A Business question

[Mikii]

hey there peeps,
i just like to ask some questions regarding purchasing a business. the wife wants to purchase a retail shop, in the purchase includes everything from stock equipment, display and fittings, the name, customers etc etc.

what i want to know is i want to find out the business monthly revenue. If any, financial reports, anything to prove the value of the business and what they "claim" to make per month. Are they obliged to show me such ? they said... they will only show me if we deposit....which i think is ridicules because what if the revenue is not what they had claimed?
i think the value of the business is too much... i mean that value could have came on top of their head. i would like to look at some papers to make my own value of the business and what i am willing to pay.
can someone tell me what i am allowed to see and what im not allowed to see...

thanks in advance, will keep updated, need to research and make decision in afew weeks.

 

[jersey10]

hey there peeps,
i just like to ask some questions regarding purchasing a business. the wife wants to purchase a retail shop, in the purchase includes everything from stock equipment, display and fittings, the name, customers etc etc.

what i want to know is i want to find out the business monthly revenue. If any, financial reports, anything to prove the value of the business and what they "claim" to make per month. Are they obliged to show me such ? they said... they will only show me if we deposit....which i think is ridicules because what if the revenue is not what they had claimed?
i think the value of the business is too much... i mean that value could have came on top of their head. i would like to look at some papers to make my own value of the business and what i am willing to pay.
can someone tell me what i am allowed to see and what im not allowed to see...

thanks in advance, will keep updated, need to research and make decision in afew weeks.

i would suspect if they are reluctant to disclose revenue statements to prospective owners there won't be any new owners!

 

[sam76]

Just get an NDA drawn up.

that should cover it.

 

[sam76]

just amend this to suit you.

http://www.it-test.com.au/downloads/SampleNDAAgreement.doc

 

[stevo]

I would suggest that, if you cannot even determine the turnover of the business then you should not buy it. It really is a case of doing your own due diligence and being prepared to walk away if the process is frustrated or the numbers don't add up.

If you already understand the type of business and know the costs of running the business then maybe turnover is all you need. A non disclosure or confidentiality agreement is a good approach if they are concerned about giving out data. I suspect that they don't keep very good records! Financial information is essential.

Valuing a business can be a little tricky even if you have all the financials. Talking to an accountant and a solicitor would be valuable.

stevo

 

[tech/a]

(1) Is there a contract?
(2) Is there an agent handling this or is this an owner self sale.
(3) How have they derived price?
(4) Why are they selling?

How on earth can you value the business without this information.
If its excellent I cant see why they wouldnt disclose it as fast as they could to justify their price as such a bargain.
If they cant prove profit (Tax returns) then they have nothing in the way of goodwill to sell.
Half these small business owners are totally un realistic with the prices they value their businesses.

Warning
Purchasing "The Lot" so to speak may mean your purchasing un disclosed debt.
If it smells fishy chances are it is.

Have your wife read the following.

Dont make any decision in business based on emotion.

 

[Trembling Hand]

What State is the biz in Mikii? How much are they claiming the biz takes per month?

I would say unless it is some huge biz that is obviously taking heaps OR heavily relies on some special IP FORGET IT. A sellers words is worth nothing you need a section 52 or the like(professional prepared Fin statements)

If its a small retail business just copy it next door. They mostly have no good will and no IP and no special advantage. It always amazes me what the holder of these types of biz ask just because they are the owners. Set up cost mostly for retail biz are far less than asking prices.

 

[disarray]

with certain businesses where you are also purchasing the client base, you can get a "claw back" clause whereby if clients start dropping off you can reclaim part of the money paid because the clients were part of the package.

 

[barney]

Hi Mikii, I've been self employed for the last 25 years. If they aren't giving you the figures, then they don't have anything worth selling ....... What Stevo, Tech, TH and others have said are wise words .......... My advice is, walk away .......... (and walk fast!!)
Just my opinion though, but get some professional advice if you are really keen on what they re selling ..... there are a a lot of "shonks" out there who are quite happy to take your money, and have no scruples about not giving you value for your hard earned $$ ............. I actually can't believe they are trying to sell without giving some figures Good luck with it.

 

[tech/a]

Just to add.

A rule of thumb for business valuation is 3-4 times Taxable income of the business NOT the owners drawings!.
This INCLUDES all plant and equipment--plus stock.

A good business returns over 30% on investment.Including a directors wages.
Your likely to get 4x taxable income if your seeing growth year after year for 3+ years.
3x if you only have a few years figures.

So some quick maths will tell you that a business worth its salt will be $350k+ Through varifiable valuation, any less and your probably buying someone elses failure.

