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  • #986210
    Isthisnametaken
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    Introduced myself over on the relevant thread. Anyways at the risk of repeating myself….

    Moved to new suburb and am currently employed by a large company. Have to commute, being doing it for 18 years and might be time for a change. There is a small business for sale that sells mostly surf stuff. It is in a small congregation of other shops that is well visited by the locals.

    Anyways, had a chat with the owner today and asked a few questions….

    1. one was about where they get their stock and the the answer was that they just wait for people to come in to the store and offer their products and then they sell them. They said that for the more popular brands it is difficult to get stock as they request minimum amounts to order. Example was they used to stock some school shoes but the supplier said they have to buy 5 of each size which is too much.

    2. When I asked about how the business performs and I was told that if I looked at the books that it would show more or less that it would show that they break even BUT the reality is different. They have owned the business for 12 years so I am guessing that it must go ok. The question is how can you possibly make an assessment if it’s not in the books? Not being naive enough to know that many businesses don’t always declare everything to reduce their tax – unethical I know but I am sure it happens – but how much can be taken on face value and is their a way to measure the business takings accurately? Please fell free to have as shot at me being wt behind the ears.

    At this stage it is a lid interest but it is something I would like to consider as I believe with that I could put a twist on the supplies and attract a certain clientele. They do not have any online presence at the moment which amazes me and they stick they have is a bit all overt the place.

    Thanks for any help you can give,

    John

    #1156819
    Marc D
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    Hi and welcome,

    The books are the only true financial record and you should ignore anything else as heresay. You should only be prepared to pay for reported profit. Ask to to see last series of lodged BAS’s and last two years tax returns. They may say they earn more but how can you be certain and are you prepared to spend money just on their word? Is the shop managed? What are the owners actually pulling out as wages and/or drawings. What loan repayments do they have? This will lead to an adjusted figure known as RTO or return to owner. This is the figure you care about.

    You can generally get an idea of how a business runs if you watch it for a while and at different times of the week and year. Do your own figures based on guesstimates from your own experience. Ask your accountant roughly what percentages the business should run at. Try and get figures from other similar businesses for sale. What rents do other shops in the area pay? How much foot traffic? What demographic of people? All this should tell you whether the figures they are quoting you are genuine or not.

    Quite possibly they are telling the truth and its a pleasant way to make a wage. And you won’t get rich out of it and could go broke too. Be prepared to pay for that maybe. But if you can see potential for building the business then that’s where you can make some money. But don’t pay $ for potential only pay for what actually is.

    Cheers

    Marc

    #1156820
    Isthisnametaken
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    Thanks for the reply Marc that’s good advice. They price they are asking is for the stock only so I guess I would need to quantify the value of that stock to ensure that part is correct as well.

    Now a silly question, you buy a business and hope it makes money straight away. If it doesn’t how do you survive? All the bills keep coming in but your initial income from the business does not match what you need. So do you keep going to the bank and ask for a bigger overdraft? They allow this to a point till they say – no more, pay us back…..

    The job I have at the moment pays pretty good so this would be a huge step. I guess one way to do it would be to keep working and run the store somehow but not confident on how practical that would be.

    Thanks,

    John

    #1156821
    The Hobbit
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    Isthisnametaken , post: 180724 wrote:
    Now a silly question, you buy a business and hope it makes money straight away. If it doesn’t how do you survive? All the bills keep coming in but your initial income from the business does not match what you need. So do you keep going to the bank and ask for a bigger overdraft?
    You need working capital, that’s the cash that keeps you going until your cash flow catches up. So you need to borrow enough for the purchase plus working capital. Using an overdraft is way too expensive.
    A part from checking the value of the stock check its quality, some of it may not be saleable
    #1156822
    James Millar
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    Isthisnametaken , post: 180724 wrote:
    Now a silly question, you buy a business and hope it makes money straight away. If it doesn’t how do you survive?
    John

    In my opinion “hope” is not enough. Remove the risk by proper research and investigation (due diligence). This can be hard with a complete startup but it’s somewhat easier with an established business that has more predictable figures. Go in with your eyes open and be 100% informed about every aspect. Anything less is gambling.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
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