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  • #972437
    ad2405
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    Hi All,
    This is only my 2nd post here, (my first was in the Introduction section) so I hope that this is the correct area for my post.

    I am in the process of purchasing an existing business, I do not really want to reveal too much here at the moment in regards to location and so on. But I just need to get some feedback from anyone who has gone through the process and I guess I just need reassurance that the process I am following has been and is correct.

    OK so it has now been about 5 months since I first made contact with the broker selling this business. It is a auto parts shop and turns over less then 500K a year, with 1 full-time and 1 casual employee plus the owner. Over the initial few months I obtained previous accounting statements, P & L and so on. Had my accountant go over the figures and we produced a business plan and projected figures. We submitted business loan application which was successfull. We then proceeded to the sale contract stage along with a new lease. However I was advised 2 weeks ago of the current staff’s wages…. silly me did not get this information earlier (i thought i knew what each employees position was worth given my experience), and their wages was much much much more then what I had budgeted for. I worked out a new structure for the staff situation and I think I have that sorted. I was then told by some people which I can’t say where they are from, that the shop did not have a very good reputation in the area and that they could not be making much money. But I had all the figures and they showed they were making money. So I asked for figures of the last 5 months and it showed that sales had dropped on average about $5K a month to the previous year and a steady decline.
    So my problem is that the business now is not the business I thought I was buying from 5 months ago.
    I have a lot of ideas for the shop that I think will make a lot of difference, but the problem is now that I know sales are so bad I am going to have to spend time and money getting sales back to the same as 5 months ago, yet paying the price that the business was worth 5 months ago. And THEN try and make money on top of that. Whereas 5 months ago my ideas were going to be making money on top of the sales figures at that time.

    What do you guys think?
    I hope that all makes sense, i need to be a little cagey atm

    #1056109
    22523#deleted
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    If you have not signed any contracts, then you can still negotiate the price down, considering the drop in revenue, and there are probably no other buyers around or it would have been taken somewhere along the past 5 months.
    You can also decide if you wish to keep the existing staff or not, and as you will be starting this business under an new entity then you can set new wages. If they dont want to stay it will be their choice.
    A drop in sales can be for many reasons, even owner attitudes can unsettle customers, so if you can get the price down then all better for you.
    You can check that the P & L are real figures if you have accountants reports or by checking each quarterly BAS to see where the income began to decline.
    All of these negatives make a great bargaining tool. I recently saw a business that was purchased 3 years ago for over $600k be taken back by the original owner for half that price. The people they sold it to run it down, didnt care and had too many wages to pay, the family bought it back and is now doing quiet well, and the customers are happy to see them back.
    Good luck with it.

    #1056110
    ad2405
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    Thank you for your comment.

    In regards to staff, as I mentioned I can not afford the staff at the current rates within the structure that I want to start with. But one of the current employees has basically told me that if he leaves then a lot of customers will leave also.
    I know that it is probably part truth and part blackmail. But is it worth the risk of loosing some customers as opposed to keeping him and the customers but struggling to make budget.

    #1056111
    22523#deleted
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    All staff are replaceable. Dont let them blackmail you.
    Some of the customers will follow them, maybe, maybe only their mates.
    Customers come to the store to buy products, good staff are a plus, but blackmailing staff? This is a huge problem waiting to happen.
    What happens if they dont like you? They will leave anyhow.

    That other business I mentioned earlier, when they sold the new owner kept the son of the original owner. They thought he was the only person in the world who could sell their product and give advise to customers, he was 18!
    It turned out that over the 3 years of him remaining in the business he was selling with high discounts, demanding higher wages, he had too much control and he was actually doing the sabotaging so that he could get the business back, which he did. He never forgave his parents for selling to someone else and he wanted it back so he could run it his way.

    You will find good staff if you dont keep the employees. You might also consider putting staff on base rates and commission for the rest, then they earn what they are really worth and this will make the good ones shine.

    Never let staff blackmail you.

    #1056112
    ad2405
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    Thanks again, Its interesting that you mention that story with the son. Because one of the staff options I have is to keep one of the current owners on, mainly due to him being cheaper then the other full time employee, the other big bonus is that he will work weekends and have two week days off, which allows me a weekend. Also it would allow me to be able to learn off him suppliers and customers. But now you mention that story it has got me thinking if it is a bad option.

