Buying an existing business - steps to take?
Discussion
I am seriously considering making a fairly drastic life change - specifically buying an existing business. I know that the ideal is to choose a business that suits your own experience - however, after a career of telecoms software the reality is that it's going to have to be something completely different.
There are a million reasons I shouldn't do this - I have zero experience of running a business, I don't have a clue what it involves and if I do it, it's probably going to be in an area I know nothing about. So I fully expect people to tell me I'm mad.
On the other hand, I am looking at stuff with a purchase cost that I can afford to fund myself, particularly if I sold one of my cars. I have no mortgage, no dependents and hence I feel I can afford the risk if I'm willing to take the chance.
I find myself particularly drawn to the small catering type things - coffee / cake shops, sandwich shops, small cafes etc. I realise that you run the risk of being crushed by Costa etc. but my preference would be to buy somewhere which already has competition from the established chains, but is still profitable.
I have done some browsing, and mailed a few businesses for sale over the weekend for more info - and have a number of replies to go through this evening.
I know the key thing to check is whether they actually make any money, what's included in the sale, costs like wages / rent etc.
But what steps are actually needed if I get serious about this?
There are a million reasons I shouldn't do this - I have zero experience of running a business, I don't have a clue what it involves and if I do it, it's probably going to be in an area I know nothing about. So I fully expect people to tell me I'm mad.
On the other hand, I am looking at stuff with a purchase cost that I can afford to fund myself, particularly if I sold one of my cars. I have no mortgage, no dependents and hence I feel I can afford the risk if I'm willing to take the chance.
I find myself particularly drawn to the small catering type things - coffee / cake shops, sandwich shops, small cafes etc. I realise that you run the risk of being crushed by Costa etc. but my preference would be to buy somewhere which already has competition from the established chains, but is still profitable.
I have done some browsing, and mailed a few businesses for sale over the weekend for more info - and have a number of replies to go through this evening.
I know the key thing to check is whether they actually make any money, what's included in the sale, costs like wages / rent etc.
But what steps are actually needed if I get serious about this?
AyBee said:
I'm not convinced I can help here, but I'd think getting an accountant to look at the books would be my first step and trying to establish why the existing owner wants out. I'd be interested to know where you're browsing if you don't mind please?
Yep, I'd assumed an accountant would be needed.The common reasons for sale - at least stated in the ads - seem to be :
Retirement
To concentrate on their other business(es)
This is where I was looking at the weekend :
http://uk.businessesforsale.com/
- get an accountant
- find a friend who has run a business (preferably a similar business)
- factor in some time (e.g. 3 months minimum) working for someone else in the same business sector to learn it - that way they will pay you to learn, otherwise you will be paying to learn through the cost of making mistakes
- possibly look into a business where you can buy in, but as a part of the deal they stay on for xxx period to show you the ropes (be aware though that they may have no incentive to do so once they consider the money banked, so make the contract / payments staged and dependant on how this pans out
if you can find a model where the business type can survive (e.g. coffee shop against chains):
- buy in the best area, but not necessarily the best business - no point paying at the top of the market, you want to be able to grow the business - so there needs to be room to improve
- spend a couple of weeks travelling and study other businesses doing the same - e.g. independent coffee shops - talk to the owners and find out what makes them do well - look at what they offer / how they are different / talk to people in the local area to understand why they use that shop not Costa etc.
- consider whether buying a business (and its issues as well as its benefits) is sensible against starting up your own - doing what others have done elsewhere but hasn't yet been done in your area...
- find a friend who has run a business (preferably a similar business)
- factor in some time (e.g. 3 months minimum) working for someone else in the same business sector to learn it - that way they will pay you to learn, otherwise you will be paying to learn through the cost of making mistakes
- possibly look into a business where you can buy in, but as a part of the deal they stay on for xxx period to show you the ropes (be aware though that they may have no incentive to do so once they consider the money banked, so make the contract / payments staged and dependant on how this pans out
if you can find a model where the business type can survive (e.g. coffee shop against chains):
- buy in the best area, but not necessarily the best business - no point paying at the top of the market, you want to be able to grow the business - so there needs to be room to improve
- spend a couple of weeks travelling and study other businesses doing the same - e.g. independent coffee shops - talk to the owners and find out what makes them do well - look at what they offer / how they are different / talk to people in the local area to understand why they use that shop not Costa etc.
