Purchasing a retail business

May 28, 2008 7:31 PM

Specific questions, and general advice and suggestions, on purchasing a very prominent, locally owned, retail business.

For the past decade, I have been a regular customer at a local retail business. It's a single location, but it's very prominent and well known in both our city and on a national level (think in terms of The Strand in NYC). The owner has recently announced that they are looking to sell the business and retire, and have retained a local business broker to manage the process. The price has not been made public, nor have the financial records of the business (both will be to serious bidders), but the owner says it is very profitable and in great shape. They have also said that they will not sell to a chain, but only to a local person who will keep the staff and not make substantial changes to the business.

I have non-retail business experience, strong ties to the community, a familiarity with the store and industry, and no desire to substantially change the business or the (fantastic!) staff. But, as much as I know about business, I know next to nothing about buying a pre-existing one.

A few questions:

1 - If you've purchased a pre-existing business (retail or not), what’s the best advice you received in the process? What do you wish you had known ahead of time that you learned the hard way?

2 - I'll need to take out a business loan to cover the cost of the purchase. In a situation like this, generally how much, if any, of the total cost is the buyer expected to put down? Is a loan for the total cost of the business normal, or even possible? (Not yet knowing the cost of the business, I want to understand my full spectrum of options!)

3 - I can get general financial information from D&B. I can get general operational information by watching the business for a given period of time. What else can I find out before approaching the broker or owner and starting a conversation with them?

Any other advice, suggestions, or words of wisdom would be appreciated. Emails can be sent to a throw-away account at [e-mail]. Thanks!

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

If the business is food related, keep in mind the rapidly rising cost of food, especially wheat. Wheat flour has pretty much quintupled in price over the past six months, and the price increase shows no sign of abating due to a number of factors. The previous owners might be getting out of business because they would rather hand it off to someone else as opposed to piss off their customers-of-fifty-years-or-more by doubling their prices.

In a nutshell: Make sure you run the numbers yourself to see what the projections are, don't depend on past performance. You don't want to be the new owner that runs X into the ground.
posted by SpecialK at 8:51 PM on May 28

My family owned a bunch of businesses. I personally have never bought or sold one, but I've picked some stuff up along the way.

1. The best advice-- no one watches your money like you do. Expect to be involved 24-7, and expect to work the longest hours.

2. Well, it varies. Is the owner willing to hold a note? In our line of work, the businesses were priced at x times billing, where x could vary widely depending on the market, the economy, the expected future viability of this particular business, and whether or not we were just interested in buying the accounts to fold into one of our existing offices.

3. Forget "watching the business." Hire an account familiar with this sort of business and have him go over the books with a fine-toothed comb. If the owners balk at this, walk away.
posted by astruc at 8:59 PM on May 28

How involved is the owner (and the owner's family, etc) in the public face of the business?

In general popular, local businesses are built on the charisma of the owners, and when the owner goes, so does the business. As well intentioned as you might be it is incredibly difficult to recreate the social magic that an invilved owner/staff creates.

Do regular customers know the owner and does he/she know them? Can you talk to current employees about the impending sale and determine if they want to stay around after the sale? The greater the perceived turnover, the bigger drop off you're likely to see in business.

What do regular customers love about the place? If it's price, selection or location you're okay, but if it's less tangible (specific people, emotional attachment, etc) be wary.

How compatible is your style with theirs? In other words, can you accurately anticipate what products to ffoer, who to hire, what music to play, etc?

You will essentially be inhabiting the ghost of the old business. This will only work if you can keep from putting off the regular customers in the process.

(And hire an accountant to go through the books and review all of the supply contracts, lease, etc. to make sure you'll be able to renew them at existing rates.)
posted by Ookseer at 11:30 AM on May 29

Harvard Book Store? I bet they're asking an arm and a leg. Bookselling is a notoriously unprofitable business. Be sure you don't overpay.
posted by libraryhead at 6:27 PM on May 29