Buying an Existing Shop

Hello Everyone, I am purchasing a pre-existing shop in the NE United States and I’m meeting with the owner later this week. Can you guys suggest any key questions I should ask him about to see if the business is favorable, the numbers are correct and if he’s selling for a legitimate reason?

I’m using some example numbers here, but the place has been around for a long time, it’s a neighborhood staple. And it seems busy when I walked in on a Saturday morning. The shop was available earlier this year for 440k from a previous owner who moved out of state. He claimed gross sales of 1.2M with 250k net. COGs are around 250k.

Now fast forward to now, the NEW owner is selling the business that he just bought earlier this year, for 360k (they say he paid this to the original owner), claiming that due to personal issues he can no longer commit.

Now this seems odd to me, but I don’t want to immediately write it off because it seems like a well run operation.

Can you give me examples of some questions I could ask? Also what percentage of the food bills should be used to validate numbers? I appreciate all of your help!

Congrats on possibly entering this world.

COG over the last 2 years is very high! Hoping for 30 percent is very tough in my opinion.

1.2 million with 250k COG is very doubtful.
Margin on a store like this would be more believable at 120-150k profit.

This is all depending on debt of course.

Look at actual tickets written, have they increased each year?
One ticket could be 10.00 or 100.00 but tickets written can give you a good basic idea.

Ask about HVAC and heating, when were they cleaned or replaced.
Ask same about any walk ins, or fridges.

My goal for my stores are 30/30/30/10 when it comes to costs.
Labor and food costs are the hardest to control.

How are the google reviews, and how many?
Again these are just vague questions, others may have more specific ones.

Good luck

I tell people all the time to ask for bank statements and start there. Only pay on what is visible b

Popped this into chatgpt to see if it could generate some questions for ya

  1. Financial Statements: Can I see detailed financial statements for at least the last 2-3 years? This includes profit and loss statements, balance sheets, and cash flow statements.
  2. Verification: How can I verify the sales and profit numbers you’ve provided? Would you allow a limited audit or review of your books?
  3. Debts and Liabilities: Are there any outstanding debts, liens, or pending lawsuits against the business?
  4. Inventory: What is the current value of the inventory? Is it included in the asking price?
  5. Suppliers: Who are the primary suppliers? Are there any existing contracts or obligations?

Reason for Selling:

  1. Clarification: Can you elaborate more on the personal issues that are causing you to sell? How have these issues impacted the business?
  2. Previous Sale: Why did the previous owner sell the business? Are you in touch with him?

Business Operations:

  1. Employees: Can you provide details about the staff? How long have they been with the business? Are there any key employees?
  2. Customer Base: Who are your major customers? Is the business reliant on a few major clients or is the customer base diverse?
  3. Competitors: Who are the primary competitors? How does this business differentiate itself from them?
  4. Lease and Property: How long is the current lease for? Are there any conditions or clauses I should be aware of?

Market and Trends:

  1. Market Trends: How has the market for your products/services been trending over the past few years?
  2. Challenges: What are the biggest challenges facing the business today? How are you addressing them?

The COGs number that they gave is no way true. No way 20% food and paper cost. More likely 30%+
20% profit is possible. But not easy. You have to be on your game and that would most likely have to be with a working owner/manager.