15 Tips to Buying a Retail Store
If you think this is the year to buy your own business, the North American Hardware and Paint Association offers 15 tips to consider.
15 tips to buying a retail store
1. Experience
Consider your experience in the field you are considering. Do you know someone you could consult who is running a successful store?
2. Reason for sale
Why is the store for sale? How many previous owners are there? Is its sales volume rising or falling? Why?
3. Purchase price
Is it negotiable? Have you checked fair market and replacement values as well as book cost?
4. Capital
Do you have or can you get sufficient capital for the purchase and for working capital—including a reserve for contingencies?
5. Profitability
Can you get audited financial statements for the past three years and/or copies of the seller's income tax reports for that period? Is a sales tax report to support sales volume claims available?
6. Records
Do current records show clearly and completely the former operations of the business? Do you understand and can you operate a bookkeeping system? Do you need an accountant? Do you have a business forecast, budget and analysis of receivables and payables? Do you have current and projected sales, profits and cash flow? Are you holding the seller personally responsible for the accuracy of the records?
7. Purchase/lease
Do you have an attorney to review the purchase contract and lease, if one is involved? If the facility is leased, will the landlord allow a sublease? Are there any liens against the property or business? Will the landlord accept a non-compete clause in the contract?
8. Inventory
Is it in salable condition? How much of it is tied up in slow-moving or obsolete items that would have to be liquidated? What is the turnover rate?
9. Equipment
How old are the sales floor fixtures and other types of equipment? What condition are they in? Can they be used as is? What needs to be upgraded or replaced?
10. Appraisal
Do you have your own appraisal of real property included in the sale? Of store fixtures and equipment? How does it compare with the seller's demands?
11. Government regulations
What federal, state and local government regulations apply to the physical facilities and operations? Environmental review? Safety and health rules? Employment discrimination laws? Tax rules? Public access rules? Zoning and building codes? What licenses and permits are needed?
12. Location
What about the neighborhood? Is it growing or deteriorating? What about the customer base? Age? Income? Home ownership? Will the location attract enough consumer traffic? What other stores or shopping areas might divert customers from your proposed location? What other stores or shopping areas might attract customers? Is parking sufficient and convenient? Is it easy to get into and out of your parking lot?
13. Competition
What competition is already in the area? What could be coming? What are the strengths and weaknesses of possible competition? How would the store you propose to buy compete with these competitors?
14. Personnel
How many people will you need? In what capacities? What will your payroll costs be? How will you compensate employees? Will current employees stay with the store? Where will you find new employees? Will family members be involved?
15. Advertising
Can you create and execute an effective advertising program? Do you know someone who can help you?
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