    The industry is very trade driven, and knowledge is something the probably outweighs the products themselves. The trade involves doing deliveries on demand to customers and there are a couple of larger shops which will be hard to compete with.

    Staff wise my ideal situation is to have a fulltime driver and fulltime salesperson. And then I can actually run the business, expand and manage the shop.

    #1056113
    ad2405
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    btw I should note that this is my first business purchase.

    I have had since had correspondence with the broker selling this business. I brought up my concerns and the response I got was …

    “Yes the last few months are down a bit, but so are many other businesses too. I now in my office the last few months have been quieter. I think it has more to do with earthquakes, Libya, Japan , etc and the State Election. It seems that ‘spending” has gone a bit conservative.”
    and
    “There is nothing out in the area that has changed. No drastic changes in the market place, no new competitors, it is largely business as usual , as it has been for 30 odd years. Sales at ##### do go up and down a bit. The next few months are traditionally the busiest.”

    #1056114
    JacquiPryor
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    Hi, just wanted to offer my 2c regarding decline in sales etc – you mentioned that someone had told you that the business had a bad reputation – which may account for some loss in sales. However, if anything you being able to advertise and promote as “new owner” could overcome this. Simple marketing like letter-box drops and things like that are not very expensive, and would be a good way for you to get word out that there are new owners, and promote what is going to be new, exciting and ‘better’ with you operating the business.

    If the location is a convenient one for customers, I imagine (if they have been put off by current owners) they would give you a try once they know there are new owners – then you are in a position to ‘keep’ them as customers again, allowing sales to increase again.

    As far as staff / wages are concerned – purely an ‘off the top of my head’ idea that may or may not be viable – you could propose a salary/wages at the rate you believe is reasonable and appropriate based on your experience, and perhaps introduce commissions on top of that? This would make sure they worked hard to continue earning what they currently earn, and when working with commissions they would logically only get the extra when they make the extra, ensuring the cash flow can support the amounts. (Or some sort of bonus structure when a certain amount is reached each month etc). Like I said – purely a thought.

    I would be inclined to agree with earlier posts too about negotiating buy price for the business down from first offer/discussion. If you have been told that traditionally the next few months are the busiest, then the previous accounts information you received should support this trend. If not, then there may be other factors, which (be they in the control of the owner or not) would surely affect the ‘worth’ of the business in buying/selling it?

    Good luck with it! Hope it works out as you hope!

    #1056115
    ad2405
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    Thanks Jacqui,
    I am able to take away lots of good advice there.

    I must say that I LOVE this site!!!

    #1056116
    JacquiPryor
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    ad2405, post: 68904 wrote:
    Thanks Jacqui,
    I am able to take away lots of good advice there.

    I must say that I LOVE this site!!!

    I love it too – have become a little addicted! Not sure my post on this one was ‘advice’ so much as rambling off the top of my head trying to think of what I would do in that situation! :) either way hope it helps.

    (NB: The ‘new owner’ marketing came to mind, as a shop local to me went way down in reputation and sales last year when new people took over – they lasted about 6 months, now there are new owners again who have picked the business back up very quickly all because they revamped the inside a little bit, made the effort of telling locals (by letter box drops) that they were there and they were new people, and they offer something a ‘bit different’ to the product and service we had become accustomed to with the last owner so it has made them ‘stand out’.)

    All the best!

    #1056117
    King
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    first flag is that your accountant did not pick up on the wages thing, and that they have not insisted on getting figures going back at least two years. We went back three when we bought as it allowed a good time frame for analysis.

    You mention trade customers….once you pay a refundable deposit (based on completion of a due diligence process, which it looks like you have not done fully yet) then INSIST on seeing the trade customer list and go and talk to those still buying and those who have stopped, to get a feel for what is going on.

    As a buyer you can ask for anything you want and it will be covered under the confidentiality agreement.

    Also don’t forget to get a non-compete agreement with them

    As for staff…think carefully as a good parts interpreter is worth gold….even if you need to employ a new one on your own terms.

