Absolute beginner advice - buying a village store

[Plymman]

Hi all,

I'm in the process of looking into the feasability of buying my local village store but I have no business experience whatsoever and this will be a complete change of direction for me and I'm looking for the beat sources of advice for an absolute beginner.

I have always been a salaried employee but a year of illness has made me realize I can no longer carry on in my current job. When the village shop 200 yards away came up for sale it seemed like the perfect answer. I have had a few conversations with the owner but not taken it any further than that so far.

The basics are £60k+ profit pa, £50,000 for 15 year lease and £500 per month rent on shop and 2 bed flat that'll be used mainly for storage.

At a glance what are your opinions? Does this seem like a decent proposition? Is a 15 year lease too long for my first business attempt? Would I pay myself a salary or use the profits as a wage? Where is the best place for advice on financing this if I go ahead?

I have appointments with an account and business advisor planned but would love some opinions/ideas before I do.

Thanks for reading

 

[S-Marketing]

Often when profit figures are quoted for business sales they quote gross not net, be very careful and make sure it is making that profit 'net'. Gross profit figures tell you next to nothing.

 

[cjd]

Be very, very careful - those numbers don't look terribly believable. You're doing the right thing in going to see your accountant, if you go ahead with this you'll need him to have had a very close look at the numbers for you.

You also need an independent valuation of that lease which also sounds inflated - be prepared to negotiate very hard on it - if you don't feel up to it, pay a professional to do it for you.

Using a 2 bed flat for storage is insane! Let it.

 

[simbathedog]

Well, as has been said, you need to check whether the profits are nett or gross, presume there are properly audited accounts available?
Not too sure I would want to commit to a 15 year lease ???
You need to do a lot of local research, village shops seem to be having a hard time, is there scope to expand the business?
When you say business advisor, be careful, I have met a couple over the years who seemed to have come from the planet Zog!
A good accountant should be able to advise you in general.

 

[Merchant UK]

Be very, very careful - those numbers don't look terribly believable. You're doing the right thing in going to see your accountant, if you go ahead with this you'll need him to have had a very close look at the numbers for you.

You also need an independent valuation of that lease which also sounds inflated - be prepared to negotiate very hard on it - if you don't feel up to it, pay a professional to do it for you.

Using a 2 bed flat for storage is insane! Let it.

CJD you take the words from my mouth

£50,000 for a 15 year lease is a lot of money for a village shop and £2000 a month in rent is still pretty high. if your lucky you may get £700 a month rent for the flat which helps.

have you looked at similar businesses elsewhere, and seen how they compare?? If your really keen you must get at least 6 years wirth of audited accounts from the seller and take them to an accountant for verification.

he will then be able to spot any errors and advise you if the business is doing well or poorly

Remember 6 years worth of accounts from the seller, if they don't give them to you (Proper audited Accounts) then stay away

 

[Vicarious]

Firstly can t imagine why you would have audited accounts for a little shop. The only point of reference presumably would be the tax returns (and maybe in fact they are on the low side due to a level of cash business)

Couldnt possibly comment on the price and the lease as just dont know from where we are standing

However what occurs is it is clearly not just a business prop. I can relate to this, I was ill and started a business which does well. I would make more if I went back to work but thats not where I am now, controlling my environment is really important.

What else. In my work I get to talk to alot of people on the telephone and I like that. Other routine aspects drive me to distraction. Would the same characters troopping into your shop everyday drive you to distraction.

You have retained people to look at the commercial and financial aspects. Gives some though to the non commercial ones.

 

[KidsBeeHappy]

What is the turnover figure? Village shops are lucky to see a 20% net profit margin. Some of them only just clear that Gross. Which would mean that hes stating a £300k minimum turnover, and that's high if it is just a village shop.

The cost of the lease or the rent would be reasonable on their own. Combined, looks too expensive.

 

[Plymman]

CJD you take the words from my mouth

£50,000 for a 15 year lease is a lot of money for a village shop and £2000 a month in rent is still pretty high.

It's actually about £120 per week rent on both the flat and the shop so it's less than £500 per month for both. The flat can't be sub let and I only live a minute away so can see no other use than storage and letting family and friends stay occasionally when they visit.

