Buying A Business--I Need Advice

Business By SpringFlour Updated 13 May 2009 , 1:19am by SpringFlour

SpringFlour Posted 8 May 2009 , 5:52am
post #1 of 28

Just as a warning, this may be long and jumbled...I'm trying to get my ideas together at this point.

I had decided that I was on a 3 year plan for my own business. By that time, both of my boys would be in school full time. In the mean time, I would get a part time job at a bakery and get some "real" experince under my belt. In 3 years I wanted to take over a shop that's been a family business for 46 years in our historic downtown area. Just a note here -- This was only planned out in my head and the current owners of the bakery had no signs of selling, as they've had a successful business FOREVER!

A couple of weeks ago, I called to see if they may have need for a part time baker and/or decorator, only to find out that they were temporarily closed due to injury of one of the owners (not a job-related injury). Well, I figured they'd really need help at that point.

I had just gotten the nerve up to call and leave a message, offering my services, when I drove by the shop. Come to find out, they're selling the business. Of course I want to buy it!!! I need a little help thinking things through...

Price: They want $85,000 for the business. I don't know how much a business should go for! NO experience here. What I do know is that it comes FULLY equiped, but the equipment is all pretty old. Still in working order, though. What is the life span of kitchen equipment? Also, this shop has been in town for so long. It is very well established, with at least some established clients. There really aren't any other legal custom cake shops in town that I am aware of...and I've checked! It is in a good location, on a main "historic" downtown street...think "parade route." Also, as it operated previously, they offered daily pasrties, donuts, etc. I don't know that I'm up for that.

Lease: $2,000 per month for approx. 3,400 sf. They're asking for a 5 year lease. I'm in Northern California, very near to Sacramento. I need to check around a bit to see what the average retail space cost is. Does $2,000 seem high? Low? About right?

Income: The current owner stated that they brought in about $100,000 per year. Obviously, that is no guarantee for me, and some of their income was from daily pastry sales, which I don't know that I'd do. I'm not looking to get rich here...that's not going to happen once I pay all the bills from earning that theoretic $100,000!

I really want this, but I'm scared at the same time. Although I've heard about the time commitment involed, it's hard to really imagine how much time that is out of my life, you know?

I need advice from some cake business experts! Can you help?

27 replies
zubia Posted 8 May 2009 , 6:04am
post #2 of 28

I have no advise what so ever .Just wanted to wish you good luck and all the best no matter what you decide to do.

patticakesnc Posted 8 May 2009 , 6:11am
post #3 of 28

The numbers "sound" remarkable to me for CA. I know my friend rents a coffee shop in a tiny off the beaten path town and she pays $3500 for about 3000 sq ft. And in the town next to me she pays $2000 for 1200 sq ft. (she has 4 locations). Now things here are normally a lot less than in Cali.

The price for the business and all the equiptment sounds reasonable to me as well. If they have been in business for years I would think they have kept up the equiptment and from my understanding the commercial (hobart especailly) can run a long time if taken care of.

Now, if you figure 24K a year on the lease out of 100K on their sales that leaves 76K. That really isn't that much for utilites, advertising, legals such as insurances, taxes, etc. Not to mention supplies, your pay and any other equiptments you may need, repairs to equiptment etc.

You need to find out a little more about their % of sales from custom cakes vs inside sales. You may not have a choice until "you" get known. Of course people will come in but they may not be as apt to come back if the "face" they are use to is no longer their.

I want to open as well, but my plans are to definitly have inside sales and a coffee/cappi/espresso area to pull in my sales.

