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Thinking of buying a business


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#1 ~iMum~

Posted 30 November 2012 - 02:43 PM

Hi EB original.gif

The local corner shop in our suburb has become available for lease (freehold also available, but we're not in a position to buy outright at present) and I'm thinking of giving it a go. I've contacted the vendors agent and had a look through the financials they provided and it is a solid, though modest, profitable business. At present it's just a dingy convenience store, ergo it has a ton of potential (I'm thinking bakery bread, fresh fruit and veg, etc). Apart from the long hours and staff, what are the negatives I'm not seeing? Hit me with any questions, too.

#2 QueenElsa

Posted 30 November 2012 - 02:53 PM

My DH runs his own business. Other negatives are erratic income (none initially), minimal holidays, working weekends and evenings as there is always something to do, constant staffing problems - he can always do it better than his staff.

If you are in a good area (weathly, lots of SAHM)though I think your idea could work well. Check out the local competition.

#3 ~iMum~

Posted 30 November 2012 - 03:02 PM

There is only one other convenience store in the suburb and it's not as popular for a variety of reasons. In any event, the suburb is large enough to support the two. There is no other businesses in short walking distance and public transport sucks.

Ours is an older suburb and council is starting to talk heritage listing; there is a good mix of older residents and young families.

Currently, they only sell your usual over-priced chocolates, soft drinks, and smokes. I would be looking to get in local produce and there is unused takeaway facilities there that could be explored, too. I would also like to stock organic products.

There will be income from the get go as the business is already established.

For those in WA, I'm picturing a semi-deli like the awesome ones around Cottesloe and Claremont.

#4 Shellby

Posted 30 November 2012 - 03:26 PM

QUOTE
There will be income from the get go as the business is already established.


Don't always believe the books, plus customers maybe loyal - to the old owners not the store itself so you find alot of the customers will use the time to check out the competition as they feel they don't owe the old owners anymore.

I have met many people who have brought a 'stable' making money business to find that didn't keep happening after they brought it.

There are long hours and no holidays and even when you do have holidays your on call and half the time don't go away incase the business needs you. Once you start hiring staff you will find noone does as good as you so sales when your not there are normally less so you tend to stay there more so your not paying staff and get more returns.

When your not there your thinking about it, thinking options and things to change. Or your doing your books and BAS, so you never get to just close the door at night and switch off - there is always something to do.

Also where is the local supermarket? Alot of our corner stores have died because if I'm going out anyway I may as well go that extra km or 2 and get the milk cheaper and those whatever I like I can get there that they don't stock.

Also be careful once you get into takeaway food etc as you will need food handling cert. and then include inspections from the council etc which you get to pay for. So it can be a big start up if that isn't already in place, as well as checking the current equipment will meet the current guidelines for temps etc. Same with deli meat, that is where most food poising occurs so its very strict food handling skills as you would hate for a staff member to leave something out 5 minutes to long and your customers end up sick.

Yes I'm a negative on small businesses, mainly shops. I have been there, I also know many who have been there or are there. I have seen how run down you get, have the income changes each week so you can't budget well. I have seen people's health go south and alot of them when they finally get out wish they never did it to start with - me being one of them.


#5 ~zael~

Posted 01 December 2012 - 07:14 AM


Yes I'm a negative on small businesses, mainly shops. I have been there, I also know many who have been there or are there. I have seen how run down you get, have the income changes each week so you can't budget well. I have seen people's health go south and alot of them when they finally get out wish they never did it to start with - me being one of them.
[/quote]

Totally agree.  We have a retail (butcher shop).  I swear my husband has aged 10 years in 2 years.  We can't wait for the lease to end to get out.


#6 emnut

Posted 01 December 2012 - 10:08 AM

cashflow is always an issue in small businesses such as these & like a pp said, what appears in books often doesn't turn out to be the reality when operating the business.  Also in a business such as this, lack of holidays & family time would be a huge negative for me personally.

ETA the changes you are looking at making would also be quite a large outlay which while they eventually may end up helping to grow the business, initially will be a drain so you would need to be willing to operate at a loss for a while as you recoup those costs.

Edited by emnut, 01 December 2012 - 10:10 AM.


#7 WonkieTonkie

Posted 01 December 2012 - 10:15 AM

If you're in wa, have a look at bbar cafe in gwelup. A very good example of a dodgy deli turned into a gorgeous cafe. They don't do fruit and vege but they do things like jazz nights, amazing wildfired pizza and excellent breakfasts. People go there for occassions now. It's a fab place and started with just a few tables and takeaway and has boomed!