I have looked for other shops since this one came up and the asking price seems reasonable, and even quite a bit cheaper than similar sized shops. It's a good location, on a main route between towns with parking. It's also the last shop before local beaches and beauty spots so it seems there's good opportunies outside the village locals. They also have a deli where about 1/2 of their revenue comes from selling sandwiches, jacket spuds etc..to lorry drivers and tourists.

I'm not sure on the implications of a 15 year lease, I assume this could just be sold on again at any point and isn't actually a 15 year commitment but if I'm wrong please SHOUT loudly at me!

Thanks for all your comments, it's not something I'm going into lightly and as one of the other posters said, this is as much about a change in life and direction, as it is about it being a business opportunity. I need to get away from toiling and making myself ill working for other people, be closer to home and a whole host of other reasons.

I consider myself fairly intelligent and sure I could make it work if only I knew where to start!

I love being around people and over the years my wife and I have often joked about running it and what we'd do to it. I'm in my 30's with a young family and I feel I'm at a turning point in my life after being incapacitated for nearly a year and I really want to make a living for myself rather than turning in for a 9-5 everyday.

 

[Esk247]

Doesn't matter if you're intelligent or not...the mass public are a law unto themselves. Just check out what they search for online makes you scratch your head.

If it's your first business don't over stretch yourself, remember that VAT is going up so that would affect margins too and you never know if a Tesco local is going to set up shop just down the road and undercut you, then you won't be able to sell the lease on at all, nobody would want it.

Remember to work out any costings on the minimum amount you could possibly sell in a day e.g. instead of saying 'oh i'm going to easily sell 10 packets of fags today' say 'im probably going to sell 2, because thats how many people went in the shop for fags yesterday when i was hanging around'

 

[Plymman]

Good advice, I am naturally cautious and am always going to underestimate rather than overestimate. It's hard to guess the future but I'm fairly certain nothing will change from a competition point of view, the next nearest shop is 3 miles away and it's a very protected area so I cant foresee any new builds popping up anytime soon but I suppose you never know.

Assuming at some point I can sell the lease on for on or near what I paid I don't think I'll be risking anything other than my 28k salary which I may not have within a few months anyway due to my illness. My home will not be secured on the shop. Am I missing anything obvious here? Are the risks much higher than I can see? Anything invisible or hard to spot that I should be looking for?

 

[Drpepper]

The value of the lease will devalue as the years pass (a lease less than 3 years is pretty much worthless), personally £50k is to much. If you are paying £50k just for the privilege of taking over the lease I would walk away as this just doesn't happen these days. If on the other hand you are paying £50k for the business, which I suspect is the case, then it seems undervalued if the profit figures are net and correct - proceed with caution it doesn't add up.

Also remember to include in your start up costs stock (unless it's a tiny shop I these will be at least £30k), legal fees, insurance etc.

You don't say what you illness is, but keep in mind that you will probably be working much longer hours with a much higher degree of pressure running this shop that whatever you are doing now, don't be fooled into thinking it'll be 9 to 5, stress free because you are your own boss, and easy - it won't!

 

[KernowQueen]

i've got property bee installed on rightmove & i've seen general shops/take aways/restaurants up for sale for years trying to sell on an XX lease period, the asking price dropping & dropping over time...

please don't just assume you can sell up if it doesn't work out!

 

[Plymman]

You're correct, the asking price is for the business as is, not just the lease. Can you expand on why you would think startup costs would be so high at 30k?

The reason I can't carry on my work is I am unable to drive anymore and the effects of the prescriptions I have have made maintaining a steady hand impossible (I do a lot of circuit board repair as a chip level engineer). So sitting behind a counter, looking after a shop seems like a perfect answer, currently the shop usually closes mid afternoon so there's no expectation on longer days unless we choose to open longer ourselves.

 

[Drpepper]

Thanks Plymman - I was a bit concerned you might be one of these people who think they are "stressed" because of work and looking for an easy option

£30k - do a stock check and you'll be surprised at how much stock even a small shop actually holds, it's one of the costs that you have to account for when you start up. Obviously once you have purchased the initial stock it's just "topping" up after that out of the sales you have made. I only specialise in confectionery and related items in a 500sq ft shop and the trade value is between £22k and £40k depending on the season.

A few examples:- A 6ft x 7ft display of olives & oils current has a trade value of £2,000 sat on in it.
Two small chillers of drinks (5ft x 4ft x 3ft) holding soft drinks, trade value £450.
Display of chocolate bars (Cadbury's etc) 5ft x 6ft, trade value £900.