I am in NO WAY a business expert, but I have thought of these things myself. I am sure some with present shops can lend more advice.

leah_s Posted 8 May 2009 , 12:02pm
post #4 of 28

Everything sounds pretty reasonable except that sales number which is really low. Was the $100K gross or net? And be prepared to work 80 hours per week at least in the first year.

indydebi Posted 8 May 2009 , 12:40pm
post #5 of 28

I totally agree with leahs .... is the $100,000 their sales or the owner's salary? If it sales, you have some serious marketing to do because with those kind of expenses, $100,000 in sales is nothing.

littlecake Posted 8 May 2009 , 2:16pm
post #6 of 28

ditto on the 100K....sounds like a lot, but you'd barely break even, or maybe be in the hole.

we did 90K the first 9 months we were open, and we were gets eaten up fast.

CookieMeister Posted 8 May 2009 , 2:17pm
post #7 of 28

Time to ask for full financials. Any company worth owning will disclose their sales, expenses (both variable and fixed) and net profits over at least the last two year period. And if they give them to you, give them to an accountant to run a pro forma for you to see if the business is viable.

And is the real estate owned (included in the sales price) or leased? If leased, when does the lease expire? You could see a real hike in the price if it expires soon.

There's a lot to consider here so don't just jump in.

Monkess Posted 8 May 2009 , 3:00pm
post #8 of 28

Talk about coincidences!
Well time to slow down and look things over real good, I know you have your heart set on this-but think it over.
Financials -for sure, 100k is way way too low, and if that is the true figure, then $85k sounds a bit high.
The rent sounds great for a place like that, do you have a 5+5option on it though?
As for the pastries and other stuff, dont let that overwhelm you, you dont need to start off from where they took off exactly. Good luck!

SpringFlour Posted 8 May 2009 , 3:37pm
post #9 of 28

Thank you all for responding! I knew I'd be asking for full financials, I just didn't figure my first phone call was the right time. icon_lol.gif Since, I don't have cake business experience, I wanted to ask the experts before I pursued anything further. Thank you, experts!! icon_biggrin.gif

Honestly, I wouldn't be surprised if the 100K was gross. Although they did do custom cakes, it sounded like they were a little more focused on the bakery sales inside the store. I, too, think that amount is low, and didn't really expect to be making money for quite a while. Are any of you willing to share what your business grosses? Or what I could expect? Maybe a high and a low for the first 1-3 years? I know all of that is so variable, but I'm just looking to try to get a little more info.

I'm definitely not "jumping in" at this point. Last night I was totally excited about it. This morning, the reservations are winning out over the excitement. icon_wink.gif

classiccake Posted 11 May 2009 , 2:59am
post #10 of 28

I don't know how large your city is and what the market is, but for an established business...100K sounds pretty low to me also

classiccake Posted 11 May 2009 , 3:16am
post #11 of 28

Sorry, I now see it says you are in Sacremento. If you do a good job, then there is a large market. It took me about 4 years to
REALLY get established, starting from scratch. AND, like Leah said...80 hours a week.

A retail walk-in store is more work than just a custom appt. only type thing. And holidays are the worst...remember that with a family.

We made extra cakes last week for Mother's Day, but by the end of the day Friday we only had 4 cakes left to sell for Saturday. We are only open to the public for three hours on Sat., from 9 - noon, but I know the traffic we get. So we baked another 26 pounds of cake mix Friday evening, finished the Sat. custom orders at 11 PM, then was back at the store at 6 AM to decorate cakes for the walk in business. We had three cakes left an Saturday.

Again, not to scare you, but also remember, that the unexpected always happens. Last week, our high school girl that does our dishes was sick and did not come to work until Friday, my back-up was unavailable, and we were SO behind with that. I did dishes several times just to keep us going. Then a woman that just works 3 days a week, missed two days. So we did not have her help on Friday with decorating the cakes for walk-in and doing customer service....hence I was there late Friday, because I did not get a chance to finish my orders, because I was doing everyone else's jobs!

As a business owner, it all falls back to YOU, and it always remains a constant battle between work and family.

indydebi Posted 11 May 2009 , 3:40am
post #12 of 28
Originally Posted by classiccake

A retail walk-in store is more work than just a custom appt. only type thing. And holidays are the worst...remember that with a family.

