Help! Shop - transfer of ownership

[Find.A.Way]

Hi All, I've searched through this site over the last month or two and found many helpful threads but am hoping for some advice regarding taking over a shop I've had my offer accepted on.

Little bit of background: I'm not completely green, having run my own business for over 20 years, but now I'm buying a shop - as a going concern. I've never had retail premises before, and to complicate matters the business I'm buying is an old family run concern: one person owns the freehold, the other runs the shop and pays a small rent. In a nutshell the youngest sibling took over running the shop, has taken too much money out/not put enough back in and has slowly been running it in to the ground over the last few years until he's reached a point where he has little stock, zero money, and has run out of steam.

So, I'll try to make a long story short; they advertised it for sale: shop, associated equipment & current stock for a fixed price. I made them an offer a week ago, they've accepted it today. However, today the shop has been open and it will obviously continue to be open until such times as we've drawn up a new lease.

My concern is that I've made them this offer which includes the stock, but they're going to spend the next however many weeks selling it! They're skint, so highly unlikely to replace anything.

I'm now not sure how the heck we should be going about this. Do I ask them to vacate immediately, close the shop, then we draw up the lease and go from there? That's what I'm thinking, but not sure if there's even an accepted etiquette in this situation as I appreciate it's an unusual way to do things (ie: not doing a stock take before changing hands)

My other idea is to propose that we take over the day to day running of the shop unofficially, keeping it ticking over, until the new lease is a done deal, then I pay them and we start afresh.

If anyone has any pearls of wisdom for me I'll be most grateful. Obviously I'll get in touch with an appropriate solicitor in the morning, but I'm just panicking slightly thinking of the takings over the weekend whilst they sell stock I'm supposed to be buying!

(We've known the family (not closely) for many years and they're well respected in the community, and in case it's relevant - my son is currently working there, so we have 'eyes on' as it were. They're not about to empty the stock out... Then again...)

Thanks in advance for any advice!

 

[Clinton]

When you negotiate to sell or buy a business it's not just price that's negotiated. You need to settle a whole ton of things.

That's why I advise that people don't do this themselves and that they use expert assistance. You may have run a business for 20 years, that doesn't qualify you to navigate the buying of a business.

Here are some of the things you need to negotiate in these deals. As I've said on that page:

A typical negotiation (involves agreeing numerous figures, not just price).

These range from the amount of working capital and cash and debtors and stock and other assets to be left in the business on the day of transfer ... to what interest rate buyers will be paying on the deferred payments ... to the extent of VAT, corporation tax etc., that should be paid by the seller to the buyer to cover HMRC liabilities up to the date the business actually changes hands.

 

[Scalloway]

Stock is usually bought at valuation at the date the business changes hands.

 

[Mr D]

May want to contact some suppliers to quickly get the stock you want into the shop once you have control of the premises.

 

[Find.A.Way]

Stock is usually bought at valuation at the date the business changes hands.

I know, but the way they wanted to priced it is for the whole lot. This is why I'm now wondering about changing over - when/how. They haven't a clue either - they're very old school.

 

[Find.A.Way]

When you negotiate to sell or buy a business it's not just price that's negotiated. You need to settle a whole ton of things.


Thank you Clinton. I'll have a thorough read of that.

 

[Find.A.Way]

May want to contact some suppliers to quickly get the stock you want into the shop once you have control of the premises.

Thanks. Yes, got all that covered. It's a very amicable sale. I want to continue to run it as they have for over 60 years (which is their ideal outcome) so they're more than happy to share all knowledge etc. They've already allowed me full access to the shop / books / suppliers etc. Also, my son (who will run it day to day) has been working with them for a few weeks to see for himself exactly what's involved. I know what I'm going to do with the place (after simply filling it with stock that customers ask for daily!) and don't expect to run in to any issues in that area.

 

[Mr D]

I know, but the way they wanted to priced it is for the whole lot. This is why I'm now wondering about changing over - when/how. They haven't a clue either - they're very old school.

Then they should have kept it closed.

