Questions about starting a small business

[CeeBee]

Hello. I have a few questions and I hope you have the patience to talk me through them.

Not sure if this will help, but some context: I’ve been a media/publishing professional for the past 15 years, mostly a copywriter, editor, digital marketer and most recently a web editor/developer (not just the job titles, more roles/responsibilities).

I am in my 40s and am now looking to ‘work for myself’ (and my family) and am looking to buy an existing retail/convenience shop (chocolates, gifts, basic groceries) to start and get a feel for what it would be like.

I’ve worked freelance in addition to my regular roles for most of my career, so I have some idea about working for myself but I don’t want to assume it will be the same thing because I’m considering moving to full-time self-employment.

My questions are:

1. What kind of market research can I conduct for a business like this? Is one necessary?

2. What is the process of buying an existing business?

3. What are some things to look out for especially in a convenience store in a city centre location?

4. Will a small-ish convenience store with an advertised £800 (probably lower) weekly turnover be sufficient to self-sustain one-half of a family?

 

[pentel]

4. Will a small-ish convenience store with an advertised £800 (probably lower) weekly turnover be sufficient to self-sustain one-half of a family?

No

 

[Drax35]

Be very careful if you're inexperienced and looking to buy an existing business.

Sellers "wishing to concentrate on other business interests" or "moving overseas" and "perfect opportunity for an owner-operator" etc are all nonsense. The business is for sale because it's a complete headache and/or doesn't make enough money.

Don't forget the price is always massively negotiable. If it's not making money hand over fist but it works for you, offer them about 10% of whatever they're asking.

 

[CeeBee]

Be very careful if you're inexperienced and looking to buy an existing business.

Sellers "wishing to concentrate on other business interests" or "moving overseas" and "perfect opportunity for an owner-operator" etc are all nonsense. The business is for sale because it's a complete headache and/or doesn't make enough money.

Don't forget the price is always massively negotiable. If it's not making money hand over fist but it works for you, offer them about 10% of whatever they're asking.

Thank you! That's very helpful.

 

[DontAsk]

4. Will a small-ish convenience store with an advertised £800 (probably lower) weekly turnover be sufficient to self-sustain one-half of a family?

Wrong question.

What's the profit out of that £800? That's the figure you need to consider.

What's the saying? Turnover is vanity, profit is sanity.

 

[BusterBloodvessel]

I don't understand the desire to do something you have zero skill-set in. Why is that? Is it because you see that as relatively "easy"? Or low skilled? Because you can buy something existing?

Just seems odd you specifically want to open a chocolate or convenience shop having always been in media and design?

Not a loaded or facetious question at all, by the way. Genuinely trying to understand what you're looking for?

 

[CeeBee]

Wrong question.

What's the profit out of that £800? That's the figure you need to consider.

What's the saying? Turnover is vanity, profit is sanity.

I'll add that to questions to ask the current owners/agent

 

[CeeBee]

I don't understand the desire to do something you have zero skill-set in. Why is that? Is it because you see that as relatively "easy"? Or low skilled? Because you can buy something existing?

Just seems odd you specifically want to open a chocolate or convenience shop having always been in media and design?

Not a loaded or facetious question at all, by the way. Genuinely trying to understand what you're looking for?

I get it and yes, because it appears to be a relatively 'safe' launching point and I can transfer skills I already have

 

[DontAsk]

I'll add that to questions to ask the current owners/agent

You need to see the "books" for the last few years, before you go very far at all.

I've enquired about a few businesses in the past and they were always willing to show the figures, even when they shouted "don't buy this business".

Any delay or excuse for not providing the data is a red flag.

 

[CeeBee]

I intend to ask as many questions and request as many details as possible upfront before proceeding. Not sure how successful that'll be but I think it'll be worth trying. Thank you!

 

[intheTRADE]

4. Will a small-ish convenience store with an advertised £800 (probably lower) weekly turnover be sufficient to self-sustain one-half of a family?

I wouldn’t even waste your time with this one and look for something else

£3200 T/O per month - after your rent, cost of stock, gas, electric, water, insurances you’ll be lucky if you break even to pay yourself anything at all

 

[JEREMY HAWKE]

I wouldn’t even waste your time with this one and look for something else

£3200 T/O per month - after your rent, cost of stock, gas, electric, water, insurances you’ll be lucky if you break even to pay yourself anything at all

Well I could not be bothered to add it up but you know the numbers and I made more money when I had a paper round at school?

