Considering buying a retail business? Make sure you consider the type of retail business, the location and the regulatory requirements carefully before presenting an offer to the seller.
“Make sure you consider the type of retail business”
There are hundreds of different types of retail business, and each type will require you to have a unique skill set and knowledge base; running a successful computer games shop does not immediately qualify you to run an equally successful pet shop, for instance. Even if you have experience in a relatively similar type of shop, try to prepare as if you are a complete newcomer to the retail industry. Call the wholesalers and manufacturers and get an idea of the markups and margins available on all the products you might be selling. Study up on your shop’s products and their attributes so that you have the specialist knowledge needed to sell to customers. If you can, take a careful look at your competitors or comparable shops in other areas to see if you can learn anything about this industry’s business models that you might not already know.
“Pick up the right location for the type of retail business you want to run”
The right location for your business will depend on the type of retail business you want to run, the clientele you’ll want to attract and the percentage of total revenues that will be dependent on passing trade. If there are no businesses of your kind in a given village, town or city, it may be that you’ve spotted a gap in the market, or it may be that there isn’t sufficient demand for a business of this type in the area. If in doubt, research the local market as thoroughly as you can. Try to find areas of a comparable size and population density where a business such as yours has succeeded or failed, and identify the reasons in either case.
“Choose the premises for your retail business”
When you’ve decided on the area, it’s important to pick the right premises. If you can do so discreetly, try and get a sense of the volumes of people passing by on the side of the street where the premises is for sale. If you’re happy with this, ask yourself, “how easy is it to see this shop from either side of the street in either direction?” Once you’ve addressed both the footfall and shop frontage in this manner, you’ll also need to take logistical concerns such as available parking space and delivery bays into account. These might seem like small concerns that can be overcome if your shop is good enough, but you need to give yourself the best possible chance of success from the outset.
“Perform due diligence”
Once you feel like you’ve found the perfect retail business, perform due diligence as thoroughly as you can before preparing your offer. Be clear on whether you’re buying the retail business as a whole, or just the assets (stock etc.), and the implications of both. If you’re buying the retail business as a whole, you’ll need to see employment contracts of existing staff, as well as documents relating to any outstanding debts that the business might have. If you’re just buying the assets, you will need to see proof of ownership of these assets, whether that’s a domain name, premises or vehicle.
There may be planning or health & safety requirements that you will need to bear in mind. If so, can the seller provide you with certificates that meet all the necessary regulatory requirements? If the seller can’t offer you these, you’ll need to make sure you factor the costs of meeting these requirements into your projections.
If you’re buying a company, it’s critical that you get a copy of the company formation documents. You’ll need these to establish whether the seller has the right to sell the business, or whether there are other parties involved.
“Prepare an offer”
Once you’re satisfied with your due diligence, you will then be ready to prepare an offer. Consider the asking price of similar shops for sale as a guide and consult the selling agent for their opinion of what the business owner will sell for, but also bear in mind the costs of taking on this business. If the business requires a shopfitting or redesign, if the lease is likely to come to an end in the near future or if you are taking on any debts of any kind, factor these into your offer and explain the reasons for arriving at this value to the seller.
Remember that this is a business decision for both parties; if the numbers don’t add up, don’t be afraid to walk away and keep looking. Equally, if the seller is looking for more than you were initially offering, keep an open mind. Revisit your calculations if necessary, see if you can still make money from the business at this price and make sure you don’t miss a great opportunity to buy your ideal retail business.