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Johnegold
08-02-2010, 11:31 PM
Hi, I'm at a crossroads in my life. I just turned 24 years old and I have an opportunity to purchase the local comic book store. I actually will have the money put down half and then pay for the rest later on. I have a few problems, I am on unemployment so I'm personally afraid to lose that unemployment once I become the owner. I'm friends with the owner and he told me that in the store's current state it will support itself but you won't make a profit. I know after asking nearly everywhere that I can not be on unemployment once I own the store. I haven't been able to find a job especially near me so I'm honestly scared to buy the store and then not be able to financially handle all of it. My next suggestion to him was a partnership where I buy into the store but then I would still be in the same situation. I honestly have always wanted to own a store but should I not even get into it if I know that there is a high chance of the store failing and me not being able to pay for my rent? I also am concerned that he isn't the most "straight" guy with business matters where as he might be bending rules for taxes and/or unemployment. I'm afraid to do anything that would end up being illegal. This is where I'm at with the situation and I'm pulling myself apart thinking about this all the time. What does everybody think? I really appreciate the input. Thanks

vangogh
08-03-2010, 01:38 AM
Hi John. You mention a few issues so I'll try to address them all. Know that ultimately this is going to be a decision only you can make and you probably aren't going to have all the answers to all your questions before you have to make that decision.

1. You've always wanted to own a comic book store and you have an opportunity to buy one now. Yes there are issues, but if this is something you really want to do don't let issues stop you. You're going to have issues in life no matter what you decide. When I started my business I had nothing saved and didn't have enough to pay the next month's rent. What I did have was confidence in myself and an understanding that designing and developing websites was what I wanted to do. 6 years later and I'm still in business. I'm not saying you should just jump in, but do know that owning a business is never easy and always has risks. The issues you face later might be different, but there will still be issues.

2. Your unemployment won't last forever. At some point you're going to need to find another way to make money. Of course at the moment it's how you're going to pay next month's rent. You have the money to pay half the store price now. Will that leave anything left in savings? Could you put down 25% or 33% and still buy the store, while providing a cushion in savings? Could you get a loan from family or do you know someone other than the current owner who would consider becoming a partner and would that person be willing to put more into the financing if you put more into running the store? Think about other ways you could still buy the store and leave yourself enough in savings to last a few months.

3. Definitely investigate the financial health of the store further. Hire an accountant to take a look at the books if you need to. As much as you might want to own a store don't buy something that has little or no chance of success. You'd be better off starting your own store at a later time or in a different location. Are you able to talk with the store's existing customers? Can you find out why they visit and buy from the store? What might get them to buy more? What do they wish the store had or did? Find out as much as you can from the store's existing customers as well as do your best to understand the financial health of the store.

4. Don't do anything illegal. As part of gaining a good picture of the store's financial health learn as much as you can about how the current owner is managing to pay the bills. If he is doing things that are illegal, be aware it's possible you're taking on the consequences when purchasing the store and figure out the real financial health when you're doing things legally.

Again this is ultimately a decision you have to make on your own. Weigh your desire to own the store against the reality of the store's current financial health and your own ideas for improving on current conditions. I can't emphasize enough that you really need to investigate the store's current finances and potential finances. If you honestly think you can make the store work then don't let the fear stop you. If you don't think the store has the potential to bring in enough profit for it and you then it's probably best not to buy.

Spider
08-03-2010, 09:34 AM
Don't buy the business. If you feel you can make a go of it, buy the assets.

Have your friend officially close his business. You start a new business. You buy the comics, the furniture and fixtures, the customer list from him. Make your own separate arrangements with the landlord with a new lease (don't take over the old lease.) Separate yourself from the old business so that any misdeeds of your friend do not come back to haunt you. Change the name of the business, change the sign and change the shop layout and focus.

Better yet buy the assets and move to a new location, close enough to keep the same customers but far enough away to be a new business.

Remember, when negotiating the price, the business has no value to the seller. That means the assets have little value, too. You can negotiate hard - I would not pay more than half of what you would pay for secondhand furniture from a used shop furniture dealer, and not more than half of what you would pay for inventory from a supplier.

