What to Look For/know/ask When Considering Buying a Business.

Updated on January 04, 2011
K.H. asks from Fernley, NV
5 answers

So a little coffee stand in town has been for sale for 8 months now. I always thought the bank wanted way to much money for it. It is in a great location in town and has a huge lot, plus it is being sold with a nice espresso machine and other items-anyways driving by I saw that the price had dropped 22k$-more reasonable but I still don't want to pay that much(108k). I want to take a look at it anyways and find out if they would take less for it. My husband and brother already agreen that if they would come down some more we would make an offer. So I was wondering how the whole process of getting a business up and running works? When are payments made to the bank? What is a 'good' price for a business and how do you figure out what is a good price? I don't even know what questions to ask! I have experience making espresso (managed starbucks for a bit) as well as running another restaurant- I have a great business sense and always wanted my own coffee place. My family would help run it and I would take my kids with me to work but I need to know what else to consider. Thanks!

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K.D.

answers from Los Angeles on

As a marketer, my mind first asks the question, "Why did it close?" And then to the coffee market in your town. Take a look at your competition, from Dunkin Donuts to the most upscale, and look at what makes them different, which attracts what kind of customers, which are more successful and why, what do people in your area want in a coffee shop, does your town need another a coffee shop, is there unmet demand or over supply? Start talking to the other coffee shop managers, owners, or baristas to get a feel for what's going on.

In the end, remember a person can have the best business idea, but if it's in the wrong market, it will fail. So you need to understand your market's need and make your business meet these needs. Good luck!

4 moms found this helpful

B.K.

answers from Chicago on

I'm sure others will have more information, but I know you will need an attorney, and you'll need to form a corporation to buy the place. That protects your personal assets should it not make it. Plus you'll need a business license from your town and county. An attorney will help you draft things and register with the state.

You'll also need to contact the former owner for their profit/loss statements to see how much the business made, which will give you an idea of how much it's worth. Does the business have a realtor selling it? You can ask him/her for a P&L statement. Is it in a strip mall or building where you'll have to pay rent, or is it free-standing and you will own the building? And payments on a business loan are made to the bank the same way a mortgage is -- monthly. You also will need an accountant to file taxes for you -- corporate and payroll and personal. I'm just spitting out things that are popping in my head.

You also should talk to your bank loan officer and see what the requirements are for getting a business loan. Usually you have to have a pretty detailed business plan (in addition to forming a personal corporation) drawn up to show how you plan to make a profit and not a loss in order to get a loan. Your local Small Business Administration can help you with drafting a business plan. You can also check some out online to see what they contain.

I don't know that a huge lot would be an asset. I don't know what your tax rates are out there, but a huge lot here always means huge property taxes.

I co-own a restaurant but I am mostly the silent partner. I do the bookkeeping and payroll and my partner does all the rest. It's a tough economy to open up a place, especially if it closed because it couldn't make it. Be very careful and seek out good legal counsel.

2 moms found this helpful
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M.J.

answers from Sacramento on

My husband bought a company a few years ago, so I have a general understanding. You'll want to get an accountant to look over the books. This can give you a better idea of fair value for the business and also tip you off to potential problems. You'll also want to hire an attorney who can look over legal agreements associated with the deal. They can make the deal contingent upon an independent accountant evaluating the books, so you're not stuck with the business after learning it has a lot of problems.

Good luck! It can be a lengthy process -- and should be -- but also worthwhile in the end if it's a good match.

A.W.

answers from Kalamazoo on

Not sure, but I know that getting a business license and insurance are two biggies.

L.M.

answers from Dover on

Go to your bank. Talk to their loan agent. They will be of great value because they can tell you what info they will need and what they need from you to consider financing you (even if you have the money and don't need financing it is helpful to have this info and you'll want to have a line of credit).

You can also contact your local small business association and they can help you as well.

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