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12 Replies Latest reply: Mar 12, 2012 11:30 AM by UncleLeon RSS

Deciding to buy an existing business!

JCT Novice
Currently Being Moderated

my wife and I are thinking about starting a business.  She is a cake decorator and we wanted to start a cake studio for herself.  An opportunity arose for us to buy a cafe/deli/bakery (just the business not that building) that has a decent customer base in a fairly well off community.  Once in our hands we can expand to have a cake studio.  I have no experience in owning and operating a business and my wife has some.  The owner really wants to sell to us and is willing to work with us creating our own business plan to present to banks and bieng very flexible.  ANY and ALL advice will be more than appreciated. 

  • Re: deciding to buy an existing business!
    JCT Novice
    Currently Being Moderated

    Just to add a few details: she is looking to sell fairly quickly, there is no business like this not only in the immediate area but surrounding areas.  What information should I gather from the owner about the business (number/money wise)  to make an educated decision with my wife.

  • Re: deciding to buy an existing business!
    JXB Novice
    Currently Being Moderated

    Sounds exciting, but risky.

     

    To mitigate risk try working in the existing business for some time, 2-3 months?, to get a feel of how to work it.

     

    JXB

  • Re: Deciding to buy an existing business!
    LUCKIEST Master
    Currently Being Moderated

    JCT, If you are looking to buy this business, you should have

    YOUR accountant look over prior year tax returns and review business plans..

    YOUR lawyer

    YOUR insurance agent.

    And maybe YOUR banker.

     

    The professionals you hire are in the business of helping you.

     

    Good luck, LUCKIEST

  • Re: Deciding to buy an existing business!
    JMB Novice
    Currently Being Moderated

    How exciting!  As someone who also bought an existing business two years ago, here are are things I WISH I had done.  I didn't budget for what I'll call the "transition period," meaning action items I should've done to make the most impact on my new ownership.

     

    -If the current owners haven't done so, start capturing customer information for an e-mail newsletter. Launch your new website at the same time, and be sure to put up plenty of graphics of those delicious, beautifully decorated cakes!

     

    -Among the customer information you collect, get their birthday information, so you can send a coupon.  Is there a local college or high school?  Advertise graduation cake specials.   

     

    -Hold an Open House party to introduce yourselves to the community.  Have free food, refreshments, balloons, coupons, the whole works.  In my experience, customers love to know the owner's story, and if you have a passion for your business, they will support you. 

     

    -Reach out to complementary businesses.  In my case, we had a pet supply shop, so I made contact with dog walkers, pet sitters, and dog trainers in my area.  In exchange for giving their clients a flyer and coupon for my shop, I would give them a small discount on their pet food. 

     

    In your case, are there any party rental type companies in your area?  How about bridal shops?  You should cultivate a network of special-occasion businesses in your area so they come to you first when their clients need a cake or catering.

     

    -Contact your local paper or free community weekly to see if they'll do a story on you in their business section.

     

    -Find organizations that hold regular meetings, and offer to donate a free cake to their next meeting.  Volunteer organizations, church groups, senior citizen groups, Junior League, heck, even your local Chamber of Commerce has to hold regular meetings.  Be sure to include a colorful flyer with information on your store and coupons!

     

    So, looking back, I wish I had budgeted a couple extra thousand to help get the greatest impact during my initial transition period. 

     

    One additional thought as you consider purchasing this business: what are you, as the new owner, going to do differently than the previous owner?  I was very naive in thinking that all I had to do was buy the business, make a couple tweaks, and the cash would follow.  Owning retail is tough, and the best way to increase your profits is to also offer services.  Since cakes are often a special-occasion item, how will you cultivate a year-round customer base?

     

    Can your wife also teach cake-decorating classes?  Can your shop host a children's birthday party, complete with cupcakes or cookies they can decorate themselves?  Can you offer a delivery service? Keep these things in mind as you look at the current financials and figure out how to make the profits grow.

     

    I wish you the best of luck! 

    • Re: Deciding to buy an existing business!
      JCT Novice
      Currently Being Moderated

      if you dont mind me asking, how was the business doing before you purchased it as compared to now.

      • Re: Deciding to buy an existing business!
        JMB Novice
        Currently Being Moderated

        Sure thing.  The store was in rough shape when I bought it, and the owner was very motivated to sell.  He owned several other businesses and didn't have the time to manage it.  The store itself was cramped, unorganized, and the merchandise was low quality.  The store manager didn't keep it clean (and don't get me started on how he used to smoke cigarettes INSIDE the store).  However, the owner was making a small profit, since it was the only independent pet supply shop in the area, and could special-order certain foods.  According to his financials at the time of my purchase, the store was making $23K in profit.

