Buying in to a retail business - feedback req please !

[Tag123]

I have recently approached the owner of a small retail store to see if she would like to go in to partnership. I now feel I have enough retail experience under my belt, and I feel there is enough potential there get the business pointing in the right direction and to make a small wage. The business has made a loss over the past three years - the past 18 months of those has been a tough trading time for all of the local shops due to certain circumstances, but this situation is shortly coming to an end.
To buy in to the business, the owner would like me to pay for half of the current shop fittings and stock, which of course is completely understandable.
They would also like me to give them half of the money towards the losses that have occurred over the past three year. This bit I am struggling with.
They would also like a contribution towards intangibles - which I think will probably be based around goodwill and customer base - is there possibly a calculation anywhere that will give me guidance for that?
I understand I can't just buy in to a business by buying half the stock and shop fittings, but I am struggling on how you should value a business that is currently making a small loss.
Any help or feedback on this matter would be very much appreciated - thanks for your time!

 

[mhall]

If the business is making a loss for the last three years then it is worth nothing to you. Stay well away from any partnership as you will be responsible for 100% of the business debts equally and severally. Why not start your own shop by yourself. Why do you feel the need for a partnership?

 

[Paul Kelly ICHYB]

First, what retail experience do you have? Then what experience in running a business do you have? Accounts, VAT, employment, buying etc?

For you to pay for 50% of what is there is not unreasonable, and depending on the losses, maybe generous.!

To be asked for 50% of the past losses is stupid! Goodwill is different and can be calculated in many ways, however, ultimately, it can only be what the business is worth to you.

What debts does the business have? Is there any money in the bank. Does the stock have any real value (are losses being made because it is crap no one wants?).

There maybe an opportunity here, however, there is more to lose! Dependant on the owners situation, you could just wait for the business to go bust and buy it from the administrators

 

[Thinehost]

How many new businesses are under-capitalised at start up?? Did this contribute to the problems experienced by the current owner of the business you want to buy in to??

I don't believe it's a good idea buying into the business as a partner; neither of you is ever likely to be satisfied at the amount of money you will have to invest to buy in. Even if it looks good between you on the surface, the minute you hit hard times, resentments may surface.

I would suggest you find a different way to open your business; trade online first and then find a bricks and mortar store ??

M

 

[Stuart Bailey]

You must speak to an accountant asap

 

[Rhodes100]

I think that both you and the current owner might be dreaming, and I would suggest that you stay away from this.

That person cannot even make a single penny from this venture and yet you both are expecting that you can start working in the business and earn enough money to keep both of you, about £30k

By the way, I have written off my car, it was worth £10,000 and is now worthless. I am looking for someone to buy it from me for £5,000.

The business is worthless and will go under, don't waste your money on it.

 

[SamStones]

From what you have said I would stay well clear. If you do go ahead the maximum you want to be paying is 50% of the stock and 2nd hand value of the fittings. Don't pay a penny for anything else. Also ensue that ALL debt is accounted for, and arrears in rent or vat, page etc etc. Ideally form a new company and transfer just the assets into it.

 

[savvyshopper]

Hi

First of all I would like to say its great there are still some people out there with some entrepreneurial spirit.

My advice would be to look carefully at the business, what kind of losses has it been making, what kind of drawings has the present owner being taking out of the business. Has the current owner been neglecting the business. My personal advice from when I was in a partnership is they are very difficult as its two personalities that wont and dont always get along. You will not see eye to eye on everything and it all depends on if you can make the relationship work. If you are really keen to go into business with this person, then make sure you have a signed list of what is expected and what is unacceptable to both parties.

How much money is this person expecting you to plow into the business, I agree that yoru injection could make a real difference but seriously depends on the previous losses and the willingness of the owner to push the business forward.

There are loads of great bargains to be had with some businesses who are making small losses and are selling for like £5k if you take on the business debt as part of the agreements. Maybe look at this route.

Hope this helps but without a lot more info can't really give you exact guidance

 

[internetspaceships]

Let me get this straight.

The company has made a loss for the last three years.

The vendor wants you to cover 50% of her losses for those three years.

She also wants you to pay for 50% of the stock at cost (which is also probably over valued.)

There is no goodwill it's a loss making business.

Wake up, smell the coffee and DON'T do it.

Set your own up if you like with the money you save by not throwing your cash down the toilet in this "venture" that smacks of bailing out a non performing business owner.

Sorry to be blunt, but you need to hear this spelled out plainly.

 

[Esk247]

I think this sentence suits the situation:

He Saw You Coming

If you've got enough money to put in to retail, invest wisely and look at putting your money in to businesses that have a better trading history or have better potential.

This business is dead.

 

[Tag123]

thank you for all your feedback so far, it has made me take time to think. After speaking to the business owner, I think she was trying to calculate how much the business has cost her so far and because there dosent seem to be any calculations or rules on valuing businesses, she thought this calculating half of the last three years losses might be one way of doing this.

 

[kulture]

LOL, That would only be valid if she PAID YOU that resulting amount!

 

[Esk247]

thank you for all your feedback so far, it has made me take time to think. After speaking to the business owner, I think she was trying to calculate how much the business has cost her so far and because there dosent seem to be any calculations or rules on valuing businesses, she thought this calculating half of the last three years losses might be one way of doing this.

Since when did a minus figure become a plus? I'd like to see her calculator, it would work wonders for the British economy. She takes that minus 1 trillion and halves it!

She's either not versed in business or is pulling the wool over your eyes quite spectacularly.

If you want to invest your pennies in business, try Crowdcube or similar websites where you can view a complete business plan and investment plan before putting some money in.

 

[internetspaceships]

OP, you need to walk away from this right now.

You haven't got the business experience behind you (yet) to even make a reasoned judgment call on the money she is asking you to pay her so I would respectfully recommend that you avoid throwing money down the drain and find a way to gain the knowledge that will help you to make these kind of calls.

I'm not writing this to have a go at you. I'm not trying to belittle you in any shape or form. I'm trying to help you save a lot of your hard earned money. I apologise if it sounds harsh but based upon the facts you have presented so far, you need to hear the uncut straight advice.