Expanding by buying an existing business/competitor

[K17LBS]

What about your current lease? When does it expire?

June 2024

There is a planning application in place to demolish the buildings and replace with flats and offices.

Hence the need to look for something else.

 

[K17LBS]

@K17LBS - you don’t want the business, all you want is the building.

Let the current owner sell everything, pay the redundancies and clear out. You then start negotiations with the landlord.

Any easy way to find Landlord info without asking directly?

Did a land registry search and got the title deeds but the name is very common ?

 

[BusterBloodvessel]

Having been in this game, and in fact a VERY similar scenario, I agree with much of the above. Stay well away from buying anything and make yourself known to the landlord.

I've told this tale before I think - we had a "pop up" weekly food business running from a friends kitchen that we wanted to turn into something permanent as a cafe/sandwich bar. As it happens, someone we knew up the road was running a crappy little cafe, it had once been a successful bakers. Once the owners retired it changed hands as just a basic sandwich bar about 4 times in 2-3 years and never made a success. So we got in touch with the woman that had it and the conversation went something like this;

"My lease expires next month, I had a 1 year term initially but now he wants me to sign 3 years and it's doing OK but not great, and I don't want to risk being stuck with a 3 year lease if it doesn't go well".

"OK.... have you thought about asking him for another 1 year lease"

"Well yeah- but then if it does do really well I might get thrown out after a year!"

I think I visibly sat there with my head in my hands.

Anyway, it was making no money and she was struggling to pay her rent, let alone a wage to herself. The equipment in there was old and knackered, it would have cost us money to get rid of a lot of it. There were a few bits that maybe we could have used - but nothing that we couldn't have picked up for a couple of hundred quid here and there.

So, almost out of goodwill as much as anything (she was someone I'd known a long time and who I used to work with) and for speed and cracking on, we offered her £1000. She refused citing that she needed back the £7000 she'd paid for it. So we walked away. We actually found who the landlord was by finding the Ltd company details of the bakers that he'd ran from there and got his address - my business partner went and knocked on his door! He explained our position and left his number.

A couple of weeks later she had failed to sell "the business" and he got in touch and said he'd allowed her 2 weeks over the end of her lease but nothing was happening so would we like it? We signed the lease and he let her know her time was up, we also got in touch to tell her we were taking over and we would offer her 10 days to get her stuff out so she wasn't in a major rush.

Well.... she hit the roof! She couldn't, sadly, get her head around the concept that she didn't actually have a business. She had some equipment stored in a building that didn't belong to her. Simple as that. In getting angry with me she told me "You can't do that" (we can) and "I need to sell this as a business" (she hadn't got one). I did genuinely feel a bit sorry for her and didn't like doing that but at the same time, as they say, business is business.

Anyway, a bit of a ramble but it sounds like potentially your mate down the road is in a similar situation and is looking to get out as quickly and as scot-free as he can. I will have absolutely no doubt that he will have a vastly over-inflated idea of what everything is worth and I'd hazard a guess he's asking for anywhere between 15 and 30 grand? Leave him to it. There will be plenty of other premises become available and you can ALWAYS pick up second hand catering equipment for a fraction of new - in the current climate, more so than ever!

 

[K17LBS]

Having been in this game, and in fact a VERY similar scenario, I agree with much of the above. Stay well away from buying anything and make yourself known to the landlord.

I've told this tale before I think - we had a "pop up" weekly food business running from a friends kitchen that we wanted to turn into something permanent as a cafe/sandwich bar. As it happens, someone we knew up the road was running a crappy little cafe, it had once been a successful bakers. Once the owners retired it changed hands as just a basic sandwich bar about 4 times in 2-3 years and never made a success. So we got in touch with the woman that had it and the conversation went something like this;

"My lease expires next month, I had a 1 year term initially but now he wants me to sign 3 years and it's doing OK but not great, and I don't want to risk being stuck with a 3 year lease if it doesn't go well".

"OK.... have you thought about asking him for another 1 year lease"

"Well yeah- but then if it does do really well I might get thrown out after a year!"

I think I visibly sat there with my head in my hands.

