Buying an existing convenience store

[KT82]

Hi all my husband and I are looking to buy an existing convenience store that has been run since 2011. It is in an ideal spot in south devon by bus stops and front onto a lawn that is regularly used for events in a town centre by the beach. It also does lotto and alcohol as well as the usual newspapers, food snacks etc. The sales are 380k and nett profit is around £6-7k a month. It employs 1 fulltime and 3 partime staff and is open 12 hours a day 7 days a week wage bill is 34k. It all sounds very good and is priced at £45k does this sound reasonable? Also the freehold is available at £150k. Which would be more advisable to buy? We would sell our house and relocate down there. Could afford lease outright but would have to borrow some on the freehold.

 

[Mr D]

Hi all my husband and I are looking to buy an existing convenience store that has been run since 2011. It is in an ideal spot in south devon by bus stops and front onto a lawn that is regularly used for events in a town centre by the beach. It also does lotto and alcohol as well as the usual newspapers, food snacks etc. The sales are 380k and nett profit is around £6-7k a month. It employs 1 fulltime and 3 partime staff and is open 12 hours a day 7 days a week wage bill is 34k. It all sounds very good and is priced at £45k does this sound reasonable? Also the freehold is available at £150k. Which would be more advisable to buy? We would sell our house and relocate down there. Could afford lease outright but would have to borrow some on the freehold.

The price the seller wants and the price it's worth can be quite different.

To be honest with those kind of figures and that kind of job to purchase the price if anything looks low. Claim of that size net profit and that size price - far cheaper to get a couple of managers in and keep spare profit.
84 hours a week opening time for one full time and 3 part time staff - that is separate from the owners working?

 

[Clinton]

It is in an ideal spot in south devon by bus stops and front onto a lawn that is regularly used for events in a town centre by the beach.

That sounds like a line the vendor would give, not a line someone who is buying a business should take.

Vendors paint a rosy picture. You need to be cynical enough to disbelieve every single one.

Then start from scratch and analyse the business yourself.

The "ideal spot" argument is nonsense! Absolute, utter tripe!

Attributes like "ideal spot" and "great repeat custom" and almost all the other garbage spouted by vendors selling their business ...is already accounted for in the figures.

The turnover and the profit wouldn't have happened if this business wasn't in this spot. So stop double counting the "spot".

(On a side note, this business is not making anywhere near the profit you claim. Not unless you're believing some moronic accounting that places zero value on the owner's time. I suspect it makes under £10K or maybe even a negative number. And businesses like these are often lucky to sell for a price that is equal to 1x annual profit.)

You'd be well advised to get a good business broker - if you can find a good business broker - and pay them some decent money to advise you through the deal. Whether it's on estimating a value, having a look through the figures (albeit a non-accountant look) or negotiating the price, the right adviser will make a big difference.

Good luck.

 

[KT82]

I have seen the books and the profits are all there. The current owner runs 2 other large supermarket type set ups and wants downsize. So the one we are looking at is manager run. We are hoping to reduce the wage bill by working there ourselves. Yes we will employ a business broker. But wanted advice on lease or freehold. We are viewing business on monday.

 

[Chris Ashdown]

No doubt the present employees will be covered by TUPE laws so have to keep the same contracts as before the change of ownership

Freehold at £150,000 seems cheap for devon

Do you know anything about running the shop, would existing owner work with you for transfer experience period

 

[Mr D]

I have seen the books and the profits are all there. The current owner runs 2 other large supermarket type set ups and wants downsize. So the one we are looking at is manager run. We are hoping to reduce the wage bill by working there ourselves. Yes we will employ a business broker. But wanted advice on lease or freehold. We are viewing business on monday.

If you reduce the workforce there then you pay redundancy.
And an 84 hour a week job is a major problem - get ill and business shuts? Or have sufficient staff to enable a day off occasionally?
Times you need to spend a couple of hours out buying stock. Times you need to restock shelves. Times you need to count up receipts and cash.

 

[Stedurham]

Its open 84 hours that's £35861 at min wage with just one person in there all the time?
So manager ran, freehold 150k, you could leave it manager run and have all your money back in 2 years and then be making 70k a year doing nothing, sounds far to good to be true

 

[swankypants69]

380k is not a high turnover for a convenience type store

what is the gross profit percentage? and net profit?

6-7k per month net profit on a 380k turnover is hard to believe

 

[Mr D]

The lottery - as I recall it doesn't stay with the shop. Will new owner get lottery or will next shop in the queue for it get it?