- consider whether buying a business (and its issues as well as its benefits) is sensible against starting up your own - doing what others have done elsewhere but hasn't yet been done in your area...
Couple of pointers....
An accountant is a must. Due diligence is vital.
Consider the impact of the outgoing management not being there when you take over....in other words, do people buy the coffee and sardines from 'Bob' or 'Bob's Sarnies'.
Calculate the comparable cost for starting something from scratch.
Also, when it comes to food, there are numerous safety and health certifications needed. I don't know the exact ins and outs of this but you should check whether these would be transferred to a new owner or whether you need to reapply or re-certify - could throw up a hidden cost on day one.
Before you take the plunge; spend time in your car watching people come and go - get a 'feel' as to whether is viable or not (Due Diligence is black and white but business rarely is)
An accountant is a must. Due diligence is vital.
Consider the impact of the outgoing management not being there when you take over....in other words, do people buy the coffee and sardines from 'Bob' or 'Bob's Sarnies'.
Calculate the comparable cost for starting something from scratch.
Also, when it comes to food, there are numerous safety and health certifications needed. I don't know the exact ins and outs of this but you should check whether these would be transferred to a new owner or whether you need to reapply or re-certify - could throw up a hidden cost on day one.
Before you take the plunge; spend time in your car watching people come and go - get a 'feel' as to whether is viable or not (Due Diligence is black and white but business rarely is)
Check out all the usual financial and legal stuff but pay the place a couple of visits and see how important the vendor is to the business.
If it's all about the vendor because of personality/secret recipes or some such then think twice.
In my limited experience of these things you can make a half decent living if you are prepared to work like a dog and make sure you deliver a consistent product day in day out.
If it's all about the vendor because of personality/secret recipes or some such then think twice.
In my limited experience of these things you can make a half decent living if you are prepared to work like a dog and make sure you deliver a consistent product day in day out.
Thanks, some useful points so far.
A lot of the businesses I made enquiries about over the weekend I can reject immediately now I have more details of their location.
A couple look interesting. One of those appears overpriced to me, but might be worth a look. One of them looks promising on the surface, and I may very well visit as a customer at the weekend and see what I think.
A lot of the businesses I made enquiries about over the weekend I can reject immediately now I have more details of their location.
A couple look interesting. One of those appears overpriced to me, but might be worth a look. One of them looks promising on the surface, and I may very well visit as a customer at the weekend and see what I think.
There's not that much to it really. You will learn everything you want to know by speaking in person with the owner(s). Whether you trust what they say is another matter. It can be a bit of a game.
Visiting the premises is fine but one day doesn't define the business.
P&L accounts are fine, but you should be looking to verify with VAT returns, payroll data, tangible stuff...which should be to hand. If simple things aren't straightforward then that rings alarm bells, to me anyway.
Then forecast - rates could go up, staff costs for certain, business are not stagnant. You've got the potential for the latest figures to be summer 2015 and obviously a lot has changed - minimum wage for example.
Employ reputable legal professionals where necessary, particularly with leases, and missives.
Funding adds a layer of complexity - see above.
I've been through the process a few times now, currently in it again.
To add - if you buy something you know little about work in it for a couple of weeks before completion so you know what you're doing!
Visiting the premises is fine but one day doesn't define the business.
P&L accounts are fine, but you should be looking to verify with VAT returns, payroll data, tangible stuff...which should be to hand. If simple things aren't straightforward then that rings alarm bells, to me anyway.
Then forecast - rates could go up, staff costs for certain, business are not stagnant. You've got the potential for the latest figures to be summer 2015 and obviously a lot has changed - minimum wage for example.
Employ reputable legal professionals where necessary, particularly with leases, and missives.
Funding adds a layer of complexity - see above.
I've been through the process a few times now, currently in it again.
To add - if you buy something you know little about work in it for a couple of weeks before completion so you know what you're doing!
Edited by Frio3535 on Monday 20th February 18:37
Edited by Frio3535 on Monday 20th February 18:42
Frio3535 said:
To add - if you buy something you know little about work in it for a couple of weeks before completion so you know what you're doing!