Anyway, it was making no money and she was struggling to pay her rent, let alone a wage to herself. The equipment in there was old and knackered, it would have cost us money to get rid of a lot of it. There were a few bits that maybe we could have used - but nothing that we couldn't have picked up for a couple of hundred quid here and there.

So, almost out of goodwill as much as anything (she was someone I'd known a long time and who I used to work with) and for speed and cracking on, we offered her £1000. She refused citing that she needed back the £7000 she'd paid for it. So we walked away. We actually found who the landlord was by finding the Ltd company details of the bakers that he'd ran from there and got his address - my business partner went and knocked on his door! He explained our position and left his number.

A couple of weeks later she had failed to sell "the business" and he got in touch and said he'd allowed her 2 weeks over the end of her lease but nothing was happening so would we like it? We signed the lease and he let her know her time was up, we also got in touch to tell her we were taking over and we would offer her 10 days to get her stuff out so she wasn't in a major rush.

Well.... she hit the roof! She couldn't, sadly, get her head around the concept that she didn't actually have a business. She had some equipment stored in a building that didn't belong to her. Simple as that. In getting angry with me she told me "You can't do that" (we can) and "I need to sell this as a business" (she hadn't got one). I did genuinely feel a bit sorry for her and didn't like doing that but at the same time, as they say, business is business.

Anyway, a bit of a ramble but it sounds like potentially your mate down the road is in a similar situation and is looking to get out as quickly and as scot-free as he can. I will have absolutely no doubt that he will have a vastly over-inflated idea of what everything is worth and I'd hazard a guess he's asking for anywhere between 15 and 30 grand? Leave him to it. There will be plenty of other premises become available and you can ALWAYS pick up second hand catering equipment for a fraction of new - in the current climate, more so than ever!

Are you a fly on the wall?

Pretty much bang on.

Although the amount starts with a 6…

There is a fair amount of equipment to be fair as it is a big unit with full commercial kitchen, Van, tables and chairs, display fridges etc etc.

However the value IS over inflated because he needs to settle his debts and afford to live for a few months after.

At the moment it appears to be making profit. Although not seen the books it would be very difficult to not make profit in that place with the passing footfall and 4 staff on minimum wage.

I’m trying to find the landlord out myself but proving more of a challenge.

This being said, your knowledge and story is exactly the reason why I wanted a social forum. So thank you again.

 

[BusterBloodvessel]

Are you a fly on the wall?

Pretty much bang on.

Although the amount starts with a 6…

There is a fair amount of equipment to be fair as it is a big unit with full commercial kitchen, Van, tables and chairs, display fridges etc etc.

However the value IS over inflated because he needs to settle his debts and afford to live for a few months after.

At the moment it appears to be making profit. Although not seen the books it would be very difficult to not make profit I. That place with the passing footfall and 4 staff on minimum wage.

I’m trying to find the landlord out myself but proving more of a challenge.

This being said, your knowledge and story is exactly the reason why I wanted a social forum. So thank you again.

You're welcome.

Regarding making a profit - is that making a profit AFTER paying his wage, or is he making a profit which is in fact just his wage? There's a big difference!

Good luck with it however it may pan out!

 

[campbeji]

Good evening all,

Thank you for taking the time to read this.

I am in need of some clarification or communication from existing business owners or professionals who have completed what I would like to do.

The situation is I am a sole trader who runs a small business. This is my first ever business and we have had a good year but unfortunately our bottle neck for growth is the size of our premise.

An opportunity has arose to purchase an existing business on the same street as mine. The business doesn’t have the best reputation but is still making yearly profit.

The owner has given me his price to sell all assets as they are a “sole trader” but have contracted staff.

My view was to buy the business to be able to expand our existing one into the premises which is 4x larger than I currently have.

The premis is leased so will need that transferring.

My questions is…

Can I or is it possible to buy the business and then collapse it to remove the staff (the main issue) and then rebrand, redecorate and go again?

Or do I have to run it for a certain time period?

Has anyone been in a similar situation? If so how did it play out?

Please ask questions as I can provide additional clarity.

Thanks in advance

Sam

Hi Sam,

I have a friend who was in a very similar situation, although in a totally different industry. He wanted to buy a business, mostly because of the equipment, but the business had a bunch of 'drama' attached to it. In the end he just let it run its course and the business closed, all the drama went away and he bought the equipment at the auction of assets at pennies on the pound.