#8 JRA

Posted 01 December 2012 - 10:19 AM

Most corner stores I know have gone out of business. With 7-11 and supermarkets open all hours now, it is a tough gig for corner stores.

You say local produce, are you in the country?

You also mention overpriced chocolates etc. How would you make them cheaper in the future? You don't have bulk buying power, generally you are buying from a retailer and simply reselling. That costs.


To change the business will cost, as has been said. Getting licence etc for takeaway takes time for health regulations etc.

Good luck

#9 Stellajoy

Posted 01 December 2012 - 10:42 AM

QUOTE
Currently, they only sell your usual over-priced chocolates, soft drinks, and smokes. I would be looking to get in local produce and there is unused takeaway facilities there that could be explored, too. I would also like to stock organic products.


YOU might want to sell organic local produce and local produce...but is there a market for it? will people buy it? how will you compete with the supermarkets?(who also sell organic produce).

If you are now considering a takeaway then thats a completely different business. What facilities exist? (me and DH just bought a cafe/takeaway so could offer advice).

Will you bake your own bread?

If you want some negatives of owning a cafe/takeaway here are some from experience:

staff (ARGGGG...we have only just found good reliable staff..but then can disappear at a moments notice)
To make a small business profitable you will find that a couple both have to work in it and not draw a wage.

Time. as PP said. Doing the books, shopping, deep cleaning (such as deep fryers and combo ovens...these are awesomely suck hole things to clean), baking and cooking, sourcing stock and supplies, are all things that cannot easily be done during opening hours. Be prepared to dedicate a huge amount of time, especially in the beginning.

Cleaning. If you plan on selling food and cooking then imagine you are cooking for 200 people for christmas lunch. then imagine cleaning up after them, including sweeping and mopping every inch of the floor, moving all fridges and ovens out, scrubbing walls, every surface, and dishes. Then do it all again tomorrow...and repeat.

If you are going to turn it into a fancy little cafe...can you cook? most small places could never afford to actually hire a chef/cook and would normally be owner run.


#10 Stellajoy

Posted 01 December 2012 - 10:45 AM

oh yes and the outlay. when we purchased our place we didnt even think that the old owners would obviously leave us with no stock (obviously different  in a grocery store where stock may be included) we had to spend $$$$ restocking the simplest things, flour, sauces, rice, cleaning products, it adds up very quickly. on top of this keep in mind that all your equipment will probably break in the first few months.

Learn how to perform maintenance on fridges such as cleaning condensers!

#11 ~iMum~

Posted 01 December 2012 - 01:14 PM

Wow. So much constructive advice, thank you all.

In response to some of the points raised:

- not in WA, regional in QLD. A lot of people have gardens locally and I grow myself, so maybe some of that produce could also be sold? For example, a lot of locals drive 45 minutes to buy a carton of backyard chook eggs instead of supermarket ones. Herbs from my own garden could be sold, too. (Regulations permitting, need to look in to that yet).

- we are in a suburb which is closed off somewhat due to being bordered by 2 main roads, a railway line, and a river. Although the closest Woolies is only in the next suburb, it's a pain to get to for last minute milk type purchases.

- maybe not so much stocking organic stuff, but healthier, less processed stuff. There's a quite a few trendies in the suburb who this would be aimed at.

- small changes to start with that don't cost the earth. For example, stop stocking brand name bread and start having a local bakery deliver instead. Getting in milk from local dairies.

- the shop is on our street and one block away, current staff are keen to stay on and, having just finished uni myself, I could draw on uni students for extra staff, as well as family to help out in a pinch. DH works casual shift work, so he has time to help out, too.

- there is no great loyalty to the current owners - the husband is a grump and everyone knows it. Lol. They have only had the place for 6 years and are selling to retire.

- 7/11 stores aren't up here and there's nothing on the radar for any future commercial development in the suburb. It would remain a niche market for some time.

I went for an inpspection yesterday afternoon and there is huge back yard which is grassed and surrounded by gorgeous gardens, and fully fenced. The current owners had plans to put seating out there, but never got around to it. The furniture will be available as part of the lease. I was thinking local mothers groups could be invited to meet there, or maybe offer a simple menu for Sunday breakfast?

We have frequented the shop ourselves for the past 3 years, since moving into the suburb, so are familiar with the clientele and products currently being sold.

I went through the books last night and was pleasantly surprised at how solid a business it is as it currently stands. With a few changes and cheery owners I am envisaging it becoming an integral part of the community (ok, I realise I might have rose coloured glasses on a little bit with that last comment original.gif ).