 

[fisicx]

Why are they selling the business?

It’s possible they are losing money and want to get out.

Or the toll of working very long hours on your own plus all the out of hours activities make the income untenable.

Or there is a rent rise and lease renewal on the horizon.

There are far more reasons not to do this than there are seen through the rose tinted spectacles.

 

[intheTRADE]

I’d be interested to know what kind of shop it is

The OP mentions a convenience store which I immediately think of Premier, One Stop, Spar and the like. I have a friend who has 3 Premier shops with 2 tills in each and they take around 1500-2000k per day per shop. £800 a week is peanuts for a corner shop. I’d expect to turnover £800 on fags alone in a week

It may also be a typo and he means £8k a week which is way more the norm

 

[CeeBee]

I wouldn’t even waste your time with this one and look for something else

£3200 T/O per month - after your rent, cost of stock, gas, electric, water, insurances you’ll be lucky if you break even to pay yourself anything at all

Ohh wow. Does the location matter? For instance, I'm based up north so less of the London/South prices. But that is definitely good to know. Thank you!

 

[CeeBee]

Well I could not be bothered to add it up but you know the numbers and I made more money when I had a paper round at school?

I also spoke to a store owner who says they make more from having a paper stand attached. Does that help significantly?

 

[CeeBee]

Why are they selling the business?

It’s possible they are losing money and want to get out.

Or the toll of working very long hours on your own plus all the out of hours activities make the income untenable.

Or there is a rent rise and lease renewal on the horizon.

There are far more reasons not to do this than there are seen through the rose tinted spectacles.

They say they are retiring after running the shop for almost 15 years. What should I look for in terms of future issues/leases?

 

[CeeBee]

I’d be interested to know what kind of shop it is

The OP mentions a convenience store which I immediately think of Premier, One Stop, Spar and the like. I have a friend who has 3 Premier shops with 2 tills in each and they take around 1500-2000k per day per shop. £800 a week is peanuts for a corner shop. I’d expect to turnover £800 on fags alone in a week

It may also be a typo and he means £8k a week which is way more the norm

It's not a branded convenience store and the price they stated was £800-1000 weekly, working 9-5pm 5.5 days. I didn't realise branded convenience stores could be franchised though?

 

[intheTRADE]

It's not a branded convenience store and the price they stated was £800-1000 weekly, working 9-5pm 5.5 days. I didn't realise branded convenience stores could be franchised though?

One Stop and Cost Cutter offer franchise options. Not sure about Spar.

Premier is slightly different as all their stores are independently owned by the retailer but Premier offer a no cost branding option to turn existing stores into Premier stores which is what my friend did. They then have to buy the stock from Premier owned cash and carry’s such as Bookers etc

Seriously think this through long and hard if you keen on this store you have seen £800-1000 per week turnover is not sustainable to support a family

 

[fisicx]

It's not a branded convenience store and the price they stated was £800-1000 weekly, working 9-5pm 5.5 days.

They are telling you porky pies.

 

[ecommerce84]

If you’re generous and take them on their top figure of £1000 per week turnover trading 9-5 5 days a week and say 9-1 on the half day, that gives you 44 hours altogether, which is a turnover of £22.72 per hour.

Have you any idea of their Gross Margin? Convenience stores often work on low margins - assuming a 50% margin, that would give you a gross profit of £11.36 per hour and that’s before you take out rent, electricity, insurance, waste disposal, your time doing your accounts in the evening, time spent at the cash and carry.

If they’re only hitting £800 of their gross margin is less (or both), then it’s even worse shape.

There is not enough margin there for employing staff so you’ll be working 5.5 days a week, every week.

I wouldn’t normally break a turnover down to the hour, but you’d earn more stacking shelves in Aldi. In fact you could probably get 4 days a week in Aldi, giving you a 3 day weekend rather than a 1.5 with more money and less stress and none of the hassle of running a business.

I doubt you want a job in a supermarket but its an interesting comparison.

Is there not a business that you could set up from scratch using your existing skill set?

 

[Mark T Jones]

Looks to me like you are looking at GP of < £1,000 - per month.

Net profit - small at best.

However, before you start digging (you'll need a 5 year spread of detailed financial information), you really need to be adking yourself why you believe this is a good idea, and what additional value you will bring after purchase?

The problem with both franchises and small- business purchases is ghat buyers fool themselves that they are buying success. It never happens. You are buying a platform or a template, that's all.

 

[Socio South West]

You should get and scrutinise the accounts: Also ask for the VAT returns for the past year which should pretty much correlate to the accounts.