 

[Mark T Jones]

Forget amicable. This is business. You need to be professional but polite

It’s absurd buying stock is you don’t know it will be there. Do a detailed inventory if everything you are buying otherwise things will get very messy on completion

You could ask them to shut up shop but it isn’t entirely realistic and they can reasonably refuse to do so.

 

[Clinton]

Stock is usually bought at valuation at the date the business changes hands.

I do not recommend that approach. The business vendor will often sell off the fast moving stock without replenishing it. Do a SAV deal and you could end up with largely dead, possibly unsellable stock.

It's usually a big relief to the vendor when someone comes in and pays him for all that stock that he thought he'd have to throw out!

 

[Find.A.Way]

I understand where you're coming from guys, but this is not a huge deal. I expected a long negotiation so my initial offer was for less than 30% of their asking price. I held my ground because another business came up for sale in the area, which at a glance seriously undermined their asking price. So, even though I wasn't interested in the other business that's for sale, it gave me the edge and they accepted my opening offer.

I, on the other hand, was prepared to double my original offer during negotiations, so to a degree the stock is neither here nor there. I've always been aware that the stock will be a variable but I'm happy to pay the price I've offered just for the name, goodwill and equipment, the stock is a bonus. However, obviously I want to take advantage of it if I can.

It's the type of shop where they have 'bread and butter' stock selling all day every day (which they replenish in small amounts once a week due to their cash flow issues) The rest is stock that's probably been sitting around for 10 years and sells in dribs and drabs. Most of the stock they need is not there and hasn't been for some time.

The deal structure is unusual, which I understood when I took it on. All I'm trying to find now is a logistically do-able and sensible way forward from here which I thought some people on here might be able to suggest.

I think, considering the current managers financial position we need to insist they close today. He can sort out his financial mess and we can take over after a couple of weeks of the shop officially being 'vacant' and then let it tick over while the lease is being finalised and before investing heavily in stock.

Thanks for all your comments, I appreciate them.

 

[Newchodge]

Will closing the shop for a couple of weeks affect the customers. Where will they go while it is closed and will they come back?

Is anyone employed in the shop and, if so, have you been given TUPE information?

 

[The Byre]

Just going on what you have written here, this does not sound like a promising prospect! Also, as Cyndy has pointed out, have they got employees that fall under the TUPE laws?

I would seriously consider letting them crash and burn and then offering to take over, on condition that the building is included in the sale.

When you have a bricks & mortar business facility, you are in the real-estate business. If you are renting, then you are sitting on the wrong side of the table. For that reason, I would offer to buy the business on condition that the building is included.

 

[Find.A.Way]

No TUPE issues. Couple of OAP casual part timers who are like part of the furniture and we have no intention of letting them go. They're a great deal, and it will be in our best interests to keep them. They know the business inside out, the shop, customers, suppliers, how much sells, what we should order and when, etc. The list goes on and on. They'll effectively be training us!

I have considered buying the shop outright and the freeholder is happy to sell. But I'm very inpatient and buying it will take longer than I (and the current manager) are prepared to wait (or in his case, can afford to wait!) He is in so much personal debt he buys less stock each week. Customers still return, it's a very well known and loved local business. I have no concerns about getting customers back. The footfall is still huge, even though they turn 50% of them away, they still come back the next week and ask again for the same thing. If he wasn't in so much debt the business would be a great little earner, even in its current state! The last thing I want to do is let them crash and burn. I'm aware customers patience will run out eventually and I don't want to see that happen. I'm confident at the moment that there's enough footfall to the area to both recover the old customers and gain new customers by freshening the place up and bringing young blood in to run it.

He's offering me a virtually risk free 2 year lease with bmv rent and including an option to renew the lease at market rate rent or buy it outright if I want to at the end of the two years. For me that's a win/win.

I already own a lot of property and don't really want this unless it's going to work as a going concern for my son to run. I really don't need the agro of a commercial building on my portfolio right now. But in a couple of years if it's paying its way and my son wants to carry on, I'll just buy it.

