IS it a self-sustaining business? I always look for businesses that at a minimum can support themselves. Pay its own bank note, pay its own workers, ect... I should just have to make managing type decisions not be there 24hrs a day.

Also... in 2 months if I need to shut the doors what will happen. Is their a ready market who will most likely take it off my hands the way you took it off the person's before you. Will you lose money... will you make money?

Know the area, town, community and what is coming or going. If it is a mom and pop grocery store and in 5yrs a Wal-Mart will likely come in it is probably not a good idea.

Don't get in debt over your head... but don't take your life saving out of the bank and try to be debt free with it because if it goes under you go under.

Get a good lawyer and accountant. Look into Corp., LLC, sole proprietorship, partnership, ect... See which one both protects you and is profitable... not just one or the other.

 

[Gate Opener]

Thanks everyone. Lots of good information and things to think about.

 

[Crowderfarms]

What type business is it?

 

[Gate Opener]

It is a retail type business.

 

[millstreaminn]

Someone said ask for financials. Absolutely. NEVER buy on an appraisal alone. I had a car wash appraised a few years back and it came in at 485,000. It may be worth 65% of that based on its INCOME. Appraisals won't crack the nut at the bank each month, income will.

 

[Running Arrow Bill]

It is a retail type business.

Retail is risky venture...been there, done that...

Items to consider:

• Location
  Traffic Count
  Related Businesses Nearby
  Product or Service Demand
  Product or Service vs. Purchasing Power of Prospects
  Product or Service "Want", "Must Have", "Need", "Luxury", "Novelty" items, etc.
  Product Suppliers? Wholesale Suppliers?
  Name Brand Products vs. "Local" products
  Potential Customers Within 1 Mile Radius of Business?
  Easy Street/Highway Access to Business Location?
  Parking Available?
  Business Visible From Street, etc.?
  Home Depot, Loews, Target, Office Max, etc., Other Mass Merchandisers Nearby?...Selling similar products...

 

[CUZ]

A couple of things come to mind.

He will need to continue to work at the place for about 3-6 months if the customers are used to dealing with him. This will give the customers a sense of continuity while they transition to the fact that you are the new owner. (Makes it appear he is giving you his blessing as you keep his baby going.) He won't need to work his regular hours but will need to be there (especially early in the change over) during the busier times.

He will need to sign a non-compete agreement. Sometimes these guys retire and then miss the people-meeting or they miss the money or they miss the activity, whatever, and then 6 months later they go 1/2 mile away and open right back up in competition with you. A good non-compete will have a minimum time and distance, say 5 years and 30 miles. Of course different business types have different standards and rules of thumb.

See if he will carry the note on the business. This gives him incentive to help you be successful since he doesn't get paid if the business fails and you go bankrupt.

Get a good lawyer to get all of this drawn up. Don't just use his lawyer. Get your own.

Will he let you hang out and follow him around at the business for a week so you can better understand the nuances of his business?

Does his wife also work in the business? Will she be leaving also? Are 1/2 of the workers kin to him? Will they be leaving? Is one guy in the back the real key to the overall success of the business? Is he leaving, or will he be there? What is the pay structure for the workers?

Lots of unknowns. Better do your homework.

Good luck
Cuz

 

[Gate Opener]

It is a retail type business.

Retail is risky venture...been there, done that...

Items to consider:

• Location
  Traffic Count
  Related Businesses Nearby
  Product or Service Demand
  Product or Service vs. Purchasing Power of Prospects
  Product or Service "Want", "Must Have", "Need", "Luxury", "Novelty" items, etc.
  Product Suppliers? Wholesale Suppliers?
  Name Brand Products vs. "Local" products
  Potential Customers Within 1 Mile Radius of Business?
  Easy Street/Highway Access to Business Location?
  Parking Available?
  Business Visible From Street, etc.?
  Home Depot, Loews, Target, Office Max, etc., Other Mass Merchandisers Nearby?...Selling similar products...

Good list. I went through it and everything looks good.

 

[Gate Opener]

A couple of things come to mind.

He will need to continue to work at the place for about 3-6 months if the customers are used to dealing with him. This will give the customers a sense of continuity while they transition to the fact that you are the new owner. (Makes it appear he is giving you his blessing as you keep his baby going.) He won't need to work his regular hours but will need to be there (especially early in the change over) during the busier times.