If you were to buy this business, what would you get, a van, some fixtures and fittings, and the lease on the building, plus all of the drama. What is all of that worth, a second-hand van - not a huge amount, fixtures and fittings - next to nothing, you can buy everything you could need in a cafe at auction for not very much at all, The lease is the main thing that you want - To you it might be worth the risk, but you might get a better deal if you wait till later.

As an interesting thing, nothing really to do with this at all, I was looking at a property recently. It was attached to a cafe that had closed and was included in the sale. It had all of the fixtures and fittings etc, basically looked like they had just closed the door one night and not gone back. The estate agent said that if I wanted it was all included so that the vendor didn't have to go to the hassle of clearing it all.

Good Luck
Jim

 

[K17LBS]

You're welcome.

Regarding making a profit - is that making a profit AFTER paying his wage, or is he making a profit which is in fact just his wage? There's a big difference!

Good luck with it however it may pan out!

Apparently doing 40k a year profit after all expenses.

But as others have said, rising energy and if the staff walk out then that will soon diminish.

Thanks again.

 

[K17LBS]

Hi Sam,

I have a friend who was in a very similar situation, although in a totally different industry. He wanted to buy a business, mostly because of the equipment, but the business had a bunch of 'drama' attached to it. In the end he just let it run its course and the business closed, all the drama went away and he bought the equipment at the auction of assets at pennies on the pound.

If you were to buy this business, what would you get, a van, some fixtures and fittings, and the lease on the building, plus all of the drama. What is all of that worth, a second-hand van - not a huge amount, fixtures and fittings - next to nothing, you can buy everything you could need in a cafe at auction for not very much at all, The lease is the main thing that you want - To you it might be worth the risk, but you might get a better deal if you wait till later.

As an interesting thing, nothing really to do with this at all, I was looking at a property recently. It was attached to a cafe that had closed and was included in the sale. It had all of the fixtures and fittings etc, basically looked like they had just closed the door one night and not gone back. The estate agent said that if I wanted it was all included so that the vendor didn't have to go to the hassle of clearing it all.

Good Luck
Jim

Thanks Jim.

Yes very similar indeed.

Although he is tied into the lease for another 4 years so that’s unlikely to expire.

I’m hoping that his “debts” accumulate faster or his repayment dates are closer to force his hand more.

He knows I’m interested so let’s see from this point out. Ball is in my court as I run a profitable “but small” business 4 doors down.

 

[WaveJumper]

Apparently doing 40k a year profit after all expenses.

But as others have said, rising energy and if the staff walk out then that will soon diminish.

Thanks again.

Sorry you never liked my comment above, however you seem to be shooting in the dark and fixated on this is a business, is it ?

Have you asked t see five years worth of accounts, have you taken these to your accountant and gone through them in detail.

Have you taken any of the points made by @pentel and looked into these. Your seller needs landlord approval to assign lease, ask him who it is, stop beating around the bush, maybe the landlord won't even consider an assignment because he's got other plans up his sleeve.

If the landlord won't assign the lease your wasting your time, sorry is this sounds blunt but I would hate to see you getting your fingers (or anything else for that matter) well and truly burnt

 

[bodgitt&scarperLTD]

While I agree with the principle, that may not end the TUPE responsibility if the OP eb=ventually starts up a cafe in the same premises.

Could you expand upon this? Not doubting your expoerience but I can't get my head around that, if the lease ends and a brand new company wiht no connection whatsoever to the previous signs a new lease with the landlord.

 

[bodgitt&scarperLTD]

Thanks again for this.

Really appreciate your time and knowledge.

Your right that it’s more the thought of having a bigger unit in the same location that has me excited but putting all of your valid reasoning in front it seems silly to make him an offer “just because” let his pressure build then go from there.

One question…

If I go direct to the landlord but he is in a 4 year agreement paying quarterly, wouldn’t the landlord just ignore my request?

Thanks again.

It's my pleasure mate, you appear to the the rare exception who will (after a while) listen to valuable advice rather than just offering 'what if's' and saying 'lots of potential' until someone tells them what they wanted to hear.