I've spent the day with the owners today and we've come to an arrangement we're all happy with. They'll open next week and spend the week basically saying their goodbyes and introducing us as the new owners. I'll do a rough stock take (which is all I want/need) then we'll take over the shop the week after. They'll replace the stock sold (I'm not bothered about odds and sods, as long as we open with something on the shelves) Then we'll run it on the bare bones rent free until we've signed the new lease. This works for us. It will give us time to get marketing and publicity sorted whilst being introduced to customers and getting some local enthusiasm built up. THEN we can fill it with stock and start trading properly!

It's a punt, but it's always been a punt at the price I'm paying for it. I think it'll be very hard to lose money. My son is prepared to work for nothing to build it up and with the overheads we will have we should be in profit immediately. The numbers all add up, so fingers crossed!

Again, thanks for comments.

 

[Clinton]

Just going on what you have written here, this does not sound like a promising prospect!

Agreed.

Especially given his latest post! I see so many red flags in that post that I don't know where to start. And there'd be no point in starting anyway because, given his form in this thread, he's only going to get back to say that so-and-so is not a problem and that he's got it covered.

His posts seem designed to tell us how smart he is and what a good deal this is ... he isn't really seeking advice.

As you and I know, when some people are set on something they're just going to barge ahead regardless of any advice received. This is especially so when they believe they know what they're doing and are quick to dismiss any concerns anyone raises (whether it's about stock or staff or anything else).

There's a hint of arrogance in there ...which is a dangerous trait when buying a business! Even us old pros approach buying with a great deal of cynicism, caution, calculation. For a novice to be that cocky doesn't bode well.

That he flaps about from stock being a major concern to it not being a worry at all is but one clue about his determination to proceed with the deal come what may.

Good luck to him. I hope he doesn't end up back here in a few months, like so many others who bought businesses, crying about the disaster it's become.

 

[The Byre]

I shall not be quite as negative as @Clinton about your prospects, but just going on what you have written here, red flags do seem to be popping up!

No TUPE issues. Couple of OAP casual part timers who are like part of the furniture and we have no intention of letting them go. They're a great deal, and it will be in our best interests to keep them. They know the business inside out, the shop, customers, suppliers, how much sells, what we should order and when, etc. The list goes on and on. They'll effectively be training us!

So that's all to your advantage - so far, so good.

... he isn't really seeking advice.
As you and I know, when some people are set on something they're just going to barge ahead regardless of any advice received. This is especially so when they believe they know what they're doing and are quick to dismiss any concerns anyone raises (whether it's about stock or staff or anything else).

Dear @Find.A.Way, this process of seeking conformation and only listening to those we agree with, is a trap I have fallen into many times! It took many decades of bitter experience and getting the stuffing kicked out of me (financially speaking) before I learned to actually LISTEN and not just hear what others who have more experience than me had to say. I had fallen in love with the idea of doing something hair-brained or stupid and so I only heard those voices that said "Go for it!"

I have considered buying the shop outright and the freeholder is happy to sell. But I'm very inpatient and buying it will take longer than I (and the current manager) are prepared to wait (or in his case, can afford to wait!) He is in so much personal debt he buys less stock each week.

Time is on your side! You would be (IMO) foolish to not use it!

There are two objectives in business - the creation of profit and the creation of equity. I used to think that business was all about creating profit and nothing else - but then we would all run our businesses like Tesco and nobody would be Aldi, Lidl, Bauer Media, Bertelsmann or any of the other giant private and/or PE companies in Germany and the US that slowly and steadily swallow up vast chunks of the World's markets by creating equity.

Getting any B&M shop to turn an actual real honest-to-goodness profit is unbelievably hard. Even Aldi (who really know a thing or two about running retail outlets!) work on a gross profit of 5%. And if you think that does not sound like much - it's one of the highest supermarket GP figures out there!

The real motor behind the retail success stories, is the creation of equity through profit. You as a property owner should know that.

Another point requiring your attention, is the training of your son, so that he has all the tools in his mental tool chest to run a retail unit. When I opened a musical instrument store back in 1979, every Monday morning, I sat down and wrote out every mistake that I had made the previous week and compared that list with previous weeks. I found that process very instructive - one makes a huge number of bone-headed mistakes in retail all the time!

If you have not done so yet, I suggest that your son gets some formal training in the art and science of running a retail unit. Without that training, disaster usually follows!