He will need to sign a non-compete agreement. Sometimes these guys retire and then miss the people-meeting or they miss the money or they miss the activity, whatever, and then 6 months later they go 1/2 mile away and open right back up in competition with you. A good non-compete will have a minimum time and distance, say 5 years and 30 miles. Of course different business types have different standards and rules of thumb.

See if he will carry the note on the business. This gives him incentive to help you be successful since he doesn't get paid if the business fails and you go bankrupt.

Get a good lawyer to get all of this drawn up. Don't just use his lawyer. Get your own.

Will he let you hang out and follow him around at the business for a week so you can better understand the nuances of his business?

Does his wife also work in the business? Will she be leaving also? Are 1/2 of the workers kin to him? Will they be leaving? Is one guy in the back the real key to the overall success of the business? Is he leaving, or will he be there? What is the pay structure for the workers?

Lots of unknowns. Better do your homework.

Good luck
Cuz

Good idea about having them work there. I will do that. I had planned on that as far as helping me(and they aleady agreed to) get transitioned but hadn't thought of the appearance in helping customers deal with the change over. I didn't think of having them stay that long but it sounds good.

I talked to an accountant this morning and she also brought up the non-compete clause. I will do that.This person is having a hard time in letting this business go since they have had it so long. I told them they could come to work for me whenever they want.

The owner also suggested that I come in to work. I am going to do that.

The owner is going to get a contract together. I suppose I need to go ahead and get a lawyer to advise me on what all needs to go into the contract so we don't have to keep going back and forth. Do I need a certain kind of lawyer?

The workers aren't related to owner. They have been there for a long time though. They all know me and said they would stay on if it was me who bought it. I hope so.

Ya'll are doing so good with all this information. This is one of those things as someone else said where you don't know what you don't know.

 

[CUZ]

The owner also suggested that I come in to work. I am going to do that.

The workers aren't related to owner. They have been there for a long time though. They all know me and said they would stay on if it was me who bought it. I hope so.

Question - How long is this process taking? (From the day you became a serious looker/buyer to your day of decision.)

When you go in to work. Get an understanding of how the business works. Then try to notice the "little" things. (Stuff like, does the owner manage every little detail or does he let his people make decisions. Does he have a younger or older work staff? Who is reliable? Which one does everyone just tolerate? Which one likes to stir the pot? Does the owner take a lunch? Who opens up everyday and who closes up everyday? How does he handle bad checks or delinquent accounts? Is he easy going or is he a lovable curmudgeon to the workers and customers?)

Becoming aware of possible problems doesn't mean you have to run away, it just means you have to ready if they come along.

Okay here are the steps, as I see them.

INTEREST
1. Are you interested?
2. Do you really LIKE this business or LIKE what it is selling? (Are you knowledgeable about the stuff you'll be selling or just infatuated with "pink flamingos" and think selling them would be a hoot?)
3. Do you think you could do this all day? Everyday?
CAN I AFFORD IT
4. Do the numbers work? (Will they work if the economy takes a dip?)
CAN I RUN THIS BUSINESS
5. Can you be a boss? (These people aren't your family and don't automatically love you despite how mad they get at you. Can you manage the people, make decisions, manage money, cut deals with suppliers, fire someone, etc)
REALITY
6. Will your family be helpful or are you on your own here? (Helpful means more than just being excited that you are going to be bringing home BOO-COO'S of money.)
7. Now that you are going to quit cooking, can you live on restaurant food? Can your husband and kids?
8. Can you handle missing the kid's afternoon ballgame because you have to be at work?

I'm sure you could do this, do you WANT to do this, or do you just want to own a business?

Only you know the answers,
Good luck
Cuz

 

[Ryder]

You have a lot of good sugestions here. I just want to say, he probably is not the only one, but CUZ sure sounds like he has been there, done that.

I wonder if CUZ could actually be somebody else just pretending to be CUZ. :lol:

 

[CUZ]

You have a lot of good sugestions here. I just want to say, he probably is not the only one, but CUZ sure sounds like he has been there, done that.

I wonder if CUZ could actually be somebody else just pretending to be CUZ. :lol:

:lol: :lol: :lol: :lol: :lol:

I don't know anybody else who would want to be me. (Although there may be thousands. But I kinda doubt it.) :lol: :lol: :lol: