BUYING A SOLE TRADER'S BUSINESS

[elenadrycleaners]

Hi all,

Apologies for the lack of knowledge in advance, I'm very new to this and was after some advice.

I have found a Dry Cleaning business that I'm interested in buying.

The lease has expired, and when I enquired about buying, the owner was in the process of negotiating a new lease.

She has now stated that the landlord is happy to deal and negotiate the new lease directly with me and place it in my name.

I'm happy with this as long as the terms are negotiated before the sale goes through.

My question is this- If I am to be the one negotiating the new lease, am I within my rights to reduce the premium? To me, the premium is being paid to take over the lease, take the business on with customers, machinery etc and the reputation the current owner has built.

Am I wrong to think that I should not be paying full whack if I am going to be negotiating a brand new lease?

I've been searching high and low for answers and don't seem to be having much luck!!

Thanks in advance!

 

[Ally Maxwell]

So, just to be clear, you are buying a business but not the property it runs from or the remainder of an existing lease.

In that case, the 'business' or 'goodwill' if you prefer to call it that, is worth exactly what you value it at based on the current turnover. The asking price has nothing to do with it really. analyse the profit the business has made over the last three years and base your valuation on that and start with an offer 25% lower than you are willing to make

 

[elenadrycleaners]

"So, just to be clear, you are buying a business but not the property it runs from or the remainder of an existing lease."

Thanks for your reply! Yes, that's absolutely right!
I had originally offered an amount which the lady accepted, based on me taking on the remainder of a lease she was negotiating which would have been 10 years.

So now that I am not taking on a lease and negotiating a new one myself (subject to buying the business) I believe I can re evaluate because my initial offer took into account the remainder of the lease too.


Thanks!!

 

[myfirstimportbusiness]

Not exactly. You are buying the business so your valuation, as already mentioned, is based on previous years' turnover and profit.

The only fair reason for you to decrease your offer is if the landlord asks for an unexpectedly large increase in rent during the negotiations.

After all, the vendor could simply extend the leases themselves and sell to someone else.

 

[Ally Maxwell]

Not exactly. You are buying the business so your valuation, as already mentioned, is based on previous years' turnover and profit.

The only fair reason for you to decrease your offer is if the landlord asks for an unexpectedly large increase in rent during the negotiations.

After all, the vendor could simply extend the leases themselves and sell to someone else.

I think you'll find his valuation is exactly what he's willing to pay, rather than what the vendor may be asking.

 

[myfirstimportbusiness]

I think you'll find his valuation is exactly what he's willing to pay, rather than what the vendor may be asking.

Agreed, that's why I said "your valuation", I made no reference to asking price.

The point I was making was that the lease negotiation in itself, without knowing whether the rent will rise, is not a reason in itself to reduce the offer the buyer has already made for the business.

 

[Mark Thomas Steward]

Goodwill is always hard to value. A business may have many repeat customers, but how many are retained post sale varies greatly. Some businesses carry on at the same level of trade with a new owner and others don't. For example, I've seen people pay a huge amount for restaurant goodwill only to see business drop like a stone because the goodwill was very personal to the previous owner.

Try to think of it in terms of return on your investment. If you expect the goodwill will make you £20k a year for the next three years, how much are you prepared to pay now to get back £60k over the next three years. Of course, you have to consider that the £60k isn't guaranteed.

There's a fair bit about goodwill and buying a trading business in 'Going Concerns' available via Amazon.