Looking at the financials for their least profitable year, 2 years ago, and even allowing for staff and all other expenses there was still a small profit to the owners. I have not been working this year, and get nothing form Centrelink, so anything income is an improvement. Lol.

I've been turning this idea over for 2 days now and am yet to find any glaring negatives. The cynic in me says there has to be something I'm missing.



#12 Stellajoy

Posted 01 December 2012 - 01:24 PM

What kind of start up capital do you have? will the bank give you a loan as well as an overdraft as a safety net?

QUOTE
not in WA, regional in QLD. A lot of people have gardens locally and I grow myself, so maybe some of that produce could also be sold? For example, a lot of locals drive 45 minutes to buy a carton of backyard chook eggs instead of supermarket ones. Herbs from my own garden could be sold, too. (Regulations permitting, need to look in to that yet).


It sounds great, but when you are relying on consistent flow of produce it can be really really hard. you can sell herbs from your own garden, but what if you have a huge run of herbs on a monday and cant supply yourself with more for two weeks? having multiple suppliers for things like that would drive you crazy.

It sounds like a great idea though!

i would just seriously consider your financial position. It may look like it makes money on paper, but that can easily be a lie. Plus if its only making a small profit that could quickly be eaten up by start up costs so you wouldnt see any money from the business for years.

#13 Stellajoy

Posted 01 December 2012 - 01:36 PM

also dont pay to much for it.

I think its roughly the price of existing stock and equipment plus whatever the books are showing for one years profit. Make sure you have a GOOD look at the equipment, its price is second hand, and make sure it all works. Turn things on, off, etc

#14 Foogle

Posted 01 December 2012 - 03:59 PM

Be careful with the fresh produce side of things.  I know it sounds like a good idea and it is on paper, but both our General Store and the local deli (only opened in the last 6 months) started with fresh produce from local suppliers but now say it doesn't sell enough to warrant it and have both been reduced to very limited supplies.

Not enough people purchase the produce on a daily basis and so you find yourself stuck with week old produce that you cannot sell. They key to fresh produce is quick turnover and I don't think a general store type setup is the ideal outlet for it.




#15 poss71

Posted 01 December 2012 - 04:25 PM

If it is a husband-and-wife business, halve the reported income and see what it looks like. If you can afford to live on that amount, then it may be worth it. You need to factor in the possibility that one of you may get sick and the subsequent need to hire staff to fill in.

Don't offer anywhere near the asking price, it will be more than you can afford when the early days hit. Start at 60% or so. The owner will settle for less than the full sale price if he is retiring. Be tough (I wasn't).

Expect things to break down. Expect staff to take all of their holidays immediately after you start ("it's been booked for ages and I can't get a refund"). Expect staff to be less skilled at their jobs than you were told, with attitude problems that weren't mentioned. Expect the cash flow to be sh1t for the first 6 to 9 months.

Expect customers to complain about how the previous owner used to cater to their every whim, give them discounts or free stuff, know just the right supplier for x product that sold really well. They were so much better than you...

Check permit and licensing requirement with Council. There may be a reason why he never got around to the backyard seating arrangements.

Beware of creative calculations on the P&L statements. Cash in hand staff disappear and suddenly that cost becomes income in the hand of the owner. An external bookkeeper can be 'forgotten' when calculating expenses, or the wife's friend's BIL who does the BAS and annual returns for free is no longer available...

So many risks. Get a lawyer to read over the contract. Make sure you do the stocktake prior to purchase settlement, if you do go ahead. Refuse to accept out of date stock. Bargain them down on the prices; pay no more than cost price.

Be hard in your negotiations, if you have done your due diligence and decide it is worth it. You don't need to be friends with the owner.

Edited for slipping apostrophe. And for using the wrong word, duh.

Edited by poss71, 01 December 2012 - 04:31 PM.


#16 FiveAus

Posted 01 December 2012 - 06:13 PM

I live in a one horse town that has a general store. It's our only shop here and it's a very busy little place. But we live 15 minutes from one large regional town and 20 minutes from another.
People here buy there fresh produce when they do their regular grocery shopping, not from the general store. They don't sell it because it doesn't sell.
Same with deli meat, cheese and most perishables.
There is a LOT of wastage in fresh and dairy items. There may be a very good reason why the current owners don't stock it.

#17 madmother

Posted 01 December 2012 - 06:49 PM

Make sure you have the cash flow to cover 12 months of expenses, assume the shop will not earn a cent. If you can do that then go for it.

