Advice on buying an existing business...

AntwanDAntwanD Posts: 1subscriber
edited November 2008 in Selecting a Business
   While purchasing mattresses from a local mattress retailer in the town in which I live, the owner of the business approached me about buying the business from him in about a year and a half. The reason for him selling is his wife`s father is ill and he has requested they move to the Carolina`s once the youngest son graduates high school (hence the year and a half). I went by yesterday and he showed me his "Gross Revenue Profit" and even during this rough time in our economy the business is doing quite well. He owns a total of the three stores, two of which he owns the buildings outright. I don`t think I would have a problem with securing the money he wants to sell them for as I am a Veteran and a "minority" and my great is pretty good. My question is what are some other things I should look for before I jump into this offer? It would be really great investment and would open up doors for expansion in the same business or other areas. The current owner has also agreed to stay on as a consultant to ensure I have a successful start and will help me navigate through the waters of the SBDC.

Comments

  • RetiredMember5RetiredMember5 Posts: 0subscriber
    Antwan,
     
    First, congratulations on potential becoming an entrepreneur!  Second, there are a number of resources out there since you are a Veteran and a minority.  This is one of my core areas of competency as an attorney.  Check out our FREE entrepreneur guide as to how to start, operate and grow your business in today`s web 2.0 world.  We discuss minority certification matters.  I think you will find this guide extremely helpful.  Recommended by more than a dozen state agencies.
  • nevadasculnevadascul Posts: 3subscriber Member
    Hi Antwan,
    I worked for a company that had stores in three states.  By outward appearances, the company seemed to be doing well.  The owners then put the business up for sale.  A larger company came in and spent three months going through every area of our company.  This company then walked away from the buyout offer.  Here are some issues raised by the larger company.
    Our company was involved in numerous lawsuits over non-payment of outstanding invoices.  Also, most of our suppliers had stopped doing business with us.  We were still selling product, but we had a hard time replenishing our inventory because we had been cut off.  These issues were deleted from our general prospectus given to potential buyers.
    We had approximately $300,000.00 in on hand product inventory.  Unfortunately, only about $50,000,00 was working inventory.  The other $250,000.00 in inventory was useless parts various supervisors had put into inventory for one reason or another.  We paid an inventory tax on these items, but never recovered our warehousing cost on these items because they never sold.
    Approximately seventy percent of our customers were a year to two years behind in their payments. They all should have been cut off a long time ago.  But, they were all personal friends of the owners of our company.  We had lawsuits pending against many of them as well.
    The company had come close to bankruptcy several times.  A fact that was not provided prospective buyers of our company unless they asked. 
    Also, carefully review ownership and lease agreements on all three stores.  The stores may  have deed restrictions that go into affect if he sells the business.  Or, the owner may have used the stores as collateral on a loan
    Bottom line here, spend the next year and a half looking at all aspects of the company.  Not just the areas he wants you to see.  nevadascul11/25/2008 1:24 PM
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