Buying an existing business (shop)

lb364

I've been looking for a business to buy since summer last year. It is something I've always dreamed of but decided to work full time while studying for my degree to get some savings before all the expense!

I've found a small independent card and gift shop a few miles from where i live and have viewed it. It was very nice and I believe I can make more of a profit by selling online etc.

Anyway, now I'm a bit stuck - I've been on the business link site but don't really know where to start...

how do I know the owners are being honest about the business? I've heard horror stories about forging the accounts and taking on the debts of the business if you're the new owner?

Also, are banks willing to do loans for existing businesses and if so, what percentage are we talking?

I'd appreciate any advice/warnings/things to think about etc. very much

skippy64

Can you start up on your own anyway (either from home or a small industrial unit) & pursue the online idea from scratch to start with & then think about retail premises if things take off ? Thats my only thought as I have never bought a business so I can't give any advice on that.

Pennywise

You should get an accountant on board to help you understand the accounts presented, do some forecasts as to affordability etc., and also do some basic sanity checking of the figures declared. Most decent accountants do this kind of thing all the time. They can also help you decide if its' worth what they're asking for it. They'll also help you avoid taking on liabilities etc that you don't want and more importantly help to plan to keep future taxes etc as low as possible. It may cost a few hundred but will help you avoid an even more expensive mistake.

If you're buying property or taking on a lease, talk to a good solicitor so that you know what you're taking on. Some leases will "lock you in" to keep paying the rent for years and may restrict your ability to sell the lease onto someone else or walk away, so what seems like a small outgoing could become a millstone around your neck for years to come.

Re bank loans, it depends on what you're buying. If you are buying tangibles, i.e. equipment, stock, etc then you should get a reasonable amount of loan towards purchase - maybe 50-75%, but you'll be lucky to get anything at all towards intangibles such as goodwill, unless you have some security to put up, i.e. equity in a house etc.

Retail is hard at the best of times. You say that you can improve it by selling online, but what about all the other online retailers who are taking away trade from shops? It works both ways! Are you sure you wouldn't be better doing online selling instead and forgetting about the shop?

paulwf

lb364 wrote: »

Anyway, now I'm a bit stuck - I've been on the business link site but don't really know where to start...

Give them a call and book on the courses...they are free and in most areas at a range of times. After the first intro session the others have smaller numbers so you will probably be able to ask these questions.

My main concerns about buying an existing business are:

- Stock will probably sold to you at cost price (SAV or stock at valuation). You'll probably inherit a lot of junk stock (they probably have lots in storage as it will probably only go out at the relevant time of year). You may have to accept "throwing away" a few thousand. There are steps you can take to limit this, but won't bore you with specifics at this stage.

- Staff: any employees will be transfered to you with existing rights (TUPE). Having experienced staff can be a plus, personally though I'd prefer to pick my own team and train them my way.

- Equipment: in a commercial setting equipment gets a very fast rate of wear and tear. You may need to replace lots of fixtures and fittings within a reasonable timescale.

paulwf

Pennywise wrote: »

Retail is hard at the best of times. You say that you can improve it by selling online, but what about all the other online retailers who are taking away trade from shops? It works both ways! Are you sure you wouldn't be better doing online selling instead and forgetting about the shop?

I would have thought that as cards are a low value item and people like to browse and then just grab one the online market is limited. I'm not saying that it doesn't exist, but rather that I don't think the web will undermine shop sales long term and on the other hand neither could you expand a physical shop onto the web.

OP have you worked in a card shop? Work for one of the big chains for a year before investing your own money. During that time also visit wholesalers, subscribe to trade magazines and websites, get market reports (takes a bit of digging to find), attend tradeshows.

Get to know what stock levels you need, lead times for ordering, profit margins, average staff pay, average opening hours and everything to do with the finance and operating of the business.

I have to say near me the multiples have completely sewn up the mid to high end of the market, independents are limited and very budget orientated. Is this a general trend? If so why is your target shop different?

Anastasia

I would recommend a Business Link course as well.

There is also information on here about buying a business

http://uk.businessesforsale.com/

motorguy

Something i heard a few years ago and it has stuck with me. How long has the business been in existence? If its 5 years or more, then its a fair bet that the owner has been making money at it. If its less than two years and no matter what excuse the owner gives and no matter what the accounts say, chances are its not making money and they're getting rid.

motorguy

Also, running your own business is not a 9-5 job. Often theres lots of paperwork etc to be done in the evenings. You may well find that whilst your studying for your degree a regular job may suit your requirements better (and possibly pay better too)

lb364

Thanks for all the replies, a lot of good points to consider.

I'm waiting for the accounts so I'll take a look myself (studied accounts a few years back) then pass them to an accountant if I'm still interested

Off to sign up for courses at Business link!

FatAndy

This may or may not help but many small businesses these days operate as limited companies for tax purposes. If this is the case you can download a copy of the last filed accounts from the Companies House website for a quid.

Otherwise, in my experience most accountants will provide their clients with a properly bound set of accounts. It might be quite straight forward to forge a set of accounts but my experience is that most people don't own a binding machine. It's hardly conclusive proof but I'd be more willing to trust a bound set of accounts than a few loose pieces of paper.

paulwf

Good point FatAndy. You'll probably also get a true picture of turnover by sitting in a cafe across the road for a couple of hours and seeing how busy they are. Do this on a rainy Monday morning in January not just the day before Valentine's Day if you want to get a realistic picture.