My local convenience store sold up a couple of years back. Lost lottery - new owners still in a queue for it.
And it affects sales.

 

[KT82]

Its open 84 hours that's £35861 at min wage with just one person in there all the time?
So manager ran, freehold 150k, you could leave it manager run and have all your money back in 2 years and then be making 70k a year doing nothing, sounds far to good to be true

Yes its only 1 person in shop at all times. Thats what we were thinking does seem that too good to be true. But he insists thats what the profits are. And hes sent us copies of the outgoings etc

 

[KT82]

The lottery - as I recall it doesn't stay with the shop. Will new owner get lottery or will next shop in the queue for it get it?

My local convenience store sold up a couple of years back. Lost lottery - new owners still in a queue for it.
And it affects sales.

Not sure about the lottery will find out on monday. When we view it.

 

[KT82]

380k is not a high turnover for a convenience type store

what is the gross profit percentage? and net profit?

6-7k per month net profit on a 380k turnover is hard to believe

Gross profit is 30% net profit between 6 and 10k per month so he says. Hes sent us copies of outgoings lottery takings etc etc. Obviously as its by the seafront theres an increase in the peak season.

 

[swankypants69]

You also need to find out how much of that 380k is lottery and tobacco, which are very low margin areas

 

[swankypants69]

Also if they currently own the freehold, there may be no apportionment for a market rent?

If you were to lease, your rent would have to be taken into account too

 

[KT82]

Also if they currently own the freehold, there may be no apportionment for a market rent?

If you were to lease, your rent would have to be taken into account too

Monthly rent would be £1000 per month lottery is approx 30% of those takings per month.

 

[Stedurham]

Monthly rent would be £1000 per month lottery is approx 30% of those takings per month.

30% is lottery and its making 7-10k per month, theres literally no margin in lottery, its ideal to get people in to buy other items. So lottery is 110k a year there vat to pay aswell and its making 120k a year, sorry but theres something drastically wrong, post the figures that hes giving you

 

[swankypants69]

I don’t have a huge amount of lottery experience, I had it in one of my shops a while back, it’s generally regarded as a footfall driver and it’s not something that I would want to rely on as 30% of my turnover

I’d struggle to see how a 30% overall gross can be attained with 30% lottery sales, selling newspapers and tobacco too etc

380k turnover at 30%, assuming its ex vat, gives 114k

Less 12k rent, 34k staff (probably more like 40k-50k I’d say), and then an absolute huge range of costs potentially (business rates, phone, internet, electricity, payment processing costs, bank charges, social media, marketing, maintenance, repairs, sundries like carrier bags, till rolls, shrinkage etc)

I’m not saying it’s not profitable I’m just saying it’s surprising how fast your 114k gross can disappear!

 

[KT82]

30% is lottery and its making 7-10k per month, theres literally no margin in lottery, its ideal to get people in to buy other items. So lottery is 110k a year there vat to pay aswell and its making 120k a year, sorry but theres something drastically wrong, post the figures that hes giving you

Sales: april 2019 £29087
Lotto £3523
Scratch £3248
Refunds (lottery) -3769
Bills £1223
Invoice £10715
P/cash £3217
Rates 0
Elec £680
Wages 2840
Nett £7410

 

[KT82]

These figures are similar up to December last year. September is
Sales 44988
Lotto 7842
Scratch 10222
Refunds (lotto) -7644
Bills 1431
Invoice 13502
P/cash 4293
Rates 0
Elec 680
Wages 3550
Net 11112

 

[Stedurham]

Do you not buy any products?? Or is that invoice? Wow that's an amazing mark up

 

[swankypants69]

That must be accounted for in “invoices” I think

 

[KT82]

Yes presume its invoices.

 

[Stedurham]

im no accountant but that's just a mixture of costs and sales and doesn't make much sense at all, wheres the vat payment guess that will be 2/3k a month to start with
Wages is under min wages and guessing that includes tax and ni. Surely it cant run with one person all time must be cross overs

 

[KT82]

im no accountant but that's just a mixture of costs and sales and doesn't make much sense at all, wheres the vat payment guess that will be 2/3k a month to start with
Wages is under min wages and guessing that includes tax and ni. Surely it cant run with one person all time must be cross overs

Im thinking as he has other shops that they have deliveries from other staff members etc. But yes i agree it does seem too good to be true and can't see how its only 1 person in shop all the time.

