Partnering with an existing business to expand?

Discussion in 'Growing and Managing a Business' started by Stewart312, Dec 14, 2011.

  1. Stewart312

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    Dec 14, 2011
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    Hello board,

    This is my 1st post and would like to thank everyone in advance for viewing my post.

    I am considering buying into an existing babershop that I patron. The owner and I have a good business relationship as I've promoted products in his shop in the past. About a year ago he open a 2nd shop in a new location. The shop I frequent has suffered as a result, the business is still there but the attention to continue to market it has ceased.

    I spoke with him a couple of days ago reguarding buying into his 1st shop and possibly opening a 3rd deluxe babershop with him in the future, if I can increase revenues at the location I'm interested in investing in. He wanted me to make an offer, but without seeing the company's financials I am not comfortable doing this.

    Would anyone recommend investing in a babershop? Also, what kind of things should I ask to see in order to make a good deal happen? Lastly what percentage of ownership would you suggest to make it worth your while?

    Thank you

  2. ArcSine

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    Jun 2, 2010
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    Did the original shop take a hit because the new shop dominated his attention and the original suffered from neglect, or was it due to cannibalism of Original's clientele by the new shop? Your post suggests the former, but the difference is critically important enough to make assumptions unwise.

    On that point, if you end up with a deal in which his new location is somewhat in competition with the original, be aware that of course his loyalty will run in favor of New over Original, as he's only getting some piece of Original's net profits, while getting 100% of New's profits.

    You are absolutely correct that a credible offer on your part isn't even possible until you've seen the numbers. You'll need financial statements and tax returns for recent years (past 3 years probably a minimum; 5 years would be better).

    The amount of other due diligence you'll need to carry out depends somewhat on the level of credibility of those financials and returns. In turn, that credibility level depends on who prepared them. If these statements were prepared by the proprietor himself, that represents the least level of reliability, of course. Moving up the scale from there, in order, would be (1) prepared by an in-house bookkeeper or accountant; (2) prepared by an outside, independent accountant (the more well-known and reputable, the better).

    It's too early in the process to identify an appropriate ownership %. That'll depend largely on how much of an investment you make up front, and/or what kind of value you can subsequently bring to the business in terms of growing revenues and increased net profits. But before either one of you can speculate about those matters, you'll need to vet the historical numbers, and also develop a growth plan.

    If it's within your budget, you should get an accountant or some similar advisor to work with you on the potential buy-in. He / she can (a) help you decode and analyze the financials and tax returns; (b) help determine what additional info should be obtained, given the particular circumstances; (c) estimate a reasonable value and buy-in price; (d) suggest creative ways to structure the deal that hopefully make it a win-win for both of you; and (e) advise on the tax ramifications and suggest tax-minimizing strategies.

    The fact that you're a customer of the business, and especially that you've done promotional work for it in the past, is a huge plus.

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