Definitely this. Make it part of the deal. Don't concern yourself with why they are selling it, they are selling it because they don't want it any more.
Don't worry about Costa etc, there are plenty of people who don't like that sort if thing.
I'd also want to see that they have effective systems documented.
Effectively an O&M manual for the day to day running of the business.
If you lack prior business experience then this is even more important.
If you buy a franchise then brand aside, these systems and their proven successful way of doing things is effectively what you're paying for.
Effectively an O&M manual for the day to day running of the business.
If you lack prior business experience then this is even more important.
If you buy a franchise then brand aside, these systems and their proven successful way of doing things is effectively what you're paying for.
Rates going up, food costs going up, uncertainty ahead - Jesus how hard do I have to try to talk you out of it for at least a year.
Are you employed ? If so what's your appetite for 12 hour days, working weekends, taking holidays when the staff allow it ?
You'll be a slave to trip advisor fretting over some knob head slating your tiffin consistency.
If you STILL want to do it at least wait till you they go bust to buy the assets
Are you employed ? If so what's your appetite for 12 hour days, working weekends, taking holidays when the staff allow it ?
You'll be a slave to trip advisor fretting over some knob head slating your tiffin consistency.
If you STILL want to do it at least wait till you they go bust to buy the assets
DSLiverpool said:
Rates going up, food costs going up, uncertainty ahead - Jesus how hard do I have to try to talk you out of it for at least a year.
Are you employed ? If so what's your appetite for 12 hour days, working weekends, taking holidays when the staff allow it ?
You'll be a slave to trip advisor fretting over some knob head slating your tiffin consistency.
If you STILL want to do it at least wait till you they go bust to buy the assets
Costs pretty much always go up - that's inflation.Are you employed ? If so what's your appetite for 12 hour days, working weekends, taking holidays when the staff allow it ?
You'll be a slave to trip advisor fretting over some knob head slating your tiffin consistency.
If you STILL want to do it at least wait till you they go bust to buy the assets
Yes, I am employed. However, as I said to somebody today - it's hardly a one way ticket. I've been doing the same kind of crap for almost 30 years, so if I did try a big change and it all went horribly wrong, it's not like I'd suddenly be unemployable.
My main concern is whether these places do / can actually generate enough income to provide a reasonable standard of living.
DSLiverpool said:
Rates going up, food costs going up, uncertainty ahead - Jesus how hard do I have to try to talk you out of it for at least a year.
Are you employed ? If so what's your appetite for 12 hour days, working weekends, taking holidays when the staff allow it ?
You'll be a slave to trip advisor fretting over some knob head slating your tiffin consistency.
If you STILL want to do it at least wait till you they go bust to buy the assets
In many cases rates have gone down, quite a lot of them have gone to zero. Coffee shops in the south do well, and very few of them bother with a 12 hour day. Typical hours a 8 or maybe 9 til about 5, Sundays off.Are you employed ? If so what's your appetite for 12 hour days, working weekends, taking holidays when the staff allow it ?
You'll be a slave to trip advisor fretting over some knob head slating your tiffin consistency.
If you STILL want to do it at least wait till you they go bust to buy the assets
Holidays are an issue though. Best to get a place with a big enough turnover to employ someone capable of taking over for a couple of weeks. Or avoid the problem by closing for a couple of weeks in Jan/Feb.
davek_964 said:
My main concern is whether these places do / can actually generate enough income to provide a reasonable standard of living.
A good many of them do, depending on what that means to you, especially the places with a good turnover, £150K ish will see a net profit of maybe £50K though your wages will have to come out of that.davek_964 said:
DSLiverpool said:
Rates going up, food costs going up, uncertainty ahead - Jesus how hard do I have to try to talk you out of it for at least a year.
Are you employed ? If so what's your appetite for 12 hour days, working weekends, taking holidays when the staff allow it ?
You'll be a slave to trip advisor fretting over some knob head slating your tiffin consistency.
If you STILL want to do it at least wait till you they go bust to buy the assets
Costs pretty much always go up - that's inflation.Are you employed ? If so what's your appetite for 12 hour days, working weekends, taking holidays when the staff allow it ?
You'll be a slave to trip advisor fretting over some knob head slating your tiffin consistency.