         

        I kept the formula simple -- clean it up, organize it, focus on customer service, get rid of the low-quality items, bring in the high-quality items -- and the customers will follow.  And I was right.  It wasn't easy, and I was there every day, but it paid off.  We turned a decent profit our first year of ownership ($60K in 2010).

         

        Hope this helps!  Let me know if you have any more questions.  And again, good luck!

        • Re: Deciding to buy an existing business!
          JCT Novice
          Currently Being Moderated

          WOW. you tripled profit.  good for you.  your adice was so helpful and will be kept in mind in the near future in this venture.  thank you so much.  if there is any advice you can ever afford to send my way in the future, ill be listening. thank you

  • Re: Deciding to buy an existing business!
    ArcSine Apprentice
    Currently Being Moderated

    Congrats on the opportunity, JCT; I hope it proves rewarding and lucrative.

     

    Four small points, among many, to be considered:

     

    1. Buying even a small, apparently simple biz usually has more variables and 'moving parts' than one might imagine at first glance. In order to avoid overlooking too many issues and points, spend a few minutes in the "small business / entrepreneurial" aisle of your local Barnes & Noble, or your favorite similarly-stocked bookstore. You'll see a few titles along the lines of "Buying Your Own Business" or "How To Buy A Business" or something similar. They'll be digestably thin, written in friendly lingo, and fairly inexpensive. Browse two or three and then take at least one home. You'll be able to plow through it pretty quickly, and you'll be surprised at the number of pointers and helpful tips you'll derive from it. At the very least it'll serve as a nice, reasonably comprehensive checklist of the things you need to consider in making an acquisition of an existing business.
    2. Your wife going to work for the selling owner for a time could produce benefits for both you and for the seller / owner. In most small-business sales there is a seller-financing component in the price; that is, some portion of the price is paid by you down the road, typically in the form of installment payments. In such cases (which as I mentioned are the norm rather than the exception) the owner obviously retains a vested interest in the business's ongoing success post-sale, since the cash flow from the business will likely form the primary source from which the owner will receive her installment payments. Therefore, whatever training she can impart to your wife, so as to improve your wife's chances of success, will be of as much value to her as to your wife.
    3. Since you're not buying the containing building itself, make absolutely sure that you can either step into the seller / owner's shoes with respect to the lease on the premises, or can strike up a new lease with the landlord on acceptable terms. That's something you'll need to ascertain beforehand.
    4. A noncompete clause will likely be a reasonable provision in the deal. If the seller retains the right to set up a competing operation in your area shortly after cashing your check, that significantly diminishes the potential value of your business and hence, the amount you'd be willing to pay for the biz in the first place. Thus, a noncompete is valuable to the seller, by increasing the price she can charge for the current operation.

     

    Like I mentioned, these are just some random thoughts among many that you'll need to evaluate, and getting your hands on a more comprehensive rundown of all the important issues, such as I suggested in #1, will be a worthy investment.

     

    Speaking of investments, I do hope yours (in the cake business) will turn out better than you expect. Cheers!

  • Re: Deciding to buy an existing business!
    JCT Novice
    Currently Being Moderated

    Thank you so much for the advice. ALL OF YOU.  it has been a great help.  obviously there is a lot of research and planning that my wife and i have to sit down and accomplish. 

  • Re: Deciding to buy an existing business!
    UncleLeon Apprentice
    Currently Being Moderated

    Years ago, I had a tennis coach that advised me to "NEVER change a winning Game"  / "Always change a loosing game".  That advice has served me very well in both Tennis and in Life.

     

    When JMB took over the biz he bought, it was "In the Toilet".  It was necessary for him to change things.

     

    If the biz you are buying is successful, don't change anything until you find out "Where the bathroom is".  I knew a guy who bought a very successful and profitable biz and "Made it better" to the point of loosing it within 18 months.

     

    Assuming that the biz is successful and profitable now, I'm advising to operate the biz just as it has been for a while, until you learn "Where the bathroom is".  Then make gently additions or adjustments, carefully analyzing the effects of each change.

     

    Keep in mind that the man who owned the biz before you has more experience operating THAT biz than you do.

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