 

[wildkactus]

Mikii,
When I enter into anything like this I always make sure to use a trusted Accountant to do some quick due diligence for me. Normally from what I have been involved in, if the other party is not will to show any financials its not worth buying, so move on and look for something else.

The best thing to do now would be to get a Non Disclosure Agreement drawn up and take it to them with a request for the books, and see how you go If they still won't give you the books and details you are after and you still what to buy it try getting a broker or Accountant to act on your behalf.

You need to know what you are buying so without the due diligence its not worth a cent, until it can be proven with the facts, also be awhere that the business is not based around the current owners, see if you can see if it can run without the current owners, some business just won't as it is the owners that make it.

 

[njc.corp]

As a business owner myself-if they dont want want to tell u the turnover-and expenses and other misc cost- then their is something to hide-(its always due to bad mangement and debt and greed)

as simple as that-

what u have been told on here is real good basic advice to make a right choice-and its nearly bitten me but i did my homework only to see that business go down the tube hard due to it having big debt and private deals between freinds and family-

everyone is looking for a pay-check-at anyones expense-

when its to good to be true it is-

dont forget in todays rough waters theirs other shops to look at-dont think theirs none out their-

Thanks

Nick--

 

[doctorj]

Great advice here so far. All I have to add are two words - "SHOW ME".

If you're relying on a piece of information that's material to your decision to buy the business get them to show you evidence supporting their representations.

Also, get it in writing and signed!

 

[Knobby22]

I'd just like to add that now is a dangerous time to get into retail.

Close family lost everything after taking over a business (dress shop) within two years as the 1987 recession hit.

Be very careful.

 

[macca]

Hi Mikii,

All good advice so far, some bullet points for you from someone who has had over 10 small businesses. I don't know everything, this is just what I would if I was going to buy something.

1. If they won't give you the figures after signing a non disclosure, don't buy it, RUN !!

2. If they do give you the figures, deduct 20% of till figures, if not proper tax till takings, deduct 50%

3. You must get a statement to say what fittings, assets are unencumbered and what is being leased, you want to see PROOF that they are paid for.

4. If it is a shopping mall/centre, don't buy it unless it is a national franchise, centres will screw you blind and then kick you out when your lease expires, which could be why it is for sale.

5. Check with council on approvals for new centres and buildings or changes that may effect you. Also check if business is in right zoning.

6. I f you are not familiar with P & L sheets get an accountant to have a look.

7. If you are not familiar with the product and very experienced in the field, don't buy it.

8. The figures they may show you now are from the most bouyant trading period for 25 years, the figures you can expect are going to be much lower. the economy is being deliberately slowed by the RBA, interest rates are up, fuel is up, it is time to be cautious for a few years.

9.Try to find an experienced business person to give it a look over, it is uncanny how someone who has been there, done that, will get a "feel" of the business very, very quickly and they are almost always right.

10. I would investigate thoroughly if I could simply copy the idea somewhere else.

11. After doing all of these things I would then probably not buy it as the timing is all wrong, economy wise.

Hope all that helps, listen to the others as well, there are a LOT of business owners here and we have all learnt the hard way

 

[barney]

Hi Mikii,

All good advice so far, some bullet points for you from someone who has had over 10 small businesses. I don't know everything, this is just what I would if I was going to buy something.

1. If they won't give you the figures after signing a non disclosure, don't buy it, RUN !!

2. If they do give you the figures, deduct 20% of till figures, if not proper tax till takings, deduct 50%

3. You must get a statement to say what fittings, assets are unencumbered and what is being leased, you want to see PROOF that they are paid for.

4. If it is a shopping mall/centre, don't buy it unless it is a national franchise, centres will screw you blind and then kick you out when your lease expires, which could be why it is for sale.

5. Check with council on approvals for new centres and buildings or changes that may effect you. Also check if business is in right zoning.

6. I f you are not familiar with P & L sheets get an accountant to have a look.

7. If you are not familiar with the product and very experienced in the field, don't buy it.

8. The figures they may show you now are from the most bouyant trading period for 25 years, the figures you can expect are going to be much lower. the economy is being deliberately slowed by the RBA, interest rates are up, fuel is up, it is time to be cautious for a few years.

9.Try to find an experienced business person to give it a look over, it is uncanny how someone who has been there, done that, will get a "feel" of the business very, very quickly and they are almost always right.

10. I would investigate thoroughly if I could simply copy the idea somewhere else.

11. After doing all of these things I would then probably not buy it as the timing is all wrong, economy wise.

Hope all that helps, listen to the others as well, there are a LOT of business owners here and we have all learnt the hard way

Just a quick follow up Re Point 4 above .......... My brother has been "done over" twice on that little known detail .............. Two different businesses ... two different shopping centres ........... So very good words of caution there Macca.