I'll confirm that. I'm a "by appt" shop and I go home at 5:00. In the last year, I've stayed late (8 or 9 at night) to finish some wedding cakes only 3 times. With special orders and by-appt orders, I dont' have to stock a display case like any of the other retail shops do. There's no way I could do all of that by myself if I did walk-in retail, so you'll definitely have payroll to account for each month.

Originally Posted by classiccake

Again, not to scare you, but also remember, that the unexpected always happens. Last week, our high school girl that does our dishes was sick ..........

I had a wedding catering and a 5-tier cake to set up this past Saturday (hey classic ... I think it was your cake at my catering) My schedule required me to set up a wedding-buffet at one wedding, then leave to set up the 5-tier at the other wedding, then return to the 1st wedding-buffet. My own daughter calledin sick ... she was really too sick to work, so I'm panicing on how to staff this with just the one other person I had scheduled. I managed to find SOMEONE who wasn't at the Indy500 track to come to the buffet just to cover while I was gone. It was a panic-attack moment and hubby was on stand-by, but yeah .... it's those kinds of things that give you gray hair a little prematurely!

classiccake Posted 11 May 2009 , 3:47am
post #13 of 28

It must have been a cake that was picked up?? I think all the deliveries had in-house caterers? Where were you?

indydebi Posted 11 May 2009 , 1:19pm
post #14 of 28
Originally Posted by classiccake

It must have been a cake that was picked up?? I think all the deliveries had in-house caterers? Where were you?

K of C ... 10th & Post. I know I have a wedding coming up where I'm doing the food and you're doing the cake, but I can't remember which one.

-K8memphis Posted 11 May 2009 , 1:34pm
post #15 of 28
Originally Posted by SpringFlour

I had decided that I was on a 3 year plan for my own business. By that time, both of my boys would be in school full time.

I vote no. Because there will very little of Mom left for them.
Business opportunites come and go but you just get the one chance with those babies.

An undertaking like this is more reasonable when they hit double digits (age).

Besides, you probably will have some major upgrading to do in a business this established. All the grandfathering (where the new upgrades are postponed and overlooked due to already being an established business) disppears. So you'd have to bring it to code. $$$

snarkybaker Posted 11 May 2009 , 7:42pm
post #16 of 28

Something about those numbers doesn't quite make sense. Typically, if you are selling a business that is sucessfully up and running, you sell it for two times the annual profit, and unless they pay no rent ( ie: a relative owns the building) I find it unlikely that the profit on $100,000 gross sales is $42,500.

Our sales are pretty evenly divided between special order sales and walk up traffic, so if you cut out the retail, expect your sales to drop pretty dramatically until you get your business " re-branded" as a specialty order cake shop.

Only you can decide how much you can do with your family situation. My husbands two year old grandchild loves to be at the bakery, and there is no rule that you can't take your kids to work with you some of the time. I am constantly annoyed at the number of ways society pressures women to live less than their full potential, including " bad mother" guilt. My mother worked full time my entire life, and both my brother and I are business owners who eat our vegetables and have never been in jail.

If you really want to do it think of ways to do it, not ways not to do it, just make sure the math works. It would really stink to work super hard and not make any money.

-K8memphis Posted 11 May 2009 , 8:46pm
post #17 of 28

Now Snarks, you must agree that working a job full time is quite a bit different than launching a business. Grandchildren are not generally brought up by their Grandparent's.

My Mom worked--I worked--but launching and successfully running a business is a very selfish demanding child all in itself--takes full attention plus more.

It's not about 'bad mother' guilt it's about, you already have a very demanding job times two.

I raised my daughter to be able to work at home, carry on her career when she starts to have a family.

Launching and running a new business is completely different than merely working 40 hours. And you know it.

How many hours do you average a week??? Hmm???

