My husband works for a hobby wholesaler and has for many years. One of the customers, a retail store, is planning to retire within the next 9 months or so and wants to sell her store. My husband is interested. He has been out to see the store, it is in a good location (on Kent St. in Lindsay if anyone is familiar, it is one of the main "downtown" streets). He knows that she pays her bills to his company on time. She has been in business there for a number of years and at one point was supporting herself and her family on what she made. Since then she has cut down her opening hours so obviously is making less.
We are going to get her books to have a look at things.
If you have had this type of experience (buying an existing store with a plan to keep it as the same type of store) what else would you recommend looking at/for?
look at financial statements for past 3-5 years; monthly statements for 1 year; get details of what is included insale (ie - existing lease, goodwill, suppliers list/contracts, etc) the more detailed, the better. Talk with Chamber of Commerce &/or Better Business Bureau to get info on economic predictions for that shopping district - is it growing or shrinking? - if you know any customers personally, talk with them to get impressions of service & how loyal they feel toward the store; enlist the help of your local Community Futures if you need any help figuring all this out and/or putting together a business plan…
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Gind out what type of business it is - sole ownership, incorporated etc.
Also, make sure she is up to date with all government related obligations.
pay particular attention to lease agreements.
have a lawyer & accountant check everything
make sure you have all valid insurance in place from the very moment you sign any deal.
carefully examine the impact on your family life and finances.
especially ask why you would want to do this. Too often expectations of likely income are too high. Those with more m odest objectives tend to do well in this type of enterprise: for example, let's say you are doing "OK" as a family, but that you have the time and skills to take on this business. It may not make your firtune, but if (for example) it payed your mortgage and a bit extra so the mortgage was paid off faster, then the business makes a real contribution to your wealth.
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Retail life can be a real drag on the family compared to the wholesale arena and absentee owners have a poor record of success.
Knowing the business from the wholesale end helps but retail is a different kettle.
That said I think the hobby biz is a good one and Lindsay is certainly due to grow over time.
Are you getting the building/property or is that leased.
A combo property and biz would be a real winner.
Biz alone riskier.
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Since the owner is retiring, you may want to ask the owner some questions about the customers who typically come in, the marketing she does, how business has been and how its changed over the years, what the employees are like. You may or may not get straight answers, but it can't hurt.
To ensure success afterwards, you might want to ask if she would be interested in training you afterwards in her methods--since she's retiring (and not failing) this would likely be a good source of information. You may want to change things, but it will be a good base for getting started.
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Apart from the suggestions above, if you have a chance, stake out at the store for at least a week. That will give you an idea of traffic. Financial Statements are quite misleading.
It's important to understand the terms of the lease, especially if it requires personal guarantees.
Also think about how you wish to take over the business, be it as a sole proprietor, partnership or corporation.
Since you will need to retain a lawyer to prepare the paperwork, perform all the requisite searches and finalize the deal, I wouldn't worry too much about the legal aspect of it.
btw, also think about how you want to proportion your purchase price. As a buyer, it's more advantageous from a tax treatment to assign a larger proportion of the price to Goodwill. You need to discuss this with the seller prior to signing the agreement.
I had a client for my web based e-commerce package who opened a new shop under similar circumstances. In Cambridge, there was a long-time Hobby store whose owners decided to retire. Two businesses opened up to 'replace' the old, neither purchased the old, and neither took the old location. Each took different categories so there was little competition between the. I think that my former customer ended up purchasing some stock from the retiring store owners.
What I can tell you is information that my former customer shared with me. First, there is a huge problem with buying. Now this might be something that your husband might be able to avoid, as he is in the business but my former customer went through hell arranging purchases from wholesalers, only to have orders cancelled, cut in half, etc. They also tried buying from the US and had to deal with customs brokers, etc. Not the easiest of things to do when your orders aren't that big.
Their location has almost killed them on its own. At one point it was an old Studebaker dealership, so there was a natural tie-in with their automobile memorabilia, however it was just north of an area called the Delta Lights in Cambridge, Hespeler Rd. just north of a train crossing that sees a lot of shuttle activity. There were times when you couldn't get anywhere near the place. To make matters worse, Cambridge has been trying to find a plan to build and under/overpass for the train tracks, which will probably result in construction lasting a year or more.
They ran into some technology problems, being Windows users, their machine got infected, and they were forced to wipe the drive clean and restore from scratch. They didn't have the disks for the OS that they were using, nor did they have the MS Office disks either. They blamed Bell who had told them to deactivate their virus software and use the Bell stuff instead, however I believe that they added to their problems by visiting high risk web sites (i.e. music). By this time they didn't have the money to invest in a new machine so they limped along on the rebuilt one.
They figured that they would survive on the local marketplace combined with their web orders. However they did little to promote their web site to anyone outside of their walk-in traffic. Discussing their situation with some other consultants and the first question that was raised was "is Cambridge big enough to support two hobby shops?"
They decided to drop their online e-commerce site a few months ago, their reasoning being that their big black neon lettering sign (those things on trailers) would attract more business than the web site did. We didn't part on the best of terms as they didn't pay me for their last month but that's just the cost of doing business.
My main take on this is that they went into this prepared, but not well enough. They didn't plan well on the seasonality and they didn't have the capital to make large purchases, which would have lowered their costs.
Wow, thanks everyone for your replies. You've given us a lot to think about.
To whoever it was that asked - the building is leased, at a good price - we would certainly want to see some agreement from the landlord that the rent wouldn't immediately double or worse.
The store is using a PC but I could see switching that to a Mac (although all their books are on that computer) - hubby & I are both more Mac familiar and I'll likely do the books, so with a Mac I might be able to do some from home. I don't think they're connected to the net.
I am concerned about the family life disruption, especially with a new baby coming next week. My father in law (who does have experience managing a retail store) has offered to help out but I don't see him being there on a daily basis.
the current owner has been quite open so far and is willing to stay on for a bit to train us.
We certainly have some work to do before settling on a decision one way or another.