You should then have the turnover, gross profit and some pretty good pointers to the level of overheads.

Also ask about Suppliers - What is their spread of suppliers? Will the same terms be available to you in terms of discounts and/or payment terms?

The terms of the lease may be crucial - If you are taking over a lease check in particular the maintenance liabilities, and if it is full repairing get the place formally surveyed. If you are negotiating a new lease, get professional assistance.

And finally...... A business is only worth what someone will pay for it. If its been on the market for a while, its probably overpriced. In my experience the larger business agents' Gross Profit based valuations of smaller businesses are usually about 25-40% over what anyone should pay for the business to be sustainable.

Dig your heels in on price - HARD!

Best of luck - please keep us in touch with how it progresses.

 

[skaracay]

NO

Retrospective accounts and documents may have been tampered with.
To get a better understanding of the business, spend a week working in the shop.
Observe the incoming customers, keep track of the cash flow, and interact with suppliers. Pay attention to the products that sell the most as they may have a lower profitability margin. Take note of any changes that occur over the week. Additionally, speak with the landlord to determine how much time is left on the lease agreement. If it is a long-term lease, there may be a rent increase in 3-5 years.

 

[CeeBee]

One Stop and Cost Cutter offer franchise options. Not sure about Spar.

Premier is slightly different as all their stores are independently owned by the retailer but Premier offer a no cost branding option to turn existing stores into Premier stores which is what my friend did. They then have to buy the stock from Premier owned cash and carry’s such as Bookers etc

Seriously think this through long and hard if you keen on this store you have seen £800-1000 per week turnover is not sustainable to support a family

Okay. The franchise options are good to know. And thank you for the advice!

 

[CeeBee]

Not sure where to put this but based on the advice and warnings I’ve received so far, I’m inquiring about another store - retirement sale after 29 years, with an annual t/o of just over £95k. The rent is £800/monthly. I’ve requested additional details so I'll know/decide eventually what to do with whatever info I have

 

[CeeBee]

They are telling you porky pies.

You mean the t/o should be less? Or more? Or all of it is off?

 

[CeeBee]

If you’re generous and take them on their top figure of £1000 per week turnover trading 9-5 5 days a week and say 9-1 on the half day, that gives you 44 hours altogether, which is a turnover of £22.72 per hour.

Have you any idea of their Gross Margin? Convenience stores often work on low margins - assuming a 50% margin, that would give you a gross profit of £11.36 per hour and that’s before you take out rent, electricity, insurance, waste disposal, your time doing your accounts in the evening, time spent at the cash and carry.

If they’re only hitting £800 of their gross margin is less (or both), then it’s even worse shape.

There is not enough margin there for employing staff so you’ll be working 5.5 days a week, every week.

I wouldn’t normally break a turnover down to the hour, but you’d earn more stacking shelves in Aldi. In fact you could probably get 4 days a week in Aldi, giving you a 3 day weekend rather than a 1.5 with more money and less stress and none of the hassle of running a business.

I doubt you want a job in a supermarket but its an interesting comparison.

Is there not a business that you could set up from scratch using your existing skill set?

I've messaged for more details including what their gross margin is. I wasn't planning on hiring additional staff as I would run/operate it full time or at least while running a web development/copyediting business (something that directly uses my existing skillset).

Thanks for breaking down the entire scenario!

 

[CeeBee]

Looks to me like you are looking at GP of < £1,000 - per month.

Net profit - small at best.

However, before you start digging (you'll need a 5 year spread of detailed financial information), you really need to be adking yourself why you believe this is a good idea, and what additional value you will bring after purchase?

The problem with both franchises and small- business purchases is ghat buyers fool themselves that they are buying success. It never happens. You are buying a platform or a template, that's all.

Yes, that makes sense. I think I may have slightly over-romanticised the idea and needed to see all the sides, which is why I'm here. So thank you so much for this!

 

[BusterBloodvessel]

You mean the t/o should be less? Or more? Or all of it is off?

How do you really think it could be less? Let's imagine that £800 was PURE PROFIT! Which obviously it isn't. But even at that, working 44 hours per week as stated, at National Minimum Wage that's £459 in wages just to have someone there in the shop (even if it's you, you need to pay yourself something).

So that leaves you £340 per week towards rent, utilities, repairs.... oh and let's not forget that at this point we haven't actually factored in buying the stock that you're selling!

