Advice needed on buying new buisness, is it worth it?

Discussion in 'Growing and Managing a Business' started by DarkSmoke, Sep 20, 2010.

  1. DarkSmoke

    DarkSmoke
    uix_expand uix_collapse
    New Member

    Joined:
    Sep 20, 2010
    Messages:
    5
    Likes Received:
    0
    I'v been working in this shop for 7months, and the boss want to selll me this shop. its an internet cafe` with basicaly 10computers and an international calling system. he's gonna actually sell me the buisness with all the stuff in the shop, cause the building is rented to him. so its basicaly a change of owners. the price he's asking is 30,000 euros. is this too much for an already open buisness?
     
  2. Fergal

    Fergal
    uix_expand uix_collapse
    Premium Member
    Premium Member

    Joined:
    Nov 18, 2007
    Messages:
    10,575
    Likes Received:
    1,165
    Welcome to Business Advice Forum DarkSmoke.

    It sounds like an interesting opportunity, do you know why the current business owner is considering selling the business?

    The main factor in the valuation of the business is it's present and potential future profit. If the business won't make a profit for you, it's not worth anything and will only cost you money. Have you had a look at the businesses financial accounts and their bank statements? They should give you a good overview of how well the business is doing.

    Other things you would need to check before you make any purchase would include;

    • The software licensing , make sure it is fully licensed and that the licenses are included with the sale
    • The duration and terms of the lease on the property - you don't want to purchase the business only to find out that the new landlord is forcing you out of the premises.
    • Does the business have any outstanding debts or legal actions against it?

    Please post back with your thoughts and any further details you can provide.

    Good luck with it!
     
  3. DarkSmoke

    DarkSmoke
    uix_expand uix_collapse
    New Member

    Joined:
    Sep 20, 2010
    Messages:
    5
    Likes Received:
    0
    Thanks for the welcome, im new to buisness but it was always my dream.
    Actually i take care of almost everything here, so i know how much profit and expenses there are.
    i figured out that in 6-10months i would get back those 30,000 from the shop.
    Sales have droped a bit in the summer. but i don't know if its a permanent drop.
    The reason why the owner wants to sell the shop is, he's indian. He wants to get the money from this shop and go open a new buisness is in his country , india.
    Its alot for 10computers and a telephone system 30,000 euros, but is it worth it ? every friend is telling me its not but somehow i know its worth so thats why im asking to get an advice from someone whos more expirienced in buisness then me.
    Also another detail just to have said everything:
    one more problem in the middle is the bank asked me that i must have a 30% of the loan, and a guarantee like a property. the boss told me he will lend me thos 30% of the loan , so my only problem is the guarantee since i don't own any property , any ideas what i could do with this?
    The shops makes most of its profit from the calling system, from the many refuges that come from the african continent to malta.

    I hope i haven't missed any detail, and sorry fro the typos.
     
  4. Kay

    Kay
    uix_expand uix_collapse
    Member

    Joined:
    Sep 29, 2008
    Messages:
    1,816
    Likes Received:
    21
    You didn't say where it was, DarkSmoke. I'm assuming from the last sentence it's in Malta.

    Since most of the profit is made from the calling system, you need to look into the terms that are in place for that too. Can the current contract be transferred to a new owner without any need for some kind of security deposit? I'm not sure what this system is you're talking about or how it works there, but in my experience most utility companies expect a down payment of some kind from a new business owner until they are sure they aren't going to disappear and leave an unpaid bill. They hold these deposits for about a year.

    Without some kind of guarantee, you'll struggle to get the funding from the bank. Basically that's the bank's way of ensuring they recoup their money if the business goes bust. They would take your house. It's never a good idea to mix in personal property with business loans anyway.Then you'd have no business and no house if things went belly up.

    You need to find out for definite about the things Fergal mentioned. Don't just guess or assume they are okay.

    I know you're keen and it's exciting to feel your dream's within your grasp. Do your best to stay clearheaded to ensure you're not getting stuck with something that has problems you're unaware of or getting in over your head financially.
     
  5. Fergal

    Fergal
    uix_expand uix_collapse
    Premium Member
    Premium Member

    Joined:
    Nov 18, 2007
    Messages:
    10,575
    Likes Received:
    1,165
    DarkSmoke when looking at what you would get for your €30,000 you should weigh it up against what it would cost you to set the business up from scratch and get it to the level where the existing business is currently at. Do you know how much it would cost you to do that?
     
  6. DarkSmoke

    DarkSmoke
    uix_expand uix_collapse
    New Member

    Joined:
    Sep 20, 2010
    Messages:
    5
    Likes Received:
    0
    i don't know exacly, but im sure it would be less, maybe about 20,000 or less.
    but then again you have bigger chance of failing with a new buisness then with an estabalshed buisness i guess ?

    Another question, then if its not a good idea to mix personal stuff with buisness, what could i do to get myself those 30,000 loan ? Still i don't have a house , so i must found someone ready to give me his property as guarantee, but if there are other ways im ready to learn.
     
