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Business Buyers: Ready Yourself for Battle

February 4, 2020

Okay, so it is not really a battle. But certainly, the more “armed” you are, the more effective you will be and the better the decision you will make, whether you purchase a particular business or not.

Just this past week, a Buyer came to meet with us about a particular business, and it became immediately clear that this man had absolutely no clue how to initiate his own part in the purchasing process. For one thing, he apparently had one specific business goal in mind and assumed that anything even remotely close to that objective would fit his need. If he had read the advertisement carefully, he would have realized that this particular listing did not match his interests, in any way, shape or form.

It is common for us to speak to people who assume far too much about a given business in which they believe they are interested, only to find out that the business is nothing like what they wanted or expected. Several years ago, a Liquor Store owner called us and said she wanted to sell her business. We asked how long she had owned the business, and she responded that she had purchased it only about 10 months previously. When we asked why she wanted to sell in such a short period of time, she responded that it was nothing like what she had anticipated.

She had previously been working in for an accounting company, and was frequently required to work overtime, and even on the weekends during tax season. She wanted to buy a business of her own so that she can control her own destiny – or at least her own hours. She appeared to be interested in only doing the books and some light administrative work, and allowing the rest of the managerial staff to work the daily operational aspects of the business.

Unfortunately, she failed to understand that there were several characteristics of the business that would destroy that objective. First, none of the staff had any money invested in the business, so their level of dedication to the business was limited, at best. The General Manager appeared to want to forward any real difficult issues to the owner, rather than attempting to deal with himself. The GM felt that things such as juggling schedules around when employees were out sick or on vacation were above his pay grade. He could deal with general scheduling, but any alterations to his plan was something he could not deal with, so he referred such issues to the owner.

The entire inventory ordering system was in chaos. The staff appeared to want to purchase hard liquor, wine and beer based upon their own preferences, rather than what their clientele wanted, or what would be able to be sold quickly, and at the same time at the highest potential profit margin. They also appeared to take no initiative in providing informative documentation, particularly for wines.  In many liquor stores, wines provide the highest profit margins, yet many customers really do not know about wines and lean on the store employees to provide advice. When they employees are not available, or perhaps when customers are intimidated by asking the staff for assistance, signs are frequently affixed to various wine displays to tell the customer about the kind of wine, what it might be paired with and how it is graded by various wine authorities. None of this was present in this owner’s particular store.  And she was not informed enough of her own business to even understand how simple, and yet critical this particular issue was, until a customer complained to her about the situation.

Finally, this store had a 7-day Liquor License, which allowed her to be open every day of the week.  This was linked to her Lease; the Landlord made it necessary for the Store to be open seven days per week.  Whether the Store Owner read that Lease or not is uncertain, but she was frequently required to staff the Store on a number of weekends, in particular.

None of this occurred to her, in purchasing the business.  And she apparently did very little in the way of “due diligence”, which is always necessary for ANY Buyer of ANY business.  This the time when the Buyer studies the characteristics of the business in great detail, looking at things like Leases, Employment issues, the Physical Plant of the Store, and any other issues that may be pertinent to the operation and foreseeable future of the operation.  Due diligence is when the final decision to buy or walk away occurs.

Getting ready for this process is very much like planning for a military attack, in some respects:  You need to understand the ultimate objective; your opponent; the terrain, which is to say the market; your armaments and defensive weapons; and potentially, the route for a safe retreat.

Walking into a purchasing situation in total ignorance is the kiss of business death!  In fact, understanding the industry itself, BEFORE even looking at specific businesses is incredibly unwise.  More about this in our next post, entitled:  You Can’t Know What You Don’t Know!

 

(Receive in-depth, personal consulting online, with The BAF Group’s principal at https://clarity.fm/donaldbarrick .

The BAF Group LLC is a full service Business Brokerage, with a history of more than a decade of service. Its Principal Broker possesses 25+ years of Business Sales and Divestiture. Although most of our work is involved in the Mid-Atlantic States, we have represented Sellers and Buyers throughout the Continental USA, and a number of overseas Buyers, as well. Some of our listings and additional information about us can be viewed at www.bafgroup.com. Thank you for your interest.)

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