Help Buying a Retail Business

May 10, 2006 10:17 AM

BuyingRetailBusinessFilter: What should my first steps be?

Im interrested in buying a local retail business thats for sale. However i dont know where to start. Id like to know what i need to do first(Finanacial statements, Confidentiality agreements, etc..) so i can get the ball rolling. Any and all comments are very much appreciated.Thanks!

posted by flipmiester99 to work & money (4 comments total)

Guide To Starting a Business in Texas

Some tax considerations.

Links.
posted by ND¢ at 11:17 AM on May 10, 2006

I think you'd want to assemble your "acquisition team," as if you were a public corporation, looking to do acquisitions of other businesses. You need some independent professionals you can trust to help you evaluate the business, set a fair price for it, and determine your ability to buy and operate it. At a minimum, this is probably a CPA and an attorney, who will review the financial statements and legal history of the business, and give you an independent assessment of its viability and value. In addition, these people should be able to help you prepare and structure any documentation needed for financing and closing the acquisition, and getting the business operating under your ownership.

If there are employees involved, you'll need wage and labor compliance advice, especially if the number of employees is more than the number set by state and federal law for EOE compliance, etc. As a retail business, you may also need insurance and real estate opinions, clarifying the value and acceptability of the premises for the operation. As your deal moves forward, you'll also want to choose a banking relationship, to handle your cash management and payments/receipts processing.

So, I'd start by approaching a local CPA and attorney with your interest, and establishing a client relationship with them. Many firms have policies of keeping their fee structures low through a simple acquisition process, believing that this is the best way of growing new business for their own firms, but you can discuss fees and payments for services performed when you interview these professionals.
posted by paulsc at 12:55 PM on May 10, 2006

I've done this. With the help of a Small Business Administration volunteer consultant, I did a pro-forma profit & loss statement for my 1st year of business. It factored in costs of rent, utilities, inventory, staff, debt, and my income. Doing the research to complete this was the best preparation I could have done. It was before the availability of spreadsheets, so I did it with paper and pencil. You will be able to do it more precisely with a spreadsheet.

I had a crappy accountant whose bad advice was expensive in the long run. A really good accountant is very important. I had a good lawyer, who helped me put together my offer, and make things legal. Previous owner signed a non-compete, but she was leaving the area, so it was not an issue.

I had a great experience and learned a lot owning a retail business. I have a gmail account if you have questions. Good luck.
posted by theora55 at 2:51 PM on May 10, 2006

Go to the local B-school and find out whoever teaches entrepreneurship. You should be able to get their ear for $50-100/hr for a few hours.

My minimally informed opinion, advice is worth exactly what you paid, etc.:

1) Any business that is for sale that you didn't hear about through your contacts (i.e., publicly advertised) has been passed over by other people, probably with more money and experience than you. That said, there are always exceptions, so good luck.

2) Site selection is probably the most important part of retail. Talk to other nearby tenants/businesses, look at the neighborhood, whether it's easy to make a right hand turn into the parking lot, all the little intangibles that only register subconsciously that make you buy gas from the BP instead of the Exxon (or whatever).

3) Talk to an accountant that is experienced in valuation. Depending on how risky the business, you should expect your investment to be returned within 5-10 years (10-20% IRR). This can vary wildly, of course.

Good luck!
posted by oxonium at 7:29 PM on May 10, 2006