Finance to buy an existing business

motorguy

bammers80 wrote: »

Hi Errata, the seller has given me a copy of the draft accounts for the last 5 years and that is the average turnover for the period.

When I first enquired about the business the asking price was £125,000 which was then reduced at the beginning of this year to £99,950 and then reduced again yesterday to £74,950. I know he has had some interest in the business but not as much as he had hoped.

Theres something not stacking up if theres no interest and you're saying it has "strong net profit". What are other people seeing that you're not? Thats what i would be asking myself.

Why cant he run the stock levels down by the way or is it all old stock hes putting a pie in the sky value on?

If he wont accept payment for the business over a time period, would he accept payment for the stock over a time period, but the business paid for?

Errata

bammers80 wrote: »

The business is a gunsmiths/gun shop, which is a sport that I am heavily involved in and have been for the past 20 years. I think, due to the specialist nature of the business and the limited appeal to most people, this is the reason the vendor is struggling to sell.

Fair enough, but I still can't see how he managed to flog that value of stock every week, week in week out, for 5 years, or why he's stuck with a quarter of a million quids worth of unsold stock which he's presumably already paid for.
I think you need to see the audited accounts, not the "draft" accounts.

bammers80

motorguy wrote: »

Theres something not stacking up if theres no interest and you're saying it has "strong net profit". What are other people seeing that you're not? Thats what i would be asking myself.

Why cant he run the stock levels down by the way or is it all old stock hes putting a pie in the sky value on?

If he wont accept payment for the business over a time period, would he accept payment for the stock over a time period, but the business paid for?

Hi Paul

As stated above, I think part of the problem is down to the nature of the business being sold.

The vendor has already reduced the amount of stock he holds whilst he is trying to sell.

The asking price for the stock is at cost.

Some of the stock currently held can be difficult to sell due the the age and high value but the majority is new up-to-date equipment/clothing.

I have already asked about seller finance but the vendor is not very keen on the idea.

Regards
Nick

Pennywise

You've not said what it's net profits are - what do the accounts show and is that after the proprietor's own "wages". And why rely on "draft" accounts for last 5 years - at least 4 of those years will have been finalised and submitted, so it's only the latest year that should be draft at all. Quarter of a million pounds of stock on 1.25 m turnover is VERY slow moving slow so there could be a lot more obsolescence and write down needed than you think. No, banks won't lend on stock.

paddyrg

What's the margin on the stock? Can you finance the business purchase with a fire sale on the stock (ie shift all the boxed inventory for narrow margin, using that to buy the business) then starring afresh with the faster lines?

somethingcorporate

Regardless of the nature of the business a VC/Angel/savvy entrepreneur/competitor in other town would snap up a business with those numbers.

I don't believe em, sorry!

I think you should get a professional to look very closely at the audited accounts, those numbers dont currently make much sense.

zygurat789

paddyrg wrote: »

What's the margin on the stock? Can you finance the business purchase with a fire sale on the stock (ie shift all the boxed inventory for narrow margin, using that to buy the business) then starring afresh with the faster lines?

Bearing in mind that any monies realised from the sale of stock belong to the company rather than the owner of the company.

bammers80

Pennywise wrote: »

You've not said what it's net profits are - what do the accounts show and is that after the proprietor's own "wages". And why rely on "draft" accounts for last 5 years - at least 4 of those years will have been finalised and submitted, so it's only the latest year that should be draft at all. Quarter of a million pounds of stock on 1.25 m turnover is VERY slow moving slow so there could be a lot more obsolescence and write down needed than you think. No, banks won't lend on stock.

Net profits have averaged £94,000 over the last 6 years (I have the draft accounts for 6 years and not 5), however as the vendor owns the property and does not have to pay rent/mortgage on it. I would have to deduct that from the figures I have which works out on average around £76,000 net profit a year.

bammers80

paddyrg wrote: »

What's the margin on the stock? Can you finance the business purchase with a fire sale on the stock (ie shift all the boxed inventory for narrow margin, using that to buy the business) then starring afresh with the faster lines?

Margins are 10% mark up on new items and 30% on second hand items.

I was always planning on having some sort of 'Under New Management/Ownership Sale' to move some of the stock and bring in new lines right from the start.

bammers80

somethingcorporate wrote: »

Regardless of the nature of the business a VC/Angel/savvy entrepreneur/competitor in other town would snap up a business with those numbers.

I don't believe em, sorry!

I think you should get a professional to look very closely at the audited accounts, those numbers dont currently make much sense.

Thanks for the advice, I will contact the vendor again and see if I can get copies of the audited accounts and have someone look at them for me.