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I have the opportunity to purchase a small business. It's in the retail field. The business has been in existence for over 6 years with a profit of 45k yearly. The owner is asking $30k which includes all clients, inventory, hardware. Everything will be left, the owner would like to walk away completely. The owner is only open on the weekends. Is this something worth looking into to purchase? My other question is how would I go about a small business loan? I have a condo, 10k in the bank for a down payment and a credit score of 630. Please help.
Talk to your local SBA. They have people who really can offer you advice. That being said, I'd pay a good CPA to really look at the books with a fine-toothed comb.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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Are you an expert in the products they are selling? Do you have experience in marketing to build up the business? If they are making a profit of only $45k, and you do the same amount of business, deduct the loan payments from that and it's not much to live on. Also, how do you know they actually made that in profit? It's hard to tell without seeing the actual tax returns for the owner. You also have to come up with the surety on the lease, and make sure you can get approved by the landlord, who will probably raise the rent from what the current owner is paying. As a first-time business owner there will also be deposits on utilities.
Are you an expert in the products they are selling? Do you have experience in marketing to build up the business? If they are making a profit of only $45k, and you do the same amount of business, deduct the loan payments from that and it's not much to live on. Also, how do you know they actually made that in profit? It's hard to tell without seeing the actual tax returns for the owner. You also have to come up with the surety on the lease, and make sure you can get approved by the landlord, who will probably raise the rent from what the current owner is paying. As a first-time business owner there will also be deposits on utilities.
Are you planning to work there full time? Is the owner working full time or is it mostly absentee? I'd also say 45k is not great income for being a business owner. I guess it depends on the part of the country.
Profit is what is left after all expesnses are paid. Does the owner count an income from the business? What would your income be on top of the profit? Realize that the income of an owner is a cost to the business and is not profit.
$30,000 is an interesting number. What do you say the business is valued at? If it does have $45,000 in profit then why ask only $30,000 for the business? Is the inventory any good? I have seen a few places change hands and the inventory was part of the deal, only to find out that the inventory was out of date. I would have an accountant check it out as well as someone with in the industry. Then again it is retail right? Is there a way to check what things have sold and the frequency of sales?
Is one day a week the only day you can run this kind of business? Can you open on other days?
Interesting it would only be open on weekends. Seems unusual for a retail store.
If you could scale it up and open more days as SOON2BNSURPRISE mentioned you could possible increase your profit a lot. Is the current owner doing any ecommerce too? Although that would be a separate type of business and take more time it could be an additional revenue source.
In existence for 6 years... it is time for the lease to expire. Check that out carefully. Maybe that is OK and maybe it won't be.
Also, some careful research to find out if anyone is planning to open a competing business nearby. There won't be enough business for two stores.
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