Gradual Purchase

[Ihaveadream]

Hi all,
I am looking for your thoughts, not sure if this is the right board, maybe I should ask on the Finance board, but any way here goes.
I live in a small town/large village in a nice area not far from Newcastle upon Tyne. There is a card and gift shop in the village, which seemingly does quite well (your never the only person in there), which I have had my eye on for years. When I say I have had my eye on I mean I dream of running a gift shop and I know that the owners of the shop are nearing reitrement age. Well just before Christmas I was browsing businesses forsale and found that this business is up for sale and the owners are retiring. Hurray!! However the business is up for approx 3 times more than I was expecting. However the turnover and profit is higher than I anticipated. The lease is up for renewal in July of this year and as the building is owned by the council the rent is a lot lower than any of the other shops I have looked at in the area. The Council (according to the sales info) have said that they are willing to lease again.

The village has had a problem of late in that the major supermarket that was in the centre of the pedestrianised area had vacated the building, however this is now being taken over by Tescos and is due to open in the summer, hopefully this will bring a new lease of lif e to the area again. So it seems like this is a really good opportunity to take the shop which although is successful could be more so I think, with a younger input and a bit of change of stock.

THE PROBLEM - finance...... We would have approximately a 5th of the asking price coming to us in the next couple of months. Whcih we could use to put towards purchasing the business. But would struggle to get finance through main stream routes as we are on a debt management plan:redface:. We as a family could also survive on a lot less than the business would give us monthly. Do you think it is anyway possible that the current owners would consider gradually handing over the business to us, or doing some kind of loan for the business. I dont know if this is common practice or if we would get laughed at?? I just think are they really going to want to renegotiate a new lease with the council when they are wanting to retire, so they are runnign the risk of just folding the business and loosing out on any money?? Of course the other idea is to do nothing now, save the money we have coming and wait and see if come the summer the empty shop comes up for lease and start a business of our own.

Thanks if you have made it to the end of this and any advice greatly received..

sharon

 

[Ihaveadream]

I have looked into this abit more and this kind of arrangement is known as vendor finance amongst other things. I suppose its just whether the vendor would be interested. I have emailed the agent and enquired a bit more. Has anyone ever had any experience of this??

 

[tony84]

Sorry to be blunt....but how would anyone here know whether they would be happy to do that?! Unless we have mystic meg on the forum we would struggle with that one.

However, when you sell anything that large you expect to have offers made to reduce the asking price. Maybe if you offered the asking price on the basis you have discussed is a possiblity.
I dont think they would though - if the business went down hill or whatever, you would struggle to make the payments, personally i wouldnt take that risk if i were them.
Its unlikely with a DMO in place but could you try and re-mortgage your home to free up some cash?

 

[Ihaveadream]

Hi

Thanks for reply. I am aware that people arent going to know if this couple are going to go for the idea or not, sorry I should have worded it better. I was really trying to gage whether this was something that was done, or not. The business has been established for 25 years and with the new Tesco's moving in, hopefully footfall will only increase, I think things would have to go drastically wrong for it to fail. But without actually looking at the books, cant really tell for sure. Would be interesting to see how its done over the last few years compared to before the downturn. Thanks for your input tho.

 

[Banned]

Tesco bring "a new lease of life" - nope, first thing they will do is try and destroy your business, they will undercut you for for a few months. They will even stock similar items to yours that they wouldn't usually just for, seemingly, the hell of it.

Your main problem though is "building is owned by the council the rent is a lot lower than any of the other shops I have looked at in the area. The Council (according to the sales info) have said that they are willing to lease again." I would wager the rent will go up at best, worst case it's not re-let to you and you have paid for a business that has no premises. Without a guaranteed lease the business is worthless.

 

[Ihaveadream]

Thanks for reply Banned. Yes aware that without a garuantee of a new lease there's no point in considering it. Wonder what the owners will do when it comes to the end of the lease....hummmmm only time will tell.

 

[Banned]

Thanks for reply Banned. Yes aware that without a garuantee of a new lease there's no point in considering it. Wonder what the owners will do when it comes to the end of the lease....hummmmm only time will tell.

That's the other and much cheaper option, wait and see. If they don't sell the business I very much doubt they will renew the lease. Then you simply take a new lease and start up from scratch. It's a gamble and depends on how much you really want that business in that position.

 

[AndyBlue]

I have a radical suggestion for you - ASK ! Go and view the business, see the accounts, see the lease. This is save you posting hypothetical questions on here as you will know the exact story, the lease might be a secure lease giving you right of renewal, they may already have negotiated a new lease. You may also find the business is in terminal decline and it turns you off it. You can also suss out from the owners what their plans are etc and discuss whether they would even entertain you long term payment plan.

 

[Ihaveadream]

Thanks, guess its just a matter of having confidence

 

[KeithGreen]

Yes, definitely make an appointment and go view the business. Be honest with the vendors and enquire about the lease renewal etc.

Waiting for the property to become vacant may not be as simple as it seems. You'll have to negotiate a new lease, possibly against competing offers, possibly refit/redecorate the shop somewhat, and buy new stock from suppliers based on (I assume) no previous business experience and a poor credit record.

By buying the business however, whilst some of the above problems may still apply, if you have got friendly vendors they will provide every assistance to you in taking over the lease, transferring supplier accounts and so on. You'll also get priceless business advice from vendors with 25 years experience.

One big question though. If you don't have the confidence to view the business, do you really have the confidence to run the business? Ask yourself and be honest.

Good luck.

 

[Ihaveadream]

Thanks for being positive Keith. I do have the confidence to go and view the business, I have done it before when looking at somewhere else. Its the proposal of gradually buying the business and them practically loaning us the money. I do know the business I go in there frequently. I am going to continue thinking about it. Thanks again

 

[littlebiz]

When we sold one of our businesses the buyer first suggested something like this. But our position was that we would have no guarantee of getting the installments of the money - what if it didn't work out for them? How would we get our money back, even with them owning a big house and flash cars, there would be no guarantee. If you're in a debt management scheme, that doesn't sound reassuring for the seller, who'd probably like to close and move on with the thing settled.