small business owners, need advice....

[03ozwhip]

so im looking into taking over a small business that has been open for quite some time and is now being sold due to retirement.

this is the first time ive ever looked into something like this and am quite serious about it, i know its very profitable but dont know just how profitable yet.

my question is where do i start? what do i look for when getting into something like this, what questions should i ask or anything else i might not be thinking of.

TIA.

[FlySi]

what kind of business?

[03ozwhip]

i dont really want to say as of yet, maybe if it comes to fruition i will. it doesnt reall matter a business is a business, this one is just a small family owned business.

[Cos]

It may help to narrow down a BIT. Restaurant, retail shop, small services shop. Where is the space? Is it rented, owned, etc.

We dont need to know the business exactly but this would help to understand what you would need to look into.

Also do you have the cash to purchase or do you have to get a loan?

[roopi]

Originally posted by 03ozwhip
i dont really want to say as of yet, maybe if it comes to fruition i will. it doesnt reall matter a business is a business, this one is just a small family owned business.

The type of business is relevent. In different businesses you need to look at different things to determine how profitable it really is. A restaurant/lounge/bar is very different from a distribution business. Also if you were getting into a business that has alot of issues with new technologies it is something to consider as well. A CD retailer could have been very profitable for 10 years however you know profits are only going to dwindle until the business is bankrupt.

First thing you need to do is look at the books. Are the owners currently working there? If so what type of hours? How much pay are they taking? What's left over after the owners wages? How dependant is the business on the experience of the owners? Are they willing to stay on for 6 months after you purchase it to fully train you?

[03ozwhip]

didnt really think it was relevant but its a retail shop in a small town with services that everyone uses for day to day and especially certain occasions all year round and business willl probably be *mostly* the same every year im assuming.

i do know the owners work there and its an 8 hour, 6 day a week gig dont know their rate of pay yet but havent gotten that far.

yes they will be there to train for a certain period of time and its something anyone can learn regardless of experience, but im sure experience in the field would suffice and if i did this i would definitely further my education in the field.

i have an aunt that owns a law firm (uncle and cousins the lawyers)but does the accounting so she will be looking at the books to see if its a good decision or not profitability wise.

i have half the $$ up front and the other half would be a small business loan. anything else i havent thought of that i dont have here? i think im on the right track but want to have all my t's crossed and my i's dotted you know, dont wanna look like an idiot lol. thanks for your replies so far guys.

[A790]

Understand that there's a good probability that you aren't buying a "business", but rather you are buying yourself a job.

[03ozwhip]

oh i understand that. ill be working there full time as will my wife. im not buying the business to get rich, rather to do something everyone wants to do and work for themselves, which for the most part makes people a little happier in life.

ill probably go into debt for the first couple years im sure and im sure it will be stressful but it could all be worth it in the end.

[barmanjay]

Get the financials!

Next,.. get the lease papers

[dawerks]

1) ACCOUNTANT!
2) LAWYER

If you're proceeding without either one, you better be ready for the consequences.

Then, talk to your banker and see what kind of money you can borrow, now and later and 'just in case' money.

Ideally you know someone who owns their own business and is a close friend/family friend. You will probably have about 1000 questions that no forum will be able to answer.

[D. Dub]

Originally posted by dawerks
1) ACCOUNTANT!
2) LAWYER

If you're proceeding without either one, you better be ready for the consequences.

Then, talk to your banker and see what kind of money you can borrow, now and later and 'just in case' money.

Ideally you know someone who owns their own business and is a close friend/family friend. You will probably have about 1000 questions that no forum will be able to answer.

Yup that's about it. Make sure the accountant is a CA or CMA and has lotsa small biz experience.

[A790]

Originally posted by barmanjay
Next,.. get the lease papers

This.

If the lease is expiring get a guarantee of renewal. If you don't have that, well, you don't have a business.

[TomcoPDR]

Originally posted by A790

This.

If the lease is expiring get a guarantee of renewal. If you don't have that, well, you don't have a business.

Unless he's buying the property too. A lot of smaller towns sell everything, business/inventory, and property (building/land)

[Isaiah]

Originally posted by A790
Understand that there's a good probability that you aren't buying a "business", but rather you are buying yourself a job.

Verbatim.

Originally posted by 03ozwhip
...im not buying the business to get rich, rather to do something everyone wants to do and work for themselves, which for the most part makes people a little happier in life.

...im sure it will be stressful but it could all be worth it in the end.

You would be surprised. I've been an entrepreneur for several years and will soon be selling my business and re-entering the job market. It may seem like that's "something everyone wants to do" and "for the most part makes people a little happier..." but I can tell you that it's not always the case.

Consider that the current owners may have relationships in the community with loyal repeat customers that shop there because they like dealing with them. Rest assured that you will be losing a piece of that business, and a relatively large piece if the business is in a small town as you say.

Also consider that if you will be working there, you need to consider that whatever you pay yourself and your wife in salaries should be deducted from the net profits since you would otherwise have to hire people to do those jobs. The value of the business would therefore drop by that amount.

If you haven't given any thought to opportunity cost, this is something that you should also consider. Consider how many combined hours you and your wife will be putting into the business. Now think about what the value of those hours would be in a typical field that you would each be employed in.

Finally, remember that small business owners usually overstate their expenses and that some keep two sets of books for tax purposes. In other words, what you see is not always what you get.

Good luck.

[dawerks]

The headaches are worth having no boss.

But then your customers turn into your mini-bosses and that can be much worse. I would never run a retail/many mini-boss type of business.

I only have 3-4 mini-bosses a year I can deal with those headaches.

[03ozwhip]

thanks for all your help, ill take it all away and we will see what we come up with.

[Masked Bandit]

One angle to consider is whether or not you can run this business in a manner that at some point you & the wife can cut back your hours / take some time off. You most likely won't ever be able to be 100% hands off and it may even take you a few years to get to the point where you're just putting in a standard 40 hour week (instead of 60).

Also, is it an industry that could be wiped out by technology at some point? I'm pretty sure this isn't you but I'm thinking something like a video rental store. That's something that won't even exist in 10 years (or sooner).

Does the business have an honest chance to expand if managed correctly?

I'm assuming you'll need staff of some kind. Staff is one of the hardest parts of any small business. Is there enough profit in the business to pay for quality (low headache) staff?

Underestimate income by 10% and over estimate expenses by 20%. If the numbers still work with those factors then it's probably worth a close look.

[autosm]

If it is a share sale be careful you might assume liability for previous sales / work.

Your own biz is great, go for it if you think it will fly. As long as you are not risking your house or all your savings.