The landlord might. Or he might not. Does the current tenant have a personal guarantee with him (quite likely). Is that guarantee enforceable? Does he have enough physical assets to claim against? Does the landlord want the hassle, or would he rather the whole 4 years up front from you (which is still far less than the idiot tenant wants for 'the business') and have no worries?

These are questions to which the answers will never be known unless you ask. "He who dares, Rodney... if you don't ask you don't get, better to beg forgiveness than ask permission, etc"- these are mottos which succesful people in working class trades such as this live by.

 

[WaveJumper]

I think the issue is there are so many scenarios to look out for @Newchodge I am sure may wish to expand:

i.e. Has the business just been taken over, even though a change of name may have taken place, what happened to the previous staff, were they made redundant and on what grounds, was the business insolvent before takeover, after takeover, (non-terminal, terminal) was it bankrupt, in short there are so many (in my view) possible scenarios one walking into this needs to be really clear where they stand as again it can really come back and bite you. If someone was in any doubt whatsoever they should take proper HR advice as suddenly finding yourself at a tribunal hearing is not something to look forward too.

 

[Newchodge]

Could you expand upon this? Not doubting your expoerience but I can't get my head around that, if the lease ends and a brand new company wiht no connection whatsoever to the previous signs a new lease with the landlord.

The law applies when a new entity takes on an undertaking. There does not have to be any relationship between the previous 'undetaker' (in the sense of someone owning an undertaking) and the new one. The undertaking is running a cafe or making some kind of food provision from certain premises. There have been instances when owners have tried to avoid TUPE by allowing the lease to expire, setting up a different business that takes on the lease and then denying TUPE. Whether there is genuinely legal transfer of the undertaking would depend on the facts of each case, and would not be limited to the obvious attempted evasion just described. But it is not safe to assume that waiting for the lease to come available will avoid TUPE. The EU has always been far more concerned with the rights of employees than of business owners.

 

[bodgitt&scarperLTD]

The law applies when a new entity takes on an undertaking. There does not have to be any relationship between the previous 'undetaker' (in the sense of someone owning an undertaking) and the new one. The undertaking is running a cafe or making some kind of food provision from certain premises. There have been instances when owners have tried to avoid TUPE by allowing the lease to expire, setting up a different business that takes on the lease and then denying TUPE. Whether there is genuinely legal transfer of the undertaking would depend on the facts of each case, and would not be limited to the obvious attempted evasion just described. But it is not safe to assume that waiting for the lease to come available will avoid TUPE. The EU has always been far more concerned with the rights of employees than of business owners.

Bloody hell! That's pretty worrying.

 

[K17LBS]

Morning everyone,

Just a quick update.

So I went radio silent….

He then comes into my business on a quiet afternoon to have a chat. He has made it clear that he wants to sell the business and would prefer to sell it to us. (Probably because we are the only ones who showed interest)

I explained that now isn’t the time, I am interested but will email him later that night.

I sent a comprehensive email stating all of my requirements before further consideration. I explained TUPE the value of assets etc etc.

The next morning he was back at my door before opening with a handful of papers.
Staff contracts, his earnings and tax for 2021/2022, and full lease agreement for the property from his landlord.

The current up to date books and accounts will be with me this week apparently.

I am actively reaching out to professionals who can give legal advice etc

I’m not prepared to give the money he wants but willing to negotiate if the books stack up as per all of your points.

I do have the landlords address and name but not prepared to deal a low blow just yet. So far he is Co operating and proving the information.

 

[fisicx]

But….

You don’t want the business. All you want is the lease.

 

[K17LBS]

But….

You don’t want the business. All you want is the lease.

So I’ve had some time to digest/contemplate this.

Yes ideally I want the lease however…

The current unit I’m in is due to be demolished in circa 12 months time. Whilst building works are going on I have no premise for what the landlord is saying around 9-12 months plus any fit out.

So on reflection having the current business may not be a bad idea as the loss in revenue for that 12 months will be expensive.

Therefore if the business can be purchased at the right price (ok in needs turning on its head and a kick up the backside) but I then have future proofed myself for when the demolishing comes.

Then the landlord is giving me first refusal on the new unit. By then I would have had 3 years experience and another opportunity to expand or something in addition etc.