Honestly, the number of people I see go belly up in 12 months for assuming the business will make money... and that have believed the books that turn out to be cooked!



#18 threelittlegems

Posted 01 December 2012 - 06:59 PM

To be honest OP, I wouldn't put that much weight in opinions from EB on this matter.

Corner stores are considered a dying breed, but some are bucking the trend. There is a corner store near us in an affluent inner bayside Melbourne suburb which "appears" to do well. It has some nice fresh fruits, and also a selection of freshmade gourmet sandwiches, wraps, pies (to feed 6 or 20) each day, a few video's, nice coffee machine etc.

A good corner store needs to be really well though out, researched, and tailored to the local market. Again, the fact you have to ask EB, who cannot possibly give you any valuable advice other than do your local research, makes me wonder if you are not best off keeping your cash in your pocket.



#19 blueberrymuffin

Posted 01 December 2012 - 07:00 PM

You'll be thinking about it whenever you're not there. There will always be something to do, payroll, BAS, finding cheaper suppliers, etc. You'll be on call whenever it's open, staff can call in sick or disappear at the last minute.

We were lucky enough to sell once DH was tired of it. But if you have the enthusiasm and capital, have fun.

#20 Always amazed!

Posted 01 December 2012 - 08:21 PM

I dont think I saw anyone mention the impact this will have on your family.

As someone who grew up with her mum and dad running a local business it was hard.. My parents wernt really around as the business took most of their time.. While we had a nice house and lots of items and never really wanted for anything, We never had our parents around.

Also working so close with your partner can cause problems in your marriage..No matter how strong you think you are you will be tested!




#21 ~iMum~

Posted 01 December 2012 - 08:33 PM

Great points, thanks poss71!

QUOTE
Again, the fact you have to ask EB, who cannot possibly give you any valuable advice other than do your local research, makes me wonder if you are not best off keeping your cash in your pocket.
I don't HAVE to ask EB, I choose to. Having been a member for 10 years now, I value the diversity of experience and opinions that can prevail on here at times.

#22 Ice Queen

Posted 01 December 2012 - 08:37 PM

Just recently I read an article about the 'resurgence of the corner store'.  It was exactly what you are talking about.  I wish I remember where I read it.....it was only in the last few weeks!!  It mentioned a store in Normanville in South Australia which is a fantatsic small store. I think it was the Weekend Australian.

I do think it is a business that can work in the right location with the right produce.  People wanting to buy local, less processed food, the backlash against the big 2 supermarkets, good quality ready made food for the time poor etc etc.

Anyway as a person who has been involved in the start up, running and sale of 5 successful retail small business I am all for a good business.  You need to do your research (and not just on EB), have a good cashflow, do your sums many times over, have some financial know how, a love for what you are doing amoung many other things.

Just keep researching and make an informed decsion.  Good luck.

Edited by Ehill, 01 December 2012 - 08:38 PM.


#23 Duck-o-lah

Posted 01 December 2012 - 09:05 PM

QUOTE
i would just seriously consider your financial position. It may look like it makes money on paper, but that can easily be a lie. Plus if its only making a small profit that could quickly be eaten up by start up costs so you wouldnt see any money from the business for years.


And as another PP mentioned, how much money have you got to back you? Our business does well on paper, but in reality we hardly see any of it. My job outside the business is our main source of income.

As a small business owner/operator DH works harder than anyone I know and pulls in a fraction of the income. It is SO stressful, as PP's have mentioned, there are finances, staffing issues, forget holidays, hell DH hasn't even had a weekend with DS since... can't remember.

But if it works.... brilliant. We know other small business owners who are just damn good at what they do. They work regular hours (or less) and make a really good living. It's a big risk, you just have to decide if you can deal with the worst possible scenario (ie. going bankrupt etc).

#24 ~iMum~

Posted 01 December 2012 - 10:15 PM

Love your enthusiasm Ehill!

#25 bailee

Posted 01 December 2012 - 10:36 PM

I think you need to find a good accountant to go over the books for you and value the business. The asking price is always too high, but you need to find out what the business is actually worth and whether its sustainable before you even think of making an offer. I have been looking for a business for 3 years now and have learned so much from my accountant with respect to what to look for in the books that goes well beyond simple profit and loss (and I have studied some accounting so its not like I had no clue to begin with). I have learned which businesses have been worth making an offer on (though all offers I have made have fallen through at contract stage) and which ones to steer clear of. I think you cant really afford to go into something like this without getting sound financial advice.




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