 

[Stedurham]

So where the vat nill in figures there 2/3k a month? Whats the cost of product for the above a month? If I sent this to my accountant the secretary would laugh me out of the place never mind accountant and I give him black bag full of receipts at times

 

[Stedurham]

This is profit excluding the cost of goods looking at it

 

[Mr D]

For buying at a cash & carry figure at least half the turnover will be spent on buying goods. There are some bargains and some not so great bargains - a bottle of D&B produced under the Barr brand with a price on it of £1 but costing you 69p does not generate much profit per sale.
83p excluding VAT - 14p profit.

Could well be higher than half turnover spent buying stuff - some high value items such as alcohol already mentioned have low per unit profit margins.
Sometimes the supermarkets can be cheaper than cash & carry.

 

[The Byre]

I am no retail expert, but nothing in those figures begins to make sense!

Let me let you into a secret - a few retailers, a very few, actually manage to make 5% net profit. That is REAL net profit, actual dividends paid to those happy campers who own the damn things.

There seems to be some species of retail-mad-cow-disease in the current owner's figures in which mark-up and gross profit are getting conflated. He claims 30% (a utopian figure, but hey, let's go with that one!) overall and across-the-board mark-up and 30% of 380 is 114. Minus wages is 80. Now we come to electricity at c.a. £700 p.m. so that is £8.4k so now we are at roughly 70k. That is 70k without ANY other costs! Rates? Heating? Repairs? Shrinkage of stock (i.e. stealing, spoiling, breakages, etc.)? Legal and accounting fees? Insurance?

And nowhere is there mention of rent at £1k p.m. Your incidentals will be AT LEAST £20k and add another 12k for rent and now we recalculate the mark-up at a realistic 20% overall and 5% net profit starts to look like an almost unattainable dream!

Sometimes the back of a sensible envelope can be your best weapon!

Tip number one - he ain't downsizing, he's getting rid of a turkey!
Tip number two - forget the lottery tickets for the reasons mentioned.
Tip number three - you have to reapply for an alcohol license.
Tip number four - TUPE applies, so you're stuck with the present staff.

My 30 cents worth - if you want to move to wherever it is, you can buy the building I suppose, but the shop does not seem to be a going concern (assuming of course that my envelope is not broken!)

 

[KT82]

I am no retail expert, but nothing in those figures begins to make sense!

Let me let you into a secret - a few retailers, a very few, actually manage to make 5% net profit. That is REAL net profit, actual dividends paid to those happy campers who own the damn things.

There seems to be some species of retail-mad-cow-disease in the current owner's figures in which mark-up and gross profit are getting conflated. He claims 30% (a utopian figure, but hey, let's go with that one!) overall and across-the-board mark-up and 30% of 380 is 114. Minus wages is 80. Now we come to electricity at c.a. £700 p.m. so that is £8.4k so now we are at roughly 70k. That is 70k without ANY other costs! Rates? Heating? Repairs? Shrinkage of stock (i.e. stealing, spoiling, breakages, etc.)? Legal and accounting fees? Insurance?

And nowhere is there mention of rent at £1k p.m. Your incidentals will be AT LEAST £20k and add another 12k for rent and now we recalculate the mark-up at a realistic 20% overall and 5% net profit starts to look like an almost unattainable dream!

Sometimes the back of a sensible envelope can be your best weapon!

Tip number one - he ain't downsizing, he's getting rid of a turkey!
Tip number two - forget the lottery tickets for the reasons mentioned.
Tip number three - you have to reapply for an alcohol license.
Tip number four - TUPE applies, so you're stuck with the present staff.

My 30 cents worth - if you want to move to wherever it is, you can buy the building I suppose, but the shop does not seem to be a going concern (assuming of course that my envelope is not broken!)

Thankyou we have gone over and over the figures again and again and they just didnt add up. I agree with you entirely. We've been in touch with the broker time n again querying stuff but wanted to give them benefit of the doubt. Think we'll be cancelling the viewing.

 

[The Byre]

I'd go if you are really interested - but make it clear that realistic figures are what you expect to see. If nothing else, it might be good for a laugh and a learning experience - if it's not too far and you can spare the time.

My guess is that he needs to be shot of this thing and in the long run, the freehold will be available 'sans' shop and its liabilities.