Who told you that adding a newspaper stand helps? Do you really believe that? It's not rocket science to work out that sales of physical newspapers are massively in decline and a 30 second google job confirms that with figures.

I'm beginning to think this is some sort of wind up or school project thread.... if not, I'm afraid to say there's some huge naiveties here and I really would recommend focusing on something more within your skillset rather than something that seems completely alien to you.

 

[CeeBee]

You should get and scrutinise the accounts: Also ask for the VAT returns for the past year which should pretty much correlate to the accounts.

You should then have the turnover, gross profit and some pretty good pointers to the level of overheads.

Also ask about Suppliers - What is their spread of suppliers? Will the same terms be available to you in terms of discounts and/or payment terms?

The terms of the lease may be crucial - If you are taking over a lease check in particular the maintenance liabilities, and if it is full repairing get the place formally surveyed. If you are negotiating a new lease, get professional assistance.

And finally...... A business is only worth what someone will pay for it. If its been on the market for a while, its probably overpriced. In my experience the larger business agents' Gross Profit based valuations of smaller businesses are usually about 25-40% over what anyone should pay for the business to be sustainable.

Dig your heels in on price - HARD!

Best of luck - please keep us in touch with how it progresses.

Wonderful! Thank you. I'm still waiting for them to get back to me with the initial details and I'm feeling better prepared than I was a few days ago - slightly less optimistic but in a good way (I think).

 

[CeeBee]

How do you really think it could be less? Let's imagine that £800 was PURE PROFIT! Which obviously it isn't. But even at that, working 44 hours per week as stated, at National Minimum Wage that's £459 in wages just to have someone there in the shop (even if it's you, you need to pay yourself something).

So that leaves you £340 per week towards rent, utilities, repairs.... oh and let's not forget that at this point we haven't actually factored in buying the stock that you're selling!

Who told you that adding a newspaper stand helps? Do you really believe that? It's not rocket science to work out that sales of physical newspapers are massively in decline and a 30 second google job confirms that with figures.

I'm beginning to think this is some sort of wind up or school project thread.... if not, I'm afraid to say there's some huge naiveties here and I really would recommend focusing on something more within your skillset rather than something that seems completely alien to you.

Well, I believe that everything has a starting point and this is mine. I know that I clearly don't have enough information to just jump into the field but that's why I'm here asking the questions; to know more from the people who do. Thanks for the advice though!

 

[Paul Carmen]

Why would you even consider this, it's an absolute waste of time, basically for someone with no other business or professional skills.

If you are the staff, then doing other web/copywriting work will be super slow or non existent, as you'll be interrupted by customers, shoplifters, stacking shelves, buying stock, doing accounts etc. Do the web/copywriting work instead.

You're looking at buying at best a really poorly paid job, at worst, something that causes you stress, sucks up all your time and makes you no money at all.

 

[CeeBee]

Why would you even consider this, it's an absolute waste of time, basically for someone with no other business or professional skills.

If you are the staff, then doing other web/copywriting work will be super slow or non existent, as you'll be interrupted by customers, shoplifters, stacking shelves, buying stock, doing accounts etc. Do the web/copywriting work instead.

You're looking at buying at best a really poorly paid job, at worst, something that causes you stress, sucks up all your time and makes you no money at all.

So it's absolutely not worth attempting at all?

 

[fisicx]

So it's absolutely not worth attempting at all?

No.

Get a job in a convenience store first and see if this lifestyle suits you.

 

[Paul Carmen]

So it's absolutely not worth attempting at all?

Why would you buy a minimum wage stressful job, with all the responsibilities and headaches of an actual business? Just get a job if that's what you want.

If you can explain a rationale for it succinctly, that actually makes business sense, then go for it. But from your posts it looks like you don't even understand the commercial aspects of running a shop, nor the difference between turnover, profit, and a salary.

You need to think: "can I put someone in this shop and pay them to staff/run it, plus make a profit on top of this". Then you have a business that's generating income for you and allowing you to do your other work and scale over time. If not don't bother.

 

[Mark T Jones]

So it's absolutely not worth attempting at all?

Attempting what? Handing over wodge of cash to see if you like it?

Hand me £20k, and we can see if you like being a finance broker.

 

[fantheflames]

Oh wow, it seems like a big headache. But every business opportunity is worth exploring... to a certain degree! The process of buying an existing business typically involves due diligence, negotiations, and legal paperwork. It sounds like a risk, and most businesses are, but the turnover is very low. I know you were looking at another shop, OP, too. What about starting a difference business?