Now just imagine how much it cost to fill an area when you get into cigarettes, alcohol etc.

 

[QuickHomeBuyers]

You can estimate around £40k in a 1500sq ft shop.

 

[Michael Speirs]

All the above plus check that you do not buy stock that is dead - ie that has not moved for some time!

 

[sphynx]

Plymman,
Re: lease, be aware that you will be legally bound to the lease for the next 15 years, being the devil's advocate, if you fall into trouble or you need to sell and it doesn't go quickly you will still be legally bound and obliged to pay it until you can transfer it.
Also if you decide to progress, it's worth negotiating with the landlord via the current leasee about subletting the flat - It seems a shame to have an income potential wasted as a stockroom. If the landlord is keen on your intent, he/she might be willing to forego this clause in order to get a new tenant. If the lease is already in existance it's unlikely but never say never, it's worth a conversation

 

[deniser]

I am guessing subletting isn't possible because there is no separate access to the flat, am I right?

Remember that the business and the lease are not bound together. If you can't renew your lease then your business is gone including the money you paid for it unless you can relocate it elsewhere which may not always be possible.

You need to find out whether the takings are going down; village shops are suffering as more and more people use online shopping, drive to supermarkets etc. Most have closed altogether. Cigarette sales are also expected to go down as a result of the new display regulations. Don't think that you can turn things around because you won't be able to change peoples' shopping habits nor increase your catchment area. I had friends who bought a village shop, spent loads on refurbishment, increased product ranges and opening hours, all to no avail, everything they did only just kept the trade at the same level (because it would have gone down naturally), nothing could make it go up because of the limited number of people in the village.

£50,000 is way too much of a premium. You may never be able to recoup this money.

 

[strikingedge]

I think an excellent place to start is that Mary Queen of Shops episode about the couple ( a former market trader plus wife) who bought their local village shop, made a complete hash-up of it, and then turned it into an incredible success!

Just wanted to clarify - the shop is currently doing £60K profit per year? So it is taking around £300-350K in turnover? About £1K per day, 7 days a week - even though it shuts in the afternoon.

You've seen the shop - does that sound credible for a local village shop? That's 1500 Mars Bars a day - do you have a lot of overweight kids in your area?!

Is it a limited company currently trading? Are the owners taking salaries or just dividends?

I reckon you can push back on the flat rent aspect - especially if it has its own entrance. If it doesn't, can you put one in?

 

[Rhodes100]

There seems to be a misconception here that the £50k cost of this business is for the lease, and that it will reduce in value over the 15 years. The £50k is not for the leasehold but for the goodwill of the business which should be based on the profits the business is making.

Now if the OP thinks that he can simply sit behind a till and take money and make £60k a year he may find he is mistaken, as he would need knowledge of merchandising, stock control, products, pricing, staff management etc.

If he is a success of the business it could be worth £100k in a few years time, however if he makes a pigs ear out of it, it could be worthless.

He may have to work long hours for that profit, getting up at 6.00 am and working until 9.00 pm at night, 7 days a week, it depends on the opening hours of the shop. I would question whether the current owners are working a 35 hour week, sometimes these businesses are marketed as the owner earning 60k a year but he and his family is working all hours. The OP needs to calculate how much money he will be likely to make, if the seller has his wife also working in the shop for no wages.

Is this a new 15 year lease from the seller or an existing lease? I would be slightly concerned as I would not know the trading conditions for a village shop in the year 2025, as has been mentioned he could have a 5 year lease to pay with no business profits to pay it.

A lot more information is needed in the due diligence stage before any decision should be made.

 

[oldeagleeye]

This proposition stinks. There is no way any small villageshop makes £60K a year and as for the lease it sounds too cheap at 500 a month to include a 2 bed flat and that 15 years remaning on the lease bothers me. I rather suspect that there is a very hefty hike up in a rent review on the horizon.

As for the books. Forget them. As another member pointed out 20% gross is the most GP you will earn in a village store but even that figure is irrelvant.

What is breaks down to the business model itself. If a husband and wife team are prepared to work at least 12 hours a day 7 days a week and live in the flat above so they have no other expenses they may just clear £250-£300 quid a week in their joint back pocket.