And I didn't think those numbers were right either but I couldn't remember the percentage. It's as high as 50%? I thought it was less--but I can't remember.

snarkybaker Posted 11 May 2009 , 10:09pm
post #18 of 28

I average 27 million hours a week icon_razz.gif , but we are a 7 day a week retail plus specialty bakery & gelateria with about 3/4 million dollars in sales annually. I would never suggest that ANYBODY embark on opening a business with the demands of mine without an enormous amount of help ( My husband also works nearly full time at our shop when he isn't running his own business)

The central point of my little diatribe is that " the kids" will be fine with less than 100% of Mom's attention, especially when they are little. When they get a little older they can get in a heck of a lot more trouble unsupervised, and it would be nice if the business was a more mature one that didn't require as much attention as a new one does.

A specialty cakery can be run at less than full time hours. I would look at the possibility of hiring an assistant who can bake some cupcakes and brownies and some things so the doors can be open more hours in a day. You end up getting an awful lot of orders from people who just wander in, or who like to meet in person with you to look at pictures etc.

Sweetmaker Posted 11 May 2009 , 10:16pm
post #19 of 28

I am no expert on this but I will add my 2 cents...

I went to culinary school before working. I learned in some of my classes that it takes a lot to run a business, demographics, location and lots of your time and money. Lots and lots of research before starting. I want this too. I have one son who this year started kindergarten. I am 46 I want to have that time with him and also have enough to support myself when he is ready to graduate. (think of that age problem.) I am currently working part time rather than full time to spend that time with him. Child care is expensive and I don't have Grandma to look after him she lives in another state. My husband is very supportive of me. I am working at a grocery store bakery so that I get the feel for how it goes. I am with K8 on this. You said you wanted to get the experience under your belt and that is what I would advise. I was bakery manager for the last year and stepped down for a while. It is really hard work long days and no breaks. my husband likes to do things on the weekends and I couldn't go. We missed Christmas and Easter because of it. So give it a lot of thought.

on the other hand if you do decide to look into this get an attorney and someone who is familiar with restaurant equipment to look things over, my question would be why are they selling now? Economy or health dept or something else... just food for thought


littlecake Posted 12 May 2009 , 12:18am
post #20 of 28

if the equipment is old, why not start from scratch?

-K8memphis Posted 12 May 2009 , 1:06am
post #21 of 28

Snarks, Snarky, Snarkette, you're being modest--I know you could not do what you do without working 50 jillion hours a week. Yah awesome!

So how much time you got for the PTA, sitting at t-ball games (times 2) and homework every night. icon_biggrin.gif You're room mother for the g'kids right?

(Just rhetorical--nrsvp)


melodyscakes Posted 12 May 2009 , 1:14am
post #22 of 28

I rent my bakery from the previous owner. they wanted to retire and owned the building. I pay them rent for the space and I rent the equipment. they gave me a great deal.
I do a few cookies and cupcakes and most of my business is specialty cakes or wedding cakes that people call me in advance to make. I take my daughter to work with me two days a week and she plays on the computer in my office or watches movies. if she were any younger I wouldn't get any thing done.
also, I don't do pastry or walk in sales, my area just doesn't support that...maybe it is my location, but I have free time.... but still am at the bakery until 2:00 a.m. on Friday nights. then may have to be back early the next morning to finish decorating.

if you want to do cakes...I wouldn't buy this business... you'll work your tail off, never see your family and hopefully make enough to break even.

that being said, in the winter time when it is super slow and I don't have money coming in I often wished I had walk ins more.

I think it comes down to your passion. at 2 or 3:00 a.m. when I'm dead tired, then I drive 12 miles home, only to get back up at 7:00 a.m. and jump back on the road to get back, it better sure be something I enjoy doing.
I don' personally enjoy making pasteries or donuts. you would have to get up so early. (can you tell that I need my sleep? )
I'd say not to go to fast! think of every angle.
could you afford to pay someone to help you? if you paid part time help to do things that don't have to be done by you... like dishes, sweeping, helping with the baking if they were good at it. if you had help you could maybe get home at a decent time. then have your employees trained in making some of the items to sell daily while you do custom cakes?

there is a lot to think about.

plus, are you buying the building or just the stuff in it?
you may be able to buy used equipment for less.

wow, glad I'm not in your shoes. BIG decision.

good luck!