If you STILL want to do it at least wait till you they go bust to buy the assets
Yes, I am employed. However, as I said to somebody today - it's hardly a one way ticket. I've been doing the same kind of crap for almost 30 years, so if I did try a big change and it all went horribly wrong, it's not like I'd suddenly be unemployable.
My main concern is whether these places do / can actually generate enough income to provide a reasonable standard of living.
What are you actually looking for?
If you think you're buying into something as a bit of a step back, almost a hobby business, then I think you're likely to be disappointed and struggle to make enough money to live on.
If you actually like the idea of working full time in a coffee shop, then get a job doing this before spending money - because it's nowhere near as easy as it sounds. Full time customer service roles like that can be soul destroying.
We've seen a number of cafe / coffee shops come and go in the village over the years. Nobody seems to make enough money out of it to actually stick at it for more than a year or two.
If you think you're buying into something as a bit of a step back, almost a hobby business, then I think you're likely to be disappointed and struggle to make enough money to live on.
If you actually like the idea of working full time in a coffee shop, then get a job doing this before spending money - because it's nowhere near as easy as it sounds. Full time customer service roles like that can be soul destroying.
We've seen a number of cafe / coffee shops come and go in the village over the years. Nobody seems to make enough money out of it to actually stick at it for more than a year or two.
Trabi601 said:
What are you actually looking for?
If you think you're buying into something as a bit of a step back, almost a hobby business, then I think you're likely to be disappointed and struggle to make enough money to live on.
If you actually like the idea of working full time in a coffee shop, then get a job doing this before spending money - because it's nowhere near as easy as it sounds. Full time customer service roles like that can be soul destroying.
We've seen a number of cafe / coffee shops come and go in the village over the years. Nobody seems to make enough money out of it to actually stick at it for more than a year or two.
I am looking for an opportunity to be my own boss, primarily because I've had enough of working for people who frankly don't have a clue what they are doing, and working for businesses who's only concern is keeping the shareholders happy.If you think you're buying into something as a bit of a step back, almost a hobby business, then I think you're likely to be disappointed and struggle to make enough money to live on.
If you actually like the idea of working full time in a coffee shop, then get a job doing this before spending money - because it's nowhere near as easy as it sounds. Full time customer service roles like that can be soul destroying.
We've seen a number of cafe / coffee shops come and go in the village over the years. Nobody seems to make enough money out of it to actually stick at it for more than a year or two.
Whilst I know I am good at what I do, that doesn't transfer very well to anything useful, therefore I would need to find something that does not require specific skills. I could not suddenly be a mechanic / chips away contractor / hair dresser etc.
I am by no means a chef, but enjoy cooking etc hence something with a slight catering twist appeals. 'Working in a coffee shop' is not a target for my career at all - I'm late 40s, have a professional technical job and whilst I am by no means rich I earn enough that I have no mortgage, own 3 cars - two of which are very nice and am generally comfortable.
I do not expect to be able to maintain my current quality of life, and I do not expect to be able to keep my current cars. I think the running costs would be excessive for the income I'm likely to get. But, I am seriously considering whether a change in lifestyle would be suitable compensation, and I do think that I'll never know unless I try. Whether I actually will or not, remains to be seen.
In which case, I'd really advise against it.
Most businesses such as this stay afloat because the owner is working in them full time - and possibly more than full time, as DS noted, you end up doing the paperwork at home, out of hours.
You may be best going to a franchise show to see what's on offer - you'll need a bigger up front investment, but some of the franchise offerings really do give you an opportunity to properly run a business, without getting bogged down with working too much on the shop floor.
(We operate 50% of our estate on self-employed 'retailers', who run a cluster of sites on our behalf - many make a bloody good living out of it, too)
Most businesses such as this stay afloat because the owner is working in them full time - and possibly more than full time, as DS noted, you end up doing the paperwork at home, out of hours.
You may be best going to a franchise show to see what's on offer - you'll need a bigger up front investment, but some of the franchise offerings really do give you an opportunity to properly run a business, without getting bogged down with working too much on the shop floor.
(We operate 50% of our estate on self-employed 'retailers', who run a cluster of sites on our behalf - many make a bloody good living out of it, too)
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