I have the opportunity to buy a bakery/cake shop in my area. I have been planning to open a shop in the near future. Is it more cost affective to buy an exsistiong business or start from scratch?? Everything stays with her cake shop for around $38,000. Could I do it any cheaper if I start from scratch?? The monthly lease would be around $1400 at her shop. I found an empty shop I would have to build out for $600 but the location isn't as good. Trying to decide what my options are-any input would be great!! Thank you
You should have your business plan ready to go before you consider buying the shop to make sure you will be able to sell enough to meet your expenses and make a profit.
How much will the build-out cost for the alternative location?
Location is very important. I think it might be easier to buy the existing bakery, but really I do not own a business or anything so I am just guessing.
Check with all the inspectors and such. You never know what upgrades they will require if the ownership changes hands.
Ooh! I just thought of something else I've read on here previously. Try to figure out why she's selling the shop. Is the customer base not there? Is her work not of the type or quality that the customer base wants?
Also, the $38,000 may be very negotiable. Most people accept much less when it comes down to it. She may in fact have that much in it, but may have to take a loss. If I buy a cake pan for $10 (even if I never use it), I sell it used and am lucky to get $3-$5...
So, even though I don't wish the seller am harm, a cash offer of $20,000 may even do it. And that re-works the entire business plan.
Just a thought...
exactly right, cheatize, find out why she's selling it. i bought my trophy shop because the people were wanting to retire, and that's perfectly legitimate reasoning. still, they'd run the business into the ground and for awhile hadn't even been taking new orders! they still had a fairly good size customer base, and that's what i was interested in the most. now, for me, the location isn't prime, but because of what we do and how we do it, people will turn the corner to come to us now. of course, a trophy shop and bakery have different retail location needs, so that's much more important for you, i'd wager. then again, if my business plan was to do most of my business online, the location may not need to be perfect, eh?
if she's still in business, find out what her quality is like first hand. most business owners have receipts telling you what their costs are. by all means ask for those. ask for a monthly expense report and how much profit she's making, if any. it could be she's not making what she should be because her pricing is way off and/or her purchasing is a mess.
$38,000 sounds like a lot for *used* equipment. make an inventory of *everything* she's got and determine the replacement value of that. could be she's only got $20,000 of equipment you can snag from ebay or business auctions. then you should be shown how she's got $18,000 worth of a customer base. then negotiate. don't pay 'em what they ask. if she won't negotiate, give her your number and walk away. 'someone else is interested,' they'll say. great, then let them have it. don't let your emotions force you into bad decisions, and nevermind her sob stories ~ whatever troubles she may have are not yours.
absolutely have an inspection done, then make sure you're even allowed to operate that business! sounds silly, but the zoning board may say, uh, no. sounds like you're leasing the space, so you should meet with the buildings owner first and see what they're like. and check out how much retail space is going for around town.
make a few phone calls and find out how much insurance is going to be. be sure the owners tell you how much they require for you to carry, or if part of your lease money goes towards insurance.
- Ask to see a copy of her book keeping. That can tell you quite a bit about how she is running the business.
- Ask her why she is selling, burnt out? retiring? moving? Sometimes people just want to move on to something new it doesn't always mean the business wasn't viable. When I sold my retail store people all assumed it wasn't doing well. I was just tired of it and wanted to be home with my little family that had recently expanded.
- Ask for a list of all included equipment, inventory, if there will be customer lists, how large are the lists. Is there a website/online presence? Is there a mailing list for that also? Ask to see their advertisement schedule, maybe they haven't been advertising at all (I was shocked at how many new businesses refused to spend money on this and were surprised to find no one knew about them)
- In your business plan you should have a list of all the expenses to build your shop from the other location you have access to, that way you can do a fair comparison. Price out all of the equipment, inventory. Estimate your weekly sales, costs for materials etc..
- Health Department, will they have to come in and re-check anything? You can make this a stipulation of the sale as well - most real estate agents will have it added as a condition of sale that the shop be approved by health department and any/all updates needing to be done be covered by the current owner before the sale is final.
- Check her out online, reviews, find customers and ask around town. What's the general consensus? Is she talented? Has she built a good customer base, how are her prices compared to competition, is she making profit or just barely covering expenses?
It might be easier to take over an existing business, you can close it down, renovate colour schemes, new sign even a new name and give it a facelift. People if they are inclined to have always gone there, it's a go to location for cakes so it might be easier in terms of your established walk in traffic.
