Considering joining the retail business? While it’s not as easy as setting up a lemonade stand, it can be a good deal more lucrative. Good research is pivotal – you need to understand the industry, the location and the regulatory requirements. And Daltons is here to help!
Not all shops are alike
There are hundreds of different types of retail businesses, 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. 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.
Location is pivotal (surprise, surprise)
Not every business works in every location – each storefront has its own quirks inside and out. You can’t sell bulky equipment from a hole-in-a-wall shop. Nor can you afford to fill a massive unit with a perishable product, unless you can guarantee the customer base to keep it going out the door. Your location will determine the clientele you’ll attract, the services you can offer – and the revenues you stand to make.
If there are no businesses of your type in the area, ask yourself if you’ve spotted a gap in the market – or is there no demand for your products here? Research the local market thoroughly. Find comparative areas where businesses like yours have succeeded or failed, and identify why – then use that knowledge to make sure you’re picking a location that will work for you.
Say your business is dependent on passing trade. You need to be certain you’re going to have that audience. Consider the frontage and footfall of the premises. Are lots of people passing by? Can you see this shop from both sides of the street, in both directions? If you can discreetly, stick around and get a sense of the volume of pedestrians. Then think logistics – how’s parking? Are there delivery bays? 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.
Be diligent – do 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, equipment, 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. Remember 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? However 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.
Time to 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.
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