Finance to buy an existing business

Mistral001

I would look at the alternative for the vendor. He could run the stock down by having a clearance sale, which would probably mean selling most items at much less than cost. There is also the cost of staff wages during the clearance sale and the loss of rental value as well. If it took say a month for the clearance sale that could add up to quite a big expense never mind the losses in having to sell the stock at less than cost.


As others have said see an accountant. I would see one before asking to see the accounts. The accountant then could advise you on what accounts to ask for.

zygurat789

Errata wrote: »

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.

These days there is no audit for Ltd accounts with this level of turnover, the accountant who drew them up doesn't even have to sign them. I take it we are dealing with an LTD?.
I take it the £75,000 is for goodwill and you are being asked for £250,000 to buy the stock. Stock valuation appears to be quite important.
In the accounts stock may be valued at the lower of cost, replacement value or net realisable value, whichever is the lower. If the lowest of those three has not been used then tax has been voluntarily overpaid. Before you buy you should both value all the stock on an accounts basis as above to determine the real value rather than figures on a bit of paper.

bammers80

zygurat789 wrote: »

These days there is no audit for Ltd accounts with this level of turnover, the accountant who drew them up doesn't even have to sign them. I take it we are dealing with an LTD?.
I take it the £75,000 is for goodwill and you are being asked for £250,000 to buy the stock. Stock valuation appears to be quite important.
In the accounts stock may be valued at the lower of cost, replacement value or net realisable value, whichever is the lower. If the lowest of those three has not been used then tax has been voluntarily overpaid. Before you buy you should both value all the stock on an accounts basis as above to determine the real value rather than figures on a bit of paper.

Hi zygurat789

The vendor is not trading as a LTD he is a sole trader.

The £75,000 is for goodwill and fixtures and fittings.

I am not sure how the vendor has worked out the value of the stock, as far as I am aware it is the replacement value but will have to check to be certain.

bammers80

The £250,000 for the stock is an estimated value and could be reduced as the vendor has said he would be willing to keep some of the older more expensive items that are harder to sell, keep them on display in the shop and take the money himself once they have been sold. These items are valued at approximately £40,000 cost, retail value of these is around 30% higher.

zygurat789

bammers80 wrote: »

Hi zygurat789

The vendor is not trading as a LTD he is a sole trader.

The £75,000 is for goodwill and fixtures and fittings.

I am not sure how the vendor has worked out the value of the stock, as far as I am aware it is the replacement value but will have to check to be certain.

That may well be the highest value and, therefore, not the one you would wish to use.
Put it this way; if you had to go out and buy that stock for a business you run how much would you pay for it?

Always remember, he wants out you have some money.

paddyrg

zygurat789 wrote: »

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

Yes indeed, although there may be manoeuvres where the company could make a loan -that said the markups sound quite slim, so may not liberate as much cash at fire sale rates.

OP, another option, this guy wants out and is finding it hard to sell. If you opened a shop opposite just doing the fast lines, given time he'll come to you to sell his stock at a discount to liberate the cash so he can retire, and you can be picky about what you will pay. You'll have a £75k head start with rent negotiated during a recession. You can then sit it out, as he's going to leave the market no matter what, leaning you incumbent. Then you can buy his mailing list for a few grand as a goodwill gesture

bammers80

paddyrg wrote: »

Yes indeed, although there may be manoeuvres where the company could make a loan -that said the markups sound quite slim, so may not liberate as much cash at fire sale rates.

OP, another option, this guy wants out and is finding it hard to sell. If you opened a shop opposite just doing the fast lines, given time he'll come to you to sell his stock at a discount to liberate the cash so he can retire, and you can be picky about what you will pay. You'll have a £75k head start with rent negotiated during a recession. You can then sit it out, as he's going to leave the market no matter what, leaning you incumbent. Then you can buy his mailing list for a few grand as a goodwill gesture

Hi paddyrg

I wouldn't feel right if I did that, having been a customer of the business on and off over the years. Thanks for the idea though:)

Pennywise

As someone else said, none of this looks right. If the stock is actually sell-able above cost price, surely he could make more than £75k by simply trading another few months as a clearance sale to sell it and then shut down.

That's exactly what a local shop has done near me. Similarly, a niche "hobby" style shop. It was stocked to the rafters over a couple of decades - stock value was actually more than it's annual turnover - but most of it was sell-able. He tried selling the business, but the same scenario, purchasers could afford the relatively low asking price but couldn't afford the stock. So after a few months, he made the decision to close, gave notice to the landlord and spent the next three months just flogging the stock, buying no new stock at all, - modest discounts for the first month so he was still making 10-20% margin, then harsher discounts in month 2 and finally month 3 was bargain basement prices to clear what was left. He ended up making more profit on the stock, after overheads, than his asking price!

Somerset

And still nobody has provided the net profit and p&l breakdown for the last five years ??


Turnover means diddly squat without decent net profit numbers. A business making nothing is worth ..... ???

micky2phones

bammers80 wrote: »

Hi, I am after some help and advice with sourcing finance for the purchase of an existing business.
The business is currently on the market for £74,950 which has been reduced from £125,000 since I first enquired about it. There is also the stock which would have to be purchased with the sale which is currently valued at approximately £250,000 (although this could be reduced to about £210,000). The property where the business is located is also for sale for £375,000, however the vendor is happy to rent it to the new business owner.

As you can see it is quite a large sum of money that would be required to purchase the business and current stock. The turnover for the business in the last 5 years has averaged £1.3 million with a very strong net profit year on year.

I have already completed a business plan and approached a couple of high street banks but have not even got through the door with them as I do not have any collateral or assets that I could secure a loan against. I was hoping that I could use the proof of income and also the stock that would be purchased as security against the loan.

I know it's a long shot trying to source the money and is probably a no-go but any advice would be appreciated.

Many Thanks

Hi, as others have said about the figures not being right and not many people wanting the business.

My silly question is will or are there any changes in the law about guns e.t.c which stopping others wanting the business ?