-K8memphis Posted 12 May 2009 , 1:48am
post #23 of 28
Originally Posted by snarkybaker


A specialty cakery can be run at less than full time hours.

Not if she's gotta cough up 2000 smackers twelve times a year.
Plus the utilites on 3400 sf will add another many thousand a year.
This is the wrong location location location for her.
Specialty cake yes.
This place no.

melodyscakes Posted 12 May 2009 , 3:25pm
post #24 of 28

plus, customers who loved the goodies from the old owners will want the exact same thing as they have always gotten. you have to use the same recipes! which is not a bad thing, but if you make to many changes the customers get mad.
so you would need to offer what the old business did, plus your cakes.

thats a lot to take on with small children.

just more to think about

indydebi Posted 12 May 2009 , 4:19pm
post #25 of 28
Originally Posted by melodyscakes

plus, customers who loved the goodies from the old owners will want the exact same thing as they have always gotten. you have to use the same recipes! which is not a bad thing, but if you make to many changes the customers get mad.
so you would need to offer what the old business did, plus your cakes.

I read an article about doing this .... it said when phasing out the old, you introduce a similar one and sell them both ... then slowly pull back on the old as the customers get used to the new. Before they know it, they're buying the new and aren't really aware there's been a change.

melodyscakes Posted 12 May 2009 , 8:02pm
post #26 of 28

also, being a business owner $100,000 a year sounds good. but is that what they brought in? because you have to subtract what went out. maybe more than that went out. or maybe just as much went out then the $100,00 ends up being almost nothing...that is what your profit would be.
you must ask lots more questions!

Cascades Posted 12 May 2009 , 11:51pm
post #27 of 28

I was just wondering...You said you were in a town near Sacramento. What is the population of this town. I live in the Central Valley and can tell you from my own experience of having a shop that some of these smaller towns just don't have the pop. necessary to thrive. I had a cake and coffee shop (Have your Cake and Coffee Too!) I thought I could supplement the cakes with coffee and pastries in the morning for commuters. What I found out was that even though they loved the shop it was just too much out of their routine to stop. They all would still head to that Drive-thru Starbucks off the highway.

The cakes on the other hand did well, but not enough to support the all that overhead.

I ended up going back home, getting legal with a separate kitchen on my property and guess what--still had to do most of my advertising and sales in that still large area 45 miles away. So long story short, if this building is in the historic part of downtown Sacramento it's a great gamble and I would take it, but if it's's a little risky

SpringFlour Posted 13 May 2009 , 1:19am
post #28 of 28

I rent my bakery from the previous owner. they wanted to retire and owned the building. I pay them rent for the space and I rent the equipment.

It's funny you mention this because I was wondering if they'd go for this. I'd love to have a legal kitchen, but really, it just doens't look like it's practical to go for the whole she-bang.

I'd rather do an "appointment" only bakery, but since it's always been a pastry shop as well, I don't know how well it'd do as cakes only. I would obviously be rebranding the place, which could be good, could be bad.

And, of course, appointment only=no walk in business=different income. So, yes, K8, I've figured I'd be working my butt off just to get the bills paid. (Where's the emoticon for a baker with no butt?)

I'm still going to talk to the current owner, hopefully get some financial info from her, take a look at the bakery and see what happens. In a few months, they may be willing to work something else out, who knows? I'd really like to get back on my 3 year plan...perhaps someone else will buy it in the mean time, fix it up, buy new equipment and then fail miserably. tapedshut.gif (Did I say that out loud?) Then I'll swoop in. Goodness, I am a HORRIBLE person.

You all are giving me great things to think about! Thanks!!

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