By purchasing a retail business instead of starting your own, you avoid quite a few of the typical challenges and costs of starting up. But if you choose the wrong business, you may sink your money into a store that is on its last legs. Before you sign any contracts to buy a retail business, ask the previous owner and yourself a few key questions to determine if you’re making the right decision.
How Is the Business Doing Financially?
One of the most important things to do before getting serious about a business is asking the owners to see its financial statements for the previous three years or more. Never rely on the company’s own financial analysis, as this can be biased, especially if they’re looking to sell. You can analyze the financial statements yourself or hire an accountant to do it for you. Hiring an accountant may be wise, since it’s difficult to remain impartial with a business you want to buy. Financial statements are the only way to determine how successful a retail business is. They also give you an idea of how much capital you need to cover the business’s standard operating costs. It might also be a good idea to talk to a few other businesses in the area to determine how their business has been doing, or if there are any big changes happening in the neighborhood. New city developments, decreasing foot traffic and increased crime are a few ideas of what could have an affect.
What Is Your Plan for the Business?
If your only reason for buying a retail business is because it’s profitable right now, then you could be in for a wake-up call when you take possession. Consistently turning a profit is hard work and requires strong business skills, particularly in marketing and sales. If you aren’t already knowledgeable in those areas, you’re going to need team members who are. You should have a clear plan for how you can improve the business, whether that’s targeting a new market the prior owners had missed, expanding with online sales or something else entirely. If you do decide to buy, find out what the pervious owner’s marketing strategy was, and what they considered the most successful tactics.
Could the Transition Result in Lost Customers or Suppliers?
Keep in mind that there could be issues with the transition in ownership. If the prior owners built a following of loyal customers, you could lose a chunk of business immediately when they don’t feel the same loyalty towards you. For a retail business that relies on a smaller amount of customers, a loss like this can be devastating. Just as important is the relationship between you and the business’s suppliers. Relationships between buyers and suppliers take time to build, and there’s no guarantee that suppliers are going to offer you the same deal they had with the prior owners. Before you buy the business, get contact information for its current suppliers and contact them to get pricing information. Since the business is already established, it often costs more to buy an existing retail business than it would to start your own. If you pair the right business with the right game plan, you could make great money, but there’s also significant risk involved. Go over these questions before you buy to figure out if you’re making a smart investment.