 

[Mr D]

Thankyou we have gone over and over the figures again and again and they just didnt add up. I agree with you entirely. We've been in touch with the broker time n again querying stuff but wanted to give them benefit of the doubt. Think we'll be cancelling the viewing.

The seller and their broker will work for the other side - always worth checking everything the other side says.
The people you can trust in a business deal are the ones you pay for - and they shouldn't also work for the other side (it happens!).
Your accountant, your solicitor, your experts.

 

[dan19900]

Sales: april 2019 £29087
Lotto £3523
Scratch £3248
Refunds (lottery) -3769
Bills £1223
Invoice £10715
P/cash £3217
Rates 0
Elec £680
Wages 2840
Nett £7410

These figures make no sense. No idea how he's spending 680 on electric per month either, has he got a grow on the go upstairs?

 

[KT82]

These figures make no sense. No idea how he's spending 680 on electric per month either, has he got a grow on the go upstairs?

Again we questioned this with broker and vendor said its correct because of all fridges and air con etc.

 

[Mr D]

Again we questioned this with broker and vendor said its correct because of all fridges and air con etc.

Nothing is definite until you see the bills that were paid.
Could be the equipment is all in need of replacement with this century's more efficient models?
Heck, could be underplaying real costs here and there in the accounts.

 

[Chris Ashdown]

Go ahead with the viewing and learn about the business, ask to see the last three years accounts and ask permission to talk to their accountant. you may have to spend a few quid talking to the accountant and have already made up your mind to not proceed, but as a learning experience its a bargain and will pay a bonus if you find another place to consider.

Just remain the interested look whilst your there so they think its all worth while giving you the information

 

[Mark T Jones]

You are trying very hard to sell this deal to yourself. Don't!

Devon and Cornwall are full of people who have moved down (frequently from the West Midlands) for a 'better life and are now stuck in a miserable existence, minimum-wage slaves in peak season (too busy to enjoy it) and eeking out a morose existence off season.

1. Spend a week there in the middle of February.

2. If you are determined, Stop selling the deal to yourself and get the vendors to give you real, compelling reasons to take it off their hands at a price that makes sense.

3. Get a professional valuation from someone who understands the sector (Pinders used to be the 'go to' valuers - no idea if that's still the case)

 

[Deleted member 59730]

My business, which I've now retired from, used to supply 1,200 shops in the westcountry. Some make big profits because of the unique position they are in. The owners spend their winters in Tenerife. Others struggle to make a wage. I probably know the shop as there were very few shops on the coast we did not know. If you want to send a PM with the address I'll give you an opinion.

If its Paignton forget it.

 

[Paul Norman]

As far as the financial performance of this business is concerned you do not, based on what you have shared with us, have enough information to make a decision.

You need full, detailed, management accounts for the last 3 years. Not just the statutory accounts, but proper management accounts.

And you need those accounts to be crawled over by your accountant/advisor. Until you completely understand that information you are leaping into the dark.

But this much is true. For many years I worked in businesses that owned multiple sites, albeit on a bigger scale than this chap.

I purchased many businesses. I sold a few, also. There is one consistent feature relating to the ones I sold. They were rarely the ones performing well.

Also this store is a modest business, do not skimp on due diligence. A small convenience store comes with enough trap doors to sink you. Of course, if it is a good business, you can make a modest living from it. But the margins between the two outcomes are too slim to proceed until you have the information crawled over by your own people.

 

[Stedurham]

Again we questioned this with broker and vendor said its correct because of all fridges and air con etc.

£680 for electric with air con and open 12 hors a day 7 days a week will be roughly righ

 

[anon327046]

Hi all my husband and I are looking to buy an existing convenience store that has been run since 2011. It is in an ideal spot in south devon by bus stops and front onto a lawn that is regularly used for events in a town centre by the beach. It also does lotto and alcohol as well as the usual newspapers, food snacks etc. The sales are 380k and nett profit is around £6-7k a month. It employs 1 fulltime and 3 partime staff and is open 12 hours a day 7 days a week wage bill is 34k. It all sounds very good and is priced at £45k does this sound reasonable? Also the freehold is available at £150k. Which would be more advisable to buy? We would sell our house and relocate down there. Could afford lease outright but would have to borrow some on the freehold.

Sound like the current owner should be paying you £45 grand to take the shop off his/her hands. If you want to buy a small retail business then do explore the post office route as I know that they have over 300 current sub post masters wishing to sell their business and the price should be better value as they need to sell as they can't retire until they do.