Again if I’m barking up the wrong tree or way out of my depth then let me know. I can take criticism.

 

[fisicx]

I think you have reached to point where paying a commercial lawyer would be a good investment.

But impress on the seller this is going to take many months of negotiation. If it's completed within 6 months you will have done well.

A mate who sold his business took 2 years from initial enquiry to final completion.

 

[MOIC]

The business doesn’t have the best reputation . . . . .

Forget TUPE

Forget the machinery

Forget the staff

Forget buying the business

"The business doesn't have the best reputation" . . . . .is all you need to walk away and consider different premises in your area.

Kitchen equipment will be easy to find at auctions, coffee/bakery/food shops are closing weekly.

Just my opinion.

 

[fisicx]

"The business doesn't have the best reputation" . . . . .is all you need to walk away and consider different premises in your area.

This is a very good point. The poor reputation will taint everything you do and may take years to overcome.

 

[K17LBS]

Forget TUPE

Forget the machinery

Forget the staff

Forget buying the business

"The business doesn't have the best reputation" . . . . .is all you need to walk away and consider different premises in your area.

Kitchen equipment will be easy to find at auctions, coffee/bakery/food shops are closing weekly.

Just my opinion.

I appreciate this, thanks.

So despite us having a good relationship with the locals, great reputation and product what your suggesting is, despite us potentially purchasing, closing for 2-4 weeks. Renovating and rebranding it would still be “tainted”?

Thanks

 

[Ozzy]

Renovating and rebranding it would still be “tainted”?

Personally I would also say yes and agree with @MOIC having walked away from a similar acquisition myself, and I am glad I did. The acquisition I walked away from a few years back turned out to be worse than I anticipated and the company who did end up buying it ended up just closing the doors and losing the millions they paid for it.
Reputation is so easily lost and so difficult to build, often just isn't worth the risk.

 

[fisicx]

Locals will stay away because of the reputation. They won’t forget the poor service, food and attitude. You might be new but the reputation belongs to business. Even totally rebranding won’t help.

Buy the lease and move the existing business into the new building and some of your customers will follow. Many may not because the likes the intimacy of the old place. This happened to a local cafe. The expanded out the back to double the seating and nobody liked the new layout. It lost its charm.

 

[Mark T Jones]

There's a kind of circular feel to this discussion - which gives the uncomfortable feeling that you are trying to find reasons to go ahead rather than taking the hard, dispassionate stance that will help you.

The business is worthless.

Get legal advice on liabilities. Negotiate the lease. If you want equipment, Negotiate on the equipment you actually want/need

That's it

 

[K17LBS]

There's a kind of circular feel to this discussion - which gives the uncomfortable feeling that you are trying to find reasons to go ahead rather than taking the hard, dispassionate stance that will help you.

The business is worthless.

Get legal advice on liabilities. Negotiate the lease. If you want equipment, Negotiate on the equipment you actually want/need

That's it

I understand.

Not so much a circular feel but more of a cylindrical learning.

I like to ask questions digest and maybe go back and ask more.

I would rather be thorough and respectful to everyone offering advice and assistance. So this is the method I use to digest valuable information and retain it.

Sorry if it frustrates you but I appreciate your advice and knowledge.

 

[IanSuth]

I understand.

Not so much a circular feel but more of a cylindrical learning.

I like to ask questions digest and maybe go back and ask more.

I would rather be thorough and respectful to everyone offering advice and assistance. So this is the method I use to digest valuable information and retain it.

Sorry if it frustrates you but I appreciate your advice and knowledge.

I reckon the only positive may be if you have a good reputation and you can impress upon customers that what they are looking at is your business in a bigger unit, not that business with a different name - being brutal that means planning on whatever payments you need to make to get rid of ALL front of house staff associated with that old business - I am assuming they are what got it the bad rep.

Then you will need to be seen in that shop front hands on for the first few weeks to build the impression it is yours and your principles that govern it. That will cost your current business so build in that cost as well.

If the numbers still work - they work, but do the sums with head not heart

 

[BusterBloodvessel]

Was reminded of this old thread as someone randomly liked one of my posts. @K17LBS we're now passed the June 2024 and the closure of your unit.... how did things pan out?!