I am currently looking at purchasing a cake decorating business that is for sale in my city. It is run exlusively by the owner and has been operating for 2 years. I have looked over the figures (with my accountant) and it all seems ok.
I am just wanting some advice.......has anyone out there purchased an existing business before? I would love to know the pros and cons - any advice you could pass on would be appreciated.
Thanks in advance
Why are they selling?
Did your accountant give you a price on the worth of the inventory? Did he also give you the formula he used to value the company?
Some accountants do not know this information. They are tax accountants. You need a "cost" accountant that specializes in business analysis. They will give you a price for inventory that always includes a substantial amount of "dead" inventory... what has not sold in a reasonable turnaround time and the owner will not disclose.
There is a formula used to value an ongoing business that takes into consideration the sale price, the debt, inventory, net and gross profit, and COGS. If your accountant gave you this breakdown, then the price may be a good one. This is kind of like asking your criminal attorney friend questions about your divorce. They sort of know, but it isn't their specialty.
You need to consider Lea's question and also weigh the price compared to starting your own business. This is a job for a detailed business plan, but should be seriously considered before a purchase of a store that is only two years old and the owner already wants out. You need a thorough business plan for the purchase anyway to decide on the viability based on your knowledge of the market and how you would run this ongoing business, as you would make decisions without the previous owner there to guide you.
Thank you. The current owner is quite young (early twenties) and wants to sell as she has been accepted into medical school.
Thanks for the advice....some food for thought![/quote]