Do your homework!

I hope this helps.

TheBizSeller
10-12-2010, 06:36 PM
Johnegold:
You say that you have half the money to put down plus you are receiving unemployment. So the good news is that you are not desperate.
The bad news is that you don’t trust the owner. I would never buy a business from a man I don’t trust. If he is cheating on his taxes and unemployment how can you believe him when he says, “the store's current state it will support itself but you won't make a profit”.
Sellers tend to put the best possible spin on things when they describe their business to a buyer. This coupled with the fact that you don’t trust him means it is probably losing money. Since you don’t trust him how can you trust any financial statements or tax returns that he shows you. And this is a guy you seem to know pretty well so I’m sure your distrust is justified.
I appreciate that you are anxious to own you a business but don’t let your emotions get the best of you. From what you wrote, it doesn’t seem like this is the right time and this is definitely not the right business.

vangogh
10-13-2010, 12:12 AM
I would never buy a business from a man I don’t trust.

Same here. Trust is involved in every purchase. When it's something of this size and money it's even more important.

Spider
10-13-2010, 02:06 PM
If you buy the assets and not the business, trust doesn't come into it. In fact, the reason for buying the assets and not the business is so you don't have to trust the seller.

Harold Mansfield
10-13-2010, 02:23 PM
My main concern is the actual business itself. A Comic Book store. I know it was all the rage a few years back, same as having a record store, video rental store, internet cafe or a video game arcade but those businesses are now close to only being found in the history books.

Outside of your immediate peer group, are people really buying and collecting comics like they were in the 90's?
Can a physical store generate enough income from the local demographic to stay afloat?
Can a physical store compete with the selection that can be found online?
Do you plan to expand this to an online business?'

Outside of your other concerns, my main one would be is this really a viable business today?

BlueOrange
10-13-2010, 07:59 PM
If you buy just the assets, I'm with eborg9 on this one. You MUST check out the financials and make sure you can really run this business profitably. Ask yourself why the guy is really selling the business in the first place. If I had doubts about how he runs his business, then I wouldn't do business with him. I think that's a huge red flag. If you are still considering buying this business or the assets, PLEASE, read the book the E-Myth before you sign anything. If you are still considering buying the business after reading the book, then share some numbers so we can see if may make sense. (e.g. fixed costs, revenue, customer base, etc)

TheBizSeller
10-14-2010, 05:54 PM
If you buy the assets and not the business, trust doesn't come into it. In fact, the reason for buying the assets and not the business is so you don't have to trust the seller.

Since this is a small comic book store I'm assuming Johnegold would be entering into an asset sale, not an entity sale. However, that doesn't automatically mean it's a safe or profitable deal for him.

Buying the assets and not the business itself may protect Johngold from pending lawsuits and the business' other liabilities. It does not, however, make him immune to overpaying for those assets. The true value of those assets will be determined by the traffic, revenues and profits they generate. If, because the seller is dishonest, Johnegold can't get truthful numbers on how this business is performing there is no way to make a good decision on what to pay for the assets. He should walk away if he doesn't trust the seller.

Almost all sales of businesses this small are set up as asset sales but that doesn't mean the seller doesn't mislead the buyer or that the buyer doesn't overpay.

Harold Mansfield
10-14-2010, 06:06 PM
Seems like assessing the value of the inventory should be easy enough. Maybe not quick, but I'm sure there are guides for valuation of each item, same as baseball cards.

vangogh
10-17-2010, 01:39 PM
The original post doesn't make this sound like it's a purchase of the assets only. I think John was planning on buying the entire business or potentially becoming a partner in the business. He's looking to take over an existing store and turn a profit. The owner has mentioned the store supports itself, but doesn't currently ear a profit and John is concerned if maybe the reason the store supports itself is because the owner skirts the law here and there.

I think there is a measure of trust in this sale. John should be looking at the businesses books and making an assessment of how much he can earn from the store, but a certain amount of the information he's going to use is likely going to come from the the current owner.