  7. ArcSine

    ArcSine
    uix_expand uix_collapse
    Member

    Joined:
    Jun 2, 2010
    Messages:
    233
    Likes Received:
    187
    Fergal's advice to figure the total cost required to exactly replicate the existing business from scratch is a terrific way (esp in a situation like you've described) to keep a reality-check on the seller's asking price.

    What you're sensing here is that a significant difference between the existing biz and a "build it yourself" replication are the intangible assets of history, and a pre-existing clientele. It's the absence of these two intangibles in a start-up scenario that make up much of the "risk" you're noting above.

    Still, it gives you a way to fine-tune your thinking a bit. For example, suppose you could assemble the same package of hard assets (computers, comparable leased space, etc.) for roughly 20,000. Given that, how much time, marketing effort, and cost would then be required to develop a comparable reputation and clientele? (Only you and/or your advisor and specifically answer that, given the particular facts.) Having considered that, would it then be worth it to spend an extra 10,000 to simply buy those intangible assets (by purchasing the biz from the seller) instead of building from scratch?

    So it gives you a way of sniffing the reasonableness of the seller's asking price: His 30K figure consists of the hard assets (a comparable package of which you could assemble for 20K) plus another 10K for the intangibles such as client base, pre-existing lease, established cash flow, and so on.

    On that last point, you definitely want to take Fergal's and Kay's advice to heart: It's very important that you establish beforehand (with certainty) such things as the transferability of the lease, any key contracts, and of the licenses. Having an attorney render a quick opinion on those matters is a form of insurance policy that's usually worth the cost. The seller telling you "they'll transfer...trust me" doesn't cut it. (Most deals have the final closing conditioned on the successful transfer / assignment of the contracts.)

    Re the financing, it's also somewhat rare in small-business exchanges that the seller doesn't take some portion of the price in the form of a note (seller financing). When a seller insists on all-cash up front, it casts a shadow on his faith in the business's ability to generate sufficient cash flow following the deal. Thus, your required financing--after taking into account some seller financing--should be somewhat less than 30K.

    If you acquire this biz, are you planning on having an outside accountant? If so--and if you already have this individual lined up--it would probably be wise to have him/her help you vet this deal. As a side bonus, some accountants are familiar with tax planning strategies you might be able to avail yourself of in structuring this deal.

    Cheers!
     
  8. GekiDan

    GekiDan
    uix_expand uix_collapse
    Active Member

    Joined:
    Jun 11, 2009
    Messages:
    2,594
    Likes Received:
    218
    @DarkSmoke
    May we know how old are the computers on that store? Are they still new, or fairly old?
    From what I see, you should definitely check out on how old are the computer systems so that you won't face any problems on the hardware and software failures later on.

    A friend of mine even suggested to me that I should prevent buying computer sets from computer cafes since they are over used. And might cost me more money in repairs later on, than buying a brand new set.
     
  9. DarkSmoke

    DarkSmoke
    uix_expand uix_collapse
    New Member

    Joined:
    Sep 20, 2010
    Messages:
    5
    Likes Received:
    0
    Computer repairs aint a problem for me since im able to fix them myself and i can get parts for cheap.
    Computers are about nearly 2years old.
    Also i forgot to mention something because today it was explained to me. Once i get the shop, my boss offers the calling system to another 6internet cafe's wich he has about 40-50% share from their profit. So once i get the buisness that share to those internet cafe's will be mine.
    Another question i wish to ask is, if i succede in getting a guarantee, should i also sign a contract with the seller before i give him the money other then i contract with the one who rents him the shop?
     
  10. Fergal

    Fergal
    uix_expand uix_collapse
    Premium Member
    Premium Member

    Joined:
    Nov 18, 2007
    Messages:
    10,575
    Likes Received:
    1,165
    You should probably use a professional legal adviser for the purchase of a business of that value DarkSmoke, this will help ensure you get everything you pay for and don't meet any unpleasant surprises.
     
  11. DarkSmoke

    DarkSmoke
    uix_expand uix_collapse
    New Member

    Joined:
    Sep 20, 2010
    Messages:
    5
    Likes Received:
    0
    Is it expensive to use a legal adviser?
     
  12. Fergal

    Fergal
    uix_expand uix_collapse
    Premium Member
    Premium Member

    Joined:
    Nov 18, 2007
    Messages:
    10,575
    Likes Received:
    1,165
    That really depends on a lot of factors DarkSmoke, different legal professionals will have different fees and different types of legal work will incur different charges. The best way to find out for sure would be to contact legal services in your area and ask them how much they charge for their services.
     
  13. GekiDan

    GekiDan
    uix_expand uix_collapse
    Active Member

    Joined:
    Jun 11, 2009
    Messages:
    2,594
    Likes Received:
    218
    If you are on a tight budget on a legal adviser, try to go to a public attorney's office.
    They can do their job with a minimal fee and sometimes, free of charge.
    I don't know if you have a similar service there.
     

Share This Page