That doesn't allow for paying off any loan to buy the place of course but then I very much doubt one would be aviailable unless another property with equity in it was put up as security.

Stop dreaming OP. Running a village store ain't no magical panacea to working in the city. No quaint way of life. Its long hours on less than minimum pay and if the stress on not taking enough from one week to the next don't kill you the sheer boredom will.

Rob

 

[Boualem Bouderba]

I have a quick question, is this something that you really want to go into?

Village shops have been on a continuous decline over the years and it does not look like the safest of bets to take over the store?

Also is there any particular reason why the village shop is going for the sell? Were they making enough business in the past or have they just lucked out and what to move on?

Also do you have the contacts setup with suppliers, and have you researched the area for competitors, consumer habits and customer basis?

Lastly do you have a unique selling point? something that would make me want to go to your village shop as opposed to going to a chain or a supermarket?

best regards
Boualem Bouderba

 

[roydmoorian]

When things get bad you could move into the flat and let your house out

And if that thought doesn't put you off well maybe you have a chance.

Bad luck about the shakes though, I hope things work out for you.

 

[Philip Hoyle]

Before going in too deep and wasting too much time, get a copy of the lease you are being expected to agree to and take it for a proper in-depth review by a decent solicitor. Accounts, working hours, stock, etc come after you've had the lease properly vetted. Some common nasties in a lease could be:-

a. Rent reviews - seems reasonable today, but does it allow the landlord to increase annually, and if so, are there any limits and what are your rights. Sounds good initially to have a clause saying you can have rises reviewed by a professional surveyor or arbitrator but they'll only agree the current rentable value - if you're getting it cheap at first, then they'd agree a market value which can quickly push it up to a lot higher rent. I.e. if it's current market value of £1,000 per month, but you sign the lease for £500 per month with a review clause annually, then it could well double in a years' time and the arbitrator/valuer would simply agree!

b. Many leases can simply end at the end of the term, i.e. at 15 years when the landlord simply throws you out and you're left with a business but no premises. This is allowed by a specific act of parliament which allows a business property landlord to cease a lease at the end of its term if he/she wants to use the property themselves. The only protection is that they can't turf you out and offer the shop to someone else. This clause probably won't appear in the lease because it is law and as such will stand unless it is over-ridden by the lease wording.

c. Many leases include onerous terms, such as the tenant being responsible for repairing the building, mostly inside, but some require full outside maintenance as well - i.e. you being responsible for a new roof, or damp-proofing, or replacement windows or heating systems, etc. You need to know exactly what your obligations are and what your landlord's obligations are in this respect - some leases give the landlord the right to insist that you repair/maintain his property, even if you don't need/want to, and if you don't they'll have the work done and sue you for payment. How would you feel if you were landed with a £10k bill to have it's roof replaced within months of buying the business? Probably wise to have a full survey done on the property to highlight any problems with the building!

 

[Drpepper]

b. Many leases can simply end at the end of the term, i.e. at 15 years when the landlord simply throws you out and you're left with a business but no premises. This is allowed by a specific act of parliament which allows a business property landlord to cease a lease at the end of its term if he/she wants to use the property themselves. The only protection is that they can't turf you out and offer the shop to someone else. This clause probably won't appear in the lease because it is law and as such will stand unless it is over-ridden by the lease wording.

Actually you have this back to front, the L&T act 1954 gives a tenant the right to renew the lease at a similar rent, this is the default if you like. What you will find is that most leases will be "outside" this act and you'll have to sign separate document's (can't remember the names of them offhand) which are witnessed by an independent solicitor. If this act isn't mentioned you are better off.

 

[Philip Hoyle]

Actually you have this back to front, the L&T act 1954 gives a tenant the right to renew the lease at a similar rent, this is the default if you like. What you will find is that most leases will be "outside" this act and you'll have to sign separate document's (can't remember the names of them offhand) which are witnessed by an independent solicitor. If this act isn't mentioned you are better off.

OK fair enough - I must have got myself confused - that's why I always tell people to get leases reviewed and interpreted by a decent solicitor so people know exactly what their rights and obligations are before signing!

 

[Deleted member 59730]

Do I guess correctly that your name suggests you are somewhere near Plymouth? Perhaps this village store is one of my customers? If you PM me the name I might have an idea of how they compare to others we supply.

