You have seen a coffee shop for sale that appears to be your ideal business. It is just right for you so, armed with cheque book and good intentions you are about to head off to see the agent who is selling it with the intention of buying it there and then. STOP! Let us start this process again.
Firstly, there is nothing wrong with expressing an interest and even putting a holding offer on this coffee business, as long as that deposit is refundable.
However, there are many questions to be asked and research to be undertaken before can fully commit yourself to the deal.
In the first place you should visit the business and scrutinise it thoroughly. Is the equipment in good working order and the premises in a good state of repair? Yes a good surveyor will be able to tell you this, and you should engage one, but it is important to look for yourself. This way you can check that the surveyor is doing his job.
Next you will want to know about the tenure if it is a leasehold property that is being purchased. There is no point in paying out tens of thousands that only has a couple of years left on the lease. If you still want it make sure that there will be a new lease available to you when you take over. In addition you need to check with the local authority that there are no major developments in the locality, which are likely to have an adverse affect on the business trade. For example, if parking restriction are being introduced outside the coffee shop this might reduce trade and revenue. Similarly, if a “Starbucks” is being set up a couple of hundred yards away, the same effect might occur. Whilst we are on the subject of local authority records examination, it is also important to check the no complaint has been made against the business or its owners, for example, about health and safety issues.
Next you will have some important questions to ask the existing owner. The first of course will be “why are you selling?” It might be that it is for retirement or other perfectly genuine reasons, but keep an open mind and look for anything that might contradict the stated reasons. The following question will be to enquire about the financial performance of the business. Remember that it is important to see at least three years sets of account and the current business financial records. This will give you an idea about whether the business has been growing or not and how profitable it is. Oh, and by the way, do not believe anyone who says this is only the accounts
for the taxman. If it is not profitable in the accounts, it is not profitable.
In addition, for the purpose of continuity whilst you are stamping your own unique brand on the coffee shop it is important to find out whether the existing employees are prepared to continue working after the sale. You need this assurance to make sure that there is a smooth transition of ownership.
As far as you can try to ascertain that the existing owner is not going to start a competing business close by the moment the agreement has been signed. This is an irritant that you do not need.
Finally, having gleaned all of this information from the owner, and before you make the final decision, there are two more steps. The first is to study the local area. Drive or walk around it and get a feel for the type of client you can expect and the competition that exists. Then, before you put pen to paper, make sure that the asking price is realistic. If you are not able to evaluate this yourself, find an independent valuer or accountant who will help. Don’t be afraid to barter over the price. In most cases small businesses tend to want more than the business is really worth. Your task is to make sure that that you do not pay for the previous owner to make an excess profit, because you will have to earn it back from the business.
Buying a coffee shop might be an emotional dream, but use your brain on the financial mechanics of purchase. Otherwise it could turn into a nightmare. If you have any doubts at all do not proceed with the purchase until you are confident.