Buying and Selling A Business
By George Carageorge | Torino Food Distributors

Buying or selling a business is the first and second thing business owners usually thing about. No one wants to work forever so naturally you get into a business in order to one day sell it and retire. So how do you do either? This topic is so big I just can’t cover everything, just a few salient factors and some anecdotes of my own experiences with my clients and my own businesses.We will explore both the franchise area and independent business.

Here are some things that are universal considerations to everyone buying or selling a business.

1. Be honest yourself, but trust no one (honest mistakes are often the biggest).

2. Don’t get involved with something you have no experience with (be careful with franchises...if you’re a nuclear scientist why buy a pizza franchise?).

3. Get professional advice, not advice from friends or relatives.

4. Research your target market (buyers ).

5. Don’t over-extend yourself financially and be prepared for surprises.

6. Staff will be your biggest asset, so make sure you look after them but be careful not to rely on them too much.

7. Try not to change anything to begin with. Customers don’t like change, unless it’s for the better.

Let’s explore each item.

Honesty:You know your reputation will always follow you wherever you go. If you are a bad payer to your staff, suppliers, tax authorities because word spreads. Suppliers network with each other about clients, tax authorities list defaulters, and credit agencies rank and list delinquent accounts. In this day and age of the internet, computer technology, and internet banking, the world is so small.Wherever you have been or whatever you have done someone will know about it somewhere be it good or bad.You must be honest if you want to succeed in business. Be honest with a potential buyer.There are now laws that protect buyers from dishonest vendors who doctor figures. In my first business 40 years ago the vendor had all her relatives coming in during the trial periods to buy stuff, so takings went through the roof.As soon as I took it over takings dropped $2000 a week. It’s the only time in my life I have lost weight...from stress. I eventually succeeded in lifting turnover and selling at a profit some years later.

Buy a business you are familiar with: So many people believe that the food industry is a path way to prosperity and riches. It can be, but so can a lot of businesses if you know what you’re doing.That doesn’t mean you can’t learn, but learn from someone else at their cost and not yours.What I am saying is get experience first. So many businesses fail through inexperience and poor management. If you are a plumber why buy a restaurant? The hours may be the same, but the work completely different. So many people underestimate how hard our industry is. Everybody has staff issues and landlord issues, not to mention accounting and book work, but the added responsibilities of preparing food, that if not done right can result in death, illness and losing your business, means you really have to know what you’re doing.

Get professional advice: Before you buy or sell consult your accountant and solicitor. Even before you start, ask them what to look for. From their experiences with other clients they are in the best position to advise you.Taking advice from people who offer it for free is worth exactly what you pay for it, nothing! Contracts must be reviewed carefully by professionals.About 15 years ago I bought a franchised delicatessen outside a very large supermarket chain, Franklins, in a very good area. I thought it was a gold mine, and it was until the landlord came to me and said the rent was $60,000 in arrears, (this was a lot of money then). I said that was impossible, I paid the rent to the franchisor religiously every 1st day of the month. You see the lease was in the name of the franchisor not me, something in my inexperience I overlooked. The franchisor was a dirty bastard. He didn’t pay the rents on time, squirreled the money away in untouchable places, put himself into receivership and I was screwed by the landlord, a publicly listed company who offered me a lease in my name if I paid $60,000 in key money. In other words, to keep my business I had to pay the rent twice. For this reason I am wary of franchises with head leases. Some are great, some are just cow manure. I have a client who is franchising. I have known these guys since they were apprentice chefs.They are passionate about their business, of course they want to make money with their years of skill and development, but they are not shysters.They care about their franchise and franchisee’s and don’t intend to open one on every corner They don’t intend to get lawyers, or electricians, or economic immigrants to have one of their stores.They want their franchisees to be sound and well experienced and make money as well. Not like some of the franchisors who saturate suburbs without regard to territories.So my advice is make sure you get professional advice. Don’t make a move without it.

research your options:

Whether you’re buying or selling you have to do some research. Simple factors like competition, the fit-out, the local clientele, suppliers, and staff, leases must be understood.There are always hidden factors that many take for granted. Setting up credit with suppliers is one factor to be examined as well as staff rosters, undisclosed costs like out goings for land taxes, water rates and so on.What about simple things like parking, delivery access and times? Don’t forget to look at the council gazettes for new planning approvals in case new shops are opening or buildings with current clients are being demolished. Canvass the local business to see if they are moving or changing their status. Question the motive of the vendor if you are a buyer. I mean don’t call him dishonest, but examine his motives. If he tells you he’s tired, does he look tired? If he says he’s taking a rest ask him where and for how long. Look at his total appearance, does he or she look prosperous, or well dressed etc.? Get your accountant to do a credit check on the vendor, in his personal or business name.You may be surprised.What we are telling you is not to take anything at face value without researching or questioning it to yourself. It’s a sad thing to say, but suckers are born every day.

Make sure you have enough money: Don’t look for something you can’t afford. Overextending yourself financially is one way to disaster. Be prepared to deal with surprises for expenses not budgeted for. Have you done a budget? It’s a must.You simply can’t make it without a financial plan. Ninety percent of small businesses fail in the first one or two years.That’s why credit is so hard to give to new businesses. One thing a lot of small business people don’t understand is that credit is earned, its not a right.We get into so many blues with people who take over businesses and think they can get the same credit as tried and true client. It doesn’t work that way. In any new business or one acquired, takings never reach expectations except in extraordinary cases. Have enough money available to ride out the leaner times. In good times put money aside for a rainy day and don’t spend it too fast. I am telling you, you will need it to repair the griller, the oven, or the fridge. Sure as hell a vendor, once he knows he is selling, won’t repair anything unless it’s critical.

Staff: Staff are you biggest asset and liability... they will make you money or cost you money. Look after them and pay them well.Treat them with respect. If you are keeping the old staff, get to know them.Tell them their jobs are secure, or offer them a pay rise.Treat them respectfully, but carefully.Trust no one! If you are getting your own staff to replace some, be careful to have them trained. If you have a trial period, do it then. Ensure you have adequate security over your stock, your takings and yourself. I am reminded again about a business I bought some years back. It was doing well.We had a Polish husband and wife team looking after it. I would be in the kitchen in the mornings until the day chef arrived. I could see them through a two way mirror, but not fully focused on them.These were staff I inherited. I noted that they occasionally exchanged furtive glances with each other during the morning rush.This ceased when the chefs arrived and I moved into the serving areas.This went on for some months. I decided that I would change the arrangements, whereby the husband would fry the eggs and bacon, burn the toast and make the fruit salad and I would assume barrista duties. I advised them of the changes on Friday afternoon. Guess what? They never showed on Monday for their shifts. But, my takings went up $2000 a week. The bloke wore high socks and was always pulling them up or was he stuffing $20 and $ 50 notes in his socks. His wife always wore tights and used to always adjust them as well, with my money. Moral of the story make you own decisions as they suit you. Avoid changes that disenfranchise customers: Don’t change prices, menus, quality (except for the better), or even staff if you can until your customers know you.There is a lot more, but these notes will give you some idea how hard it is to buy and sell a business. Hope for the best, expect the worst …but never give up before you give it your best shot!