    PLEASE don’t go into this with your eye wide shut – doubt everything and check everything.

    #1056118
    ad2405
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    Thanks to everyone there, I should probably go over some points as I don’t think I explained some things well enough. Its hard to know what to put here and what not to.

    Figures – I’m lucky to have a very good accountant who told me what he needed, which was the last 4 years end of financial year reports, Tax returns, and the last BAS statement (September at that stage). In late December when we finalised what our budget and projections for the bank, everything looked great.

    Staff/Wages – When we did the numbers my total wages amount come to about $10K less then the current owners. I put this down to that I was going to pay myself less to start with so that money could be spent on marketing and improvements to the shop. But it turned out it was more because the Parts Interpreter/Salesperson they had was getting paid so much.
    I have a few ideas with Staff. The way the current owners have thing structured they only need 2 staff on at any one time. A salesperson and a Driver. A break down of how they have it structured atm.
    Monday – Wednesday: Salesperson & Owner (doing driving and some rep work)
    Thursday & Friday: Salesperson & Driver (Owner has these days off)
    Saturday: Owner & Driver (3 hours)
    Sunday: Owner

    I can not afford the current salesperson, even though he has the customer and supplier knowledge (he has been there 12 years), i just can not fit him into my budget.

    An option that was given to me was to keep the current owner on board, he will stay at his current wage which is well within my budget, and the bonus is he will work weekends. But how good of an idea is it to keep on a previous owner.. what baggage does he bring?

    I should also mention that I myself am a qualified Parts Interpreter, I don’t have a great deal of experience selling the parts sold in this shop, but I will eventually get it. I could run the shop from the sales side but would I have enough time to grow and improve the business as well the usual running of the business….

    So assuming i keep the current owner on this is what my staff structure would be.
    Monday – Wednesday: Myself & the current owner (Either of us could do the sales side)
    Thursday & Friday: Myself (Salesperson) & Driver
    Saturday: Current Owners (As Salesperson) & Driver (3 hours)
    Sunday: Current Owner (As Salesperson).
    I could also offer more hours to the Driver on a Monday (she can not work Tuesday or Wednesday due to Famiiy) and that would give me time to do some behind the scenes work, go see customers, suppliers etc etc.

    Trade Customers: I have spoken to a few in the area and like Jacqui said, I can try and get some customers back and gain new customers by changing the image, promotions, I will take a good look at each aspect of the trade side and see what can be improved. I have a few contacts in the industry so I can work with that.

    I think I have written enough, if you go this far… thank you for your on going interest.

    #1056119
    King
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    eases my concerns a bit and GREAT that you are a parts interpreter!!

    On the past 5 months thing, in our business (wholesale) we have had quite a quiet time and I know all our customers have had as well. Maybe some other people here might volunteer how their past few months have been. This might show a general trend that might mean your intended business is not ‘poisoned’ somehow.

    Also looking at sales by month, if you can get a look at sales by product, this might also show a trend. Maybe you won’t get this till after the sale – boy its fun looking at that stuff to get your head right into the business!!

    On the promo side of things, you could have a big event to which all customers are invited (active and not) maybe some race car with driver, pretty girls serving drinks, wearing hot pants and crop tops – yeah male eye candy with motor heads…at least that would really show that there was a new hand in control!!

    #1056120
    ad2405
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    Thanks King,
    Yes Ive been in parts since i left school and owning my own shop has been something I have wanted for as long I can remember (im 27 btw)

    Where I am at the moment basically my job is Inventory Controller at a large car dealership, So i can not wait to get my hands on the computer to go through the sales by products and look at dead stock etc etc. That excites me.

    And I have been in contact with a race driver who, lets just say will pull a MASSIVE crowd! But aside from having a big show which I love the idea of, I have lots of ideas too large to list here which I think will have a positive affect on things. Ive already started on the website, Ive come up with a new logo and colour scheme etc.

    #1056121
    ad2405
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    Just an update for anyone interested, i made a counter offer on the purchase and it was accepted. They said that they wanted me to have it because iam “Young and have a lot of ideas”.

    Would still welcome any comments on the previous posts though.

    #1056122
    King
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    well done!

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