 

[Interimsolutions]

Hi

Alot of good points have been mentioned here, but to add to that if you are taking on a new lease or even taking over an existing lease, try to get a break free clause added into it, something like where you can give 6 months notice if things dont go as you expect and walk out. If you fight for a 6 months notice, the landlords might settle for a year, which is still better than 15 years. Things are not as good as 3/ 4 years ago, people are not queing up to sign leases, and the landlords know that. If you have to quit then make sure you wont be taken to the cleaners with it.

 

[Rhodes100]

I think the landlord would be very happy with a break clause in the lease especially if he is also selling the business.

In 6 months the landlord would get the business back and be able to resell it again.

Whilst if the OP bought the business for 50k he would be walking away from his money after 6 months and he is hardly be likely to do that, he would be more likely to want to sell the business rather than break the lease.

 

[Stuart Bailey]

The act you are referring to is the Landlord and Tenant Act 1954.

These give a commercial tenant rights of security of tenure. At the end of the lease you are entitled to a new lease on the same terms save the rent payable will be the market rent.

The landlord can refuse to grant you a new lease on certain grounds such as he wants to occupy the property himself or rebuild it. However he has to pay you compensation.

The amount of compensation depends upon how long you have been in occupation and is based on the rateable value of the property, which in some cases is not much.

These rights are automatic and can only be removed if the landlord gives you a warning notice (which is in a prescribed form) prior to the lease being completed and you must swear a declaration to confirm your consent.

This must be referred to in the lease for that to happen.

regards Stuart Bailey Thomas Guise solicitors

 

[Stuart Bailey]

Regarding the lease terms I would strongly advise you to speak to a local commercial surveyor.

However if you're paying £15,000 for it, it sounds as if the lease is already in place and will be assigned to you from the seller. If that is so you will need the landlord's consent.

Why dont you see a local commerical solicitor they should give you an initial heads up on what is required and the timescales.

regards Stuart Bailey thomas Guise solicitors

 

[The Greengrocer]

I have owned similar businesses to this and actually still do. I honestley dont think you have a clue what you are potentially taking on. I have several concerns for you. You seem to be under the impression that it will be an easier option than what you have done previously,if you think youve "toiled" before you havent seen anything yet. You will have to open extended hours and will probably end up working most of them yourself. I have 30 staff and still work about 15 hours a day, You cant do this job unless you are prepared to put it to the front of your priorities including your family. It is a seven day per week commitment and you have to be damned good to survive. Ask the guy if you can work along side him for a couple of weeks.Do exactly what he does,check his invoices ask for a copy of his till readings on a daily basis speak privatley to the staff and customers What is the breakdown of his sales. Food to go is very high margin cigs and booze are very low. I could go on all night. The bottom line is I wouldnt advise anyone t0 buy a retail business unless they have done at least a couple of years in a shop enviroment,its not for most people.

 

[KernowQueen]

the OP hasn't been online again since 8th Dec, so perhaps the decision has already been made...

great advice for anyone else in the future though

a friend of my mum's bought a village shop & post office in Devon about 3 years ago now, she's hardly heard from him since as he's been working 24/7 to keep it going! he loves it, otherwise he wouldn't still be doing it, but it's such hard work.

 

[luvbusiness]

Well ive read all four pages of this thread.For me it has been very informative.Still looking for my first business and always thought I would go freehold purely for some of the pitfalls that can be had with leased businesses.Freehold is obviously a lot more money though to purchase a business.

 

[The Greengrocer]

In some cases of course a freehold property is the right way to go. But dont dismiss altogether a leasehold property. A few points to think about are: Location is the single most important factor,give me a unit on a busy parade for instance over a freehold site off the beaten track anyday. Do not ever think that you could pull the punters round a corner or even across the street from where the main shopping is done. Also why not spread the risk a little I had the chance to buy my shop from a very greedy landlord. I declined at the price he offered and decided to buy a few residential properties to let. God forbid if the retail business got in trouble I would at least still have my investments. You are totally relying on the retail business funding the leasehold otherwise. If you are considering buying a freehold make sure you set up a different company where the retail business would pay rent to the other. For a guide if the freehold was say £240,000 The retail business should be looking to pay something like £30k per year rent to the property company. If this calculation doesnt fit I would be very reluctant to proceed. This is only how I look at it and it has served me well but other members may have their own ideas.