Starting new business, taking over existing business.

dori2o

The wife and I have decided it is time to look into getting our own newsagents/off licence.

My wife is the manager of a store for a nationwide newsagent/convenience/off licence and has her own personal licence.

With my disability getting worse it's a change we can see would benefit us as we'd be able to run the shop together and hopefully have some staff.

We're going to make an appointment to see a business manager/adviser in the summer holidays but before then I'm looking for some advice.

Obviously we're going to need finance to go ahead with the purchase of the business/premises etc, and I believe it is best to take over an existing business rather that try to build a new one from scratch.

For example we were looking through Daltons website and have seen a licensed shop/newsagent inc living 3 bed accommodation, freehold price £205k +stock with turnover in excess of £375k, but the shop is not being utilised fully, i.e. it closes at 6pm each evening and at 1pm on a Sunday, so could be scope there to extend the opening hours etc.

As first timers what would we be looking at to even be in with a chance of fulfilling this dream?

I'm looking for any advice on typical starting points, what we should be looking out for, what to avoid, what are the options for finance etc.

Any help appreciated.

WHA

Newsagents have a very high failure rate and high turnover of owners, so you have to be wary and do your homework. Research, research research - knowledge is power. You need to become an expert in newsagents and convenience stores before you get anywhere near actually seriously thinking of buying one.

You need to look at a lot before you start to think of pursuing one to buy. There are a few princesses but most will be ugly sisters you shouldn't touch with a bargepole. Research will save you from losing your home and savings! Online listings concentrate on the turnover which is probably the least useful number. You need to know gross margin percentage and overheads and profits - they're the numbers that matter. A high turnover on a low margin shop will just be a load of work for little reward - such as a shop highly concentrated on ultra low margin tobacco sales.

You need to spend time looking around as many similar shops as you can find, whether they're for sale or not. Go in, have a snoop at what they sell, what their customers are buying. Best time to gauge newspaper sales is early morning - say 8am - how big are the piles of papers - a poor shop will have say 10-20 of the popular titles, a potentially worthwhile shop will have 50+. Ignore magazines as they're virtually all on sale or return so the shelves could be jam packed but they still may not sell any! Sit outside and count customers at various times of the day - knowledge is power. You can work out which shops are successful simply by looking at them, based on number of customers, average customer spend, image of the shop, etc. Think about location, which shops are busy and why - factors include whether they're in a council or SH housing estate, whether they're in a pedestrianised area, whether they're on a main road, whether they have off street parking, whether there's free & easy on street parking. An hour or so every couple of days for a few weeks just driving around with your eyes open and regular stops to buy a packet of sweets or whatever will arm you with A LOT of relevant information to bring you up to speed and make you an expert on what works and what doesn't.

Once you've got your background of the market, then and only then is it time to look at shops for sale. You should go to look at ten or more, getting their accounts, talking to the owner/agent, having a real good look inside the property and living accommodation. The more the better even if you know you're not going to buy it. Knowledge is power. You'll have at least 10 sets of accounts to compare which you can average out to get average margins, average overheads including credit card processing costs, insurance, power, etc., you're basically doing your own benchmarking exercise and then you can readily spot any anomalies in those 10 and any future ones you consider buying.

Given the low margins of newsagents and convenience stores, I wouldn't have thought you'd be able to afford to pay for many staff hours if the turnover is only £375k p.a. unless you or your wife continues with alternative full time employment. I'd be very surprised if the actual "net profit" before your drawings and tax would be more than £25k p.a. so it's not going to replace two full time wages. Ideally, £500k is a good starting point that should put you into decent profits commensurate with the hours you'll have to work and the stress you'll have to endure.

You need to know the breakdown of the sales into the various categories, i.e. news & mags, sweets and soft drinks, tobacco, etc. This is essential as it tells you the type of customers they have and that gives you knowledge as to which additional products you can sell and whether longer hours would be worthwhile. It also tells you whether it's a good mix as you don't want a shop that's predominantly news or tobacco sales as they're both declining markets.

If you're buying freehold, you need your own professional valuation as to the value of the bricks & mortar without the shop in case it fails as you need an escape route or, like many older shopkeepers, you end up trapped with a shop you can't sell and not enough money to sell at a loss and buy a house/flat somewhere else to live in.

If it's leasehold, you need to see all relevant leases, i.e. the head lease and any assigned leases, and get them checked over by a solicitor to check for any nasties. You need to know any break clauses, length of lease, upward only rent reviews, who's liable for property repairs/maintenance. You need a lease that gives you security to stay there as long as you choose, but with the least costs falling on you. I.e. if the roof needs replacing, is it you or the landlord who pays? Business leases are nothing like residential leases and there are not the same protections as there are for domestic renters.

Lenders won't give anywhere near the same multiples as residential mortgages. They'll probably only lend 75%-80% of the property value of a freehold, and nothing towards the asking price of the stock, equipment and goodwill, so you'll need a few tens of thousands of your own money to bridge the gap. If it's leasehold, you probably won't get any loans at all. Banks work on security and that means freehold bricks and mortar.

Start by asking for three years worth of accounts and the last three years of VAT returns. If the accounts aren't prepared by a qualified accountant, (i.e. if they've done them themselves or had them prepared by a book-keeper or unqualified accountant, treat them more cautiously). Check the VAT returns against the accounts. People sometimes fiddle their books to make the accounts look better for sale, but they seldom fiddle their vat returns in the same way as they'd end up paying more VAT every quarter! Asking for 3 years of accounts and VAT returns is standard practice and any honest seller will be happy to provide.

If you don't FULLY understand business accounts, profit & loss, balance sheets, etc., get them reviewed by an accountant and get the accountant to prepare at least 3 years forward forecasts including monthly profit & loss accounts and cash flow statements, also to work out YOUR break even point (i.e. the amount you need to cover your drawings for household and personal costs) and some sensitivity analysis to show "what-ifs", i.e. what if turnover falls by 10%, what if overheads rise by 10%, what if interest rates double, etc. Very illuminating. This is bread & butter work for any half decent accountant.

My parents had a newsagents/convenience store and they spent 5 years researching the market and researching the area before they committed. They must have visited 20-30 shops within a 35 mile radius. When they settled on one, their homework paid off handsomely, particularly when their hunch paid off and a huge housing development was built on fields across the road! Unfortunately, they didn't sell at the right time and ended up chasing a downward market to sell.

Savvy_Sue

dori2o wrote: »

The wife and I have decided it is time to look into getting our own newsagents/off licence.

My wife is the manager of a store for a nationwide newsagent/convenience/off licence and has her own personal licence.

With my disability getting worse it's a change we can see would benefit us as we'd be able to run the shop together and hopefully have some staff.

I can't add much to what WHA has said, but my usual first question to someone wanting to start something like this is "what experience do you have?"

Now clearly your wife has some experience, but at the risk of stating the obvious: you have to be open when you say you'll be open. So never mind hospital appointments, your pain levels, domestic crises: the shop has to open.

It's also hard physical work, buying stock, collecting stock, moving stock around if it's been deliver. And long hours. Even living over the shop, how will you manage childcare (if I'm right that you have children?)

Without staff, it's hard to see how you'd cope. With staff, one has to wonder if it could be immediately financially viable. And bear in mind that if you took over a going concern, you'd have to take on the existing staff, under TUPE.

But research, research, research.