Best of luck.
A bakery is such a tough thing to rework if the product was bad.
Ask total stangers at the grocery store or thrugh FB friends if they know of a good bakery in town. That will tell you alot.
If they say no, ask about the one you are looking at buying.
Best of luck either way you go! This is an exciting venture
cakenovice had a lot of good points that i had wanted to mention, but had run out of time.
are you also buying the recipes, assuming she's got any worth copying/is known for?
i dunno, $1400 versus $600 is quite a bit of a difference, though. i'd have to really know that the $800 difference is really, really, really worth it. you'll probably find fairly early on that a dollar saved is a dollar earned. for $1400 you almost might as well open up a shop in the mall, eh?
what kind of parking is there? are they standalone stores or part of a strip mall kind of thing?
most certainly the health department will come in, if not now then once or twice a year as part of their regular inspection. also, see if the food license is transferable, what kind of license it is. if you want a cafe but the existing license doesn't have that, it'll cost more. and the previous owner may simply not want to transfer the license over for some bizarre reason.
do you want a clue as to what to expect when you own your own business? today, saturday, was supposed to be a laid back day for my wife after having busted her rump all week doing orders. this morning a guy calls and says he needs two plaques for the packard museum event tonight at seven (he called around nine in the morning). okay, he's in luck, my wife was pretty much caught up. two plaques. two. not twenty, not a 150 trophies. two stinkin' plaques. easy, right? clean up some artwork on their logo, fire up the heat press, and cut some metal. hour, hour and a half job, tops. well, that's what we told the guy after he bothered to stop in and check out our design.
six hours later it's finally done. the computer just didn't want to cooperate. thanks, art program! we needed the stress in our lives because it's just not stressful enough on a regular basis. the added time pressure really was wonderful. i mean, who needs all that hair when you just wind up tearing it out anyway?
the point is that for me it's a malfunctioning art program, for you it'll be a mixer that goes haywire when the order is due. it's always something... *sigh*. lol. if you're ready for the headaches and sacrifices, good luck.
btw, i always advise a small business person to become an LLC, which is something your accountant can easily set up. be aware, however, that if your hubby is going to be on the license that you may have a tough time finding an accountant that'll handle it around tax time, don't ask me why, but that's the way it is here in ohio. and i absolutely have an accountant. unless you're a whiz at such things, a good accountant pays for themselves. a bad accountant just sucks up your money. you'll want a quickbooks program (which will essentially obliterate the need to pay an accountant every month, which i advise not doing anyway based on my past experience).
what i've noticed a lot of businesses doing lately in my area is combining businesses into one location. i'm a convenience store/trophy shop. down the road a ways is a trophy shop/ice cream store. a buddy of mine has a computer repair shop he shares with a screenprinter. i've seen many small shops do this, but usually it's a bit more complimentary. for instance, in a bakery's case, if they have the space, maybe someone might put in cards and balloons and such things and you'd have an arrangement worked out where you'd share expenses or rent the floor space. (tattoo artists and hairdressers rent their booth from the shop owner, for example, and i believe might have to pay them a commission on top of that.) that's neither here nor there, just an idea....
something else, check to see if the existing equipment is gas or electric. gas is and will be the way to go in terms of utilities. check the age of the coolers. i have awesome coolers and freezes, none of which were made practically within living memory, so they're not what you'd call energy efficient.
basically, look for any and every reason not to pay the asking price. where did she even come up with $38,000 anyway? that's a pretty strange price, imo. lol. it's like she did some research of some kind and that's what she *thinks* it's worth. chances are it's not. i mean, what's a client list worth? does she know the precise depreciated value of her equipment? is it a number she pulled out of her general rumpal area?
Location only really matters if you are heavily dependent upon foot traffic. If you are a destination location (such as only taking custom orders, or the only place in town that sells gluten free stuff), then your location is really not too much of an issue (and certainly not worth paying 130% more for rent).
Are you buying the business (including the name and recipes) or just the equipment and stuff? If you're buying the name and recipes, take into account that it's only as good as their reputation and you are entitled to review their books to verify income and whether or not it's worth the asking price.
and when we say 'books,' i assume we all mean tax returns, too?
A CPA can assess the business worth. Don't go into this with no expert advice. Most inventory sold with a business is usually old and worthless. They turn over the good stuff. I once bought a business and listed the inventory and old shelving as trash and charged the disposal cost against the sale price. They agreed.