buying a small business

[MTK]

There's a small local business for sale in my area and I'm interested in looking at it. My question is, when buying a business is it possible to request to see their financial statements prior to buying??

[Redskin Rich]

Originally Posted by Mattyk72

There's a small local business for sale in my area and I'm interested in looking at it. My question is, when buying a business is it possible to request to see their financial statements prior to buying??

Matty, that is a must.

What type of business is it?

[Schneed10]

Originally Posted by Mattyk72

There's a small local business for sale in my area and I'm interested in looking at it. My question is, when buying a business is it possible to request to see their financial statements prior to buying??

Yes, for sure. Without the financial statements and projections, you have no idea what you're buying and what it's worth.

You'd especially need to see the balance sheet in order to determine how much debt the company is in (and how much you'd have to assume).

I'd think small businesses wouldn't have huge debt, maybe a mortgage or a small business loan. But you're also going to need to know what the other fixed expenses are (lease payments for rent of property, maintenance contracts for maintaining any equipment, stuff like that). Gotta know how much cash will have to be flowing in.

If you ask for the financials and they tell you to go to hell, then you don't want ANY part of that business anyway.

[MTK]

Originally Posted by Redskin Rich

Matty, that is a must.

What type of business is it?

Tanning salon with everything included. Computers, beds, etc., and an established client list.

[Redskin Rich]

Originally Posted by Mattyk72

Tanning salon with everything included. Computers, beds, etc., and an established client list.

Matty... if it is such a great business, why are they selling it? Remeber, they will probably tell you one story, but it will be another.... I own my business, but started it from scratch. Whenever I have looked at buying someone else's, you have to look at their motives to sell.

[Schneed10]

Originally Posted by Mattyk72

Tanning salon with everything included. Computers, beds, etc., and an established client list.

With a business like that, you'd want to know:

- Is there a mortgage on the salon, if so how much per month/year? If not, is there a lease on it, if so how much per month/year? Or is it owned outright?

- How much is the electric bill each month? (them things pull serious juice)

- How are the tanning beds and other stuff maintained? Maintenance contract, I assume. How much per month/year?

- How much are the other utilities per month?

- How many employees are there? How much are they paid (including benefits)?

- How many client visits do they do per year? If they can provide that information by calendar month, that's even better, because I'm sure their spring season is real busy while the fall is real slow. That would affect your cash management and is important to know.

- What's the average revenue per client visit (just divide total revenue by client visits).

- How much excess tanning bed capacity do they have? In other words, are the tanning beds always completely booked, are there always some open, or are there always a lot open. You'd like to know how much room you have to grow business without having to add more beds.

[Schneed10]

Originally Posted by Redskin Rich

Matty... if it is such a great business, why are they selling it? Remeber, they will probably tell you one story, but it will be another.... I own my business, but started it from scratch. Whenever I have looked at buying someone else's, you have to look at their motives to sell.

That and you have to do some serious analysis to determine what the right price is.

The price of a business is the present value of the expected cash flows. So you have to determine what profits the place is projected to take in each year over the next 5 years or so.

[MTK]

Here's what I know about it right now:

-It's a very nice location, on a busy intersection of two main roads where I live. It's relatively new, probably only been in business for 2-3 years. I'm also familiar with the owners since I went there a few times prior to going to Vegas to get married. It's a very clean salon and well maintained.

-The downside is the salon is a bit on the small side, approx. 1400 sq. feet. Not much room for expansion unless you could buy a location next to it and knock down a wall. Not sure of how many beds they currently have, my guess would be 6-7 with one of them being a high end model.

-They state they already have a client base of 1300 people.

-The mortgage would work out to be less than $500 per month.

[FRPLG]

Originally Posted by Mattyk72

Here's what I know about it right now:

-It's a very nice location, on a busy intersection of two main roads where I live. It's relatively new, probably only been in business for 2-3 years. I'm also familiar with the owners since I went there a few times prior to going to Vegas to get married. It's a very clean salon and well maintained.

-The downside is the salon is a bit on the small side, approx. 1400 sq. feet. Not much room for expansion unless you could buy a location next to it and knock down a wall. Not sure of how many beds they currently have, my guess would be 6-7 with one of them being a high end model.

-They state they already have a client base of 1300 people.

-The mortgage would work out to be less than $500 per month.

So they own or lease their space?

And part(probably the biggest part really) of due diligence is doing a serious examination of their financials. You could hire an accountant to go over them with you if you're not yet savy or confident enough to know what you are doing.

[MTK]

They own the space.

I would definitely have an accountant review their numbers.

Good advice guys thanks

[Redskin Rich]

Originally Posted by Mattyk72

They own the space.

I would definitely have an accountant review their numbers.

Good advice guys thanks

Matty... if you do this, make sure you go into it with your eyes open... Scneed is giving you some good advice.

When I started my business, someone told me be prepared for it to suck funds from you for 5 years. If they are selling it after 2 or 3 years, then they could not afford to either take the loss, or it did not generate enough income to support them (if it is their soul means of support). If you "buy them out" be prepared for the 5 year rule. I think I finally could see light at the end of my tunnel after about 4.5 years.

Don't let these comment scare you from self employement. I don't think I could EVER work for anyone again.

[MTK]

I wouldn't rush into anything and I'd definitely do my homework. I know the owners had a few other side projects going on when I used to go there, I'm thinking they're looking to move on to something else.

I hear you about not wanting to work for someone else. I think I'm getting to the point where I really need to take a chance on building something for myself. I just can't see myself working for "the man" for the rest of my working years.

[saden1]

After you buy it, who is going to run the place? What will be ROI? Will you initially have to pump money to keep it going? For how long? What about advertising? What will it cost you? What will be the maintenance cost of the equipment? Will you have enough money to ride the rough patches? Opening a small business is risky business. It takes two years to really get a business going. Also, make sure you shadow the people who work there for couple of days prior to purchasing the business. It's essential you get a feel for the business before investing a lot of cash in it.

[firstdown]

Others have given you some good advise. He says he has all these customers but how often do they come in. I know people go in the begining of summer but after they get the tan going and its warm out do they still come in or go to the pool or beach. Then its winter and how much tanning does a person do to keep their tan from summer? Is tanning boothes the only thing that they have? One of my customer has 2400 sq ft. she has tanning booth's, spaces she rents out to hair dressers and fingernail painters (what ever they are called) and she seems to do pretty good. I'm not sure you are going to get rich doing this.

[TheMalcolmConnection]

I know of this other website that exists that says they have TONS of members. How many of them are active?