Needs advice on buying a shop please.

[gracey1607]

Hi, my friend and I are interested on buying an Asian shop in our area. Owner is selling the existing stocks including the freezers, cash register, shelves. She's renting the place so we might just continue the contract for more than a year.
She wanted us to buy the business, including the business name, as she said she already established some loyal customers, good records on suppliers, etc. I fully understand what she was trying to say. Though I didn't expect it to be too complicated as my plan is just create a new business name and buy all their stocks? We may or may not stay on the same place.
May I ask for advice on what we are supposed to do?
Thanks.

 

[Robin_Denis]

Why is she leaving her established business? There should be a reason...

Try to understand what locals are thinking about that shop and its brand name because those locals will be your customers. If they have negative perceptions towards that shop then there is no point to invest.

Well it is always easy to start business with a known shop/brand however you have to be 100% sure. I would suggest you that just wait and make perfect research. Or, buy her stocks and sell them under your new brand name.

Good luck with your new venture.

 

[Funding for Communities]

She is selling you the goodwill which is an established part of buying/selling a business. It sounds like this is of no interest to you so either get another shop or offer her an amount for just for the stock and equipment. If she wants out she will take it.

 

[gracey1607]

Thanks for the advice Robin and FfC, much appreciated.

 

[myfairworld]

You say you are thinking of buying an 'Asian' shop. Does that mean merely that the owner is of Asian origin or that the shop is geared towards customers of Asian origin e.g. does it sell a lot of ingredients for 'Asian' (rather a broad category!) cooking or specialist hair and/or specialist hair and skin products or?

It makes a difference. If the seller's established customers come because she has specialist stocks and specialist knowledge there is no goodwill for you to buy unless you are genuinely prepared to develop expertise in such products.

It makes no sense to buy stocks and goodwill unless you genuinely want to trade in that place and sell that sort of stuff whatever it is, obviously you could then develop the business bringing in new lines which meet customer needs or which would attract new customers. But if you are thinking of going and trading somewhere else then why do you want to buy that business at all? You could start up from scratch somewhere else and look at Ebay, Gumtree etc for second hand fittings if the cost of those is an issue. It would only make sense to buy the business as a whole if that particular site was so hugely desirable in terms of position and footfall that you would pay over the odds to get possession of it.

When you are looking at an existing business it is open to you to make any offer you like. For example you could offer the rent plus a reasonable cost for the equipment and stock but nothing for goodwill as you intend to trade under a different name or move towards selling quite different stock. If the owner can find someone who will also buy the goodwill then obviously she'll accept that offer instead of yours, if she can't and is eager to get out she might accept your offer. You could offer just to rent and buy the equipment but not the stock and if the owner is eager to get out then she might hold a grand closing down sale and clear the stock herself. The thing is you can offer anything you like and the owner might accept if it suits them to do so or even if it doesn't suit them but they can't get a better offer. Equally the owner will try to get the best offer they can and only accept your less desirable offer if absolutely necessary. It all depends on how much you really want that particular shop.

 

[MOIC]

Paying a "Goodwill" fee does not benefit you.

Negotiate what you feel is right for the stock, f&f. Get an accountant on board with experience in this area.

Get a competent solicitor to explain & negotiate the lease.

Make sure you have thoroughly done your research on all costs and viability of the shop as an ongoing business with growth potential.

Good luck, if you decide to go for it.

 

[Clinton]

My full time job is advising business owners on selling their businesses. Here's my take on your OP:

There are two ways to buy a business - buying the shares (which includes taking on all the debts and potential future liabilities) and buying just the assets.

If the business is a sole trader or partnership, as seems to be the case here, your choice is limited to buying the assets.

This is a simpler route, but it's still worth getting some advice from a solicitor experienced in these transactions. I doubt you'll be able to "continue the contract". If she's in leased premises the lease agreement may not allow for what's called assignment i.e. she can't transfer her "tenancy" to you. You'll have to sign a new lease with the landlord. Bear in mind the landlord may not be willing to lease you the property, may want to run credit checks etc., on you and may insist on new terms.

Re: goodwill. I would pay for goodwill in a heartbeat if I was getting a good deal. The problem with goodwill is that, unlike with stock, you can't get external financing to cover that part of the purchase price - banks won't lend against it.

If goodwill is footfall based on location, you'll get that in any case if the landlord agrees to lease the property to you; you don't need to pay the seller for it. If there's a different component to the goodwill e.g. the name of the business, it may be worth negotiating. Tip: Ask for seller financing to the full extent of any goodwill you agree i.e. you agree the amount on paper but it's financed via a seller's note (a loan from the seller). If you're setting up a limited company to make the purchase, accept the loan in the company name rather than your personal name.

From a different perspective, exclusivity is a problem. A seller needs to have multiple buyers to be in a good bargaining position. Exclusivity with one buyer is dangerous in many ways, not just price. It can drag the deal out quite considerably during which time there's always the risk of some adverse material change. If you're the only buyer on this seller's horizon you're in a very strong bargaining position. But don't be complacent - it's not always that sellers disclose they're speaking with mulitple parties

If I can help with any other questions feel free to post below.

 

[Kristin Perry]

Why is she abandoning her built up business? There ought to be a reason...

Attempt to comprehend what local people are thinking about that shop and its image name in light of the fact that those local people will be your clients. On the off chance that they have negative discernments towards that shop then there is no good reason for contribute.

Well it is constantly simple to begin business with a known shop/mark anyway you must be 100% certain. I would propose you that simply hold up and make immaculate exploration. On the other hand, purchase her stocks and offer them under your new image name.

Good fortunes with your new pursuit.

 

[Newchodge]

Are there any staff employed in the shop who will expect to continue in employment?

 

[gracey1607]

Thanks for the advice. Hi Newchodge, the shop is run by the family so they don't have staff on payroll if you know what I mean. We have decided not to continue due to many reasons. The owner is too complicated to deal with and made me feel that it's going to be a big risk to buy the business. Many thanks to all your advices, helped me a lot to have a definite decision.

 

[Bob]

If you find another site, one of the most important things to do is to consult a lawyer about the contract with the vendor and the property lease/rental agreement.