You’re ready to open your own retail business! Now that the time has come, should you start from scratch, or should you buy a business and make it your own? If you choose to buy a retail business, then you should carefully evaluate every aspect of the business, from same store sales, profit margins, market potential and its reputation in the community. If the business is in a great location and has been doing well, then it can provide a great avenue for you to get into the retail business and save some of the startup costs you will have to fund if you start your own retail business from the ground up. Here are a few of the angles you should carefully consider when evaluating an existing business:
- Gather all the business intelligence you can. Review the financial statements and tax receipts and returns for at least the past five years. If the business has not been operating for five years or more, then make sure that sales are increasing year to year to year. Any sense of decline in a new retail business should be a warning sign.
- Look at the debt portfolio and understand your role, if any, in assuming it.
- Review the customer lists for the company. Is it active and viable? Does the business have a good measurement system in place to track customer satisfaction?
- Review the vendor and supplier list and accounts payable. Does the business owe outstanding or past due balances to suppliers? Contact the suppliers individually to understand the business relationship and practices.
- Contact the Better Business Bureau to see if there is a history of unresolved complaints with this retail business.
- Contact an attorney who specializes in buying and selling small businesses, especially retail.
- Find an independent appraiser (possibly through your attorney) who can offer you a far market value of the business. Don’t be quick to accept an existing appraisal.
- Talk to current customers and other business owners in the community about the reputation the store has built up over the years. If the store has a bad reputation, new ownership may or may not be able to overcome the local perception.
- Use the business intelligence you have gathered here to help you negotiate the selling price.
- Have your attorney draw up the sale contract and make sure that you fully understand the terms and limitations involved, including the payment schedule.
Be an educated consumer. If there are any red flags or warning signs, then the business may not be right for you. You may be better off starting your own business. Let the advice of your attorney, appraiser and accountant guide you through the decision and use all the resources available to you to determine of this business will suit your vision and future plans for growth.