What to look for?

Just a question that a lot of us probably ask ourselves when buying an existing place… if a store is open and you are looking to buy it, what should you look for? what questions need to be answered from the seller? recepits? all acounting info? etc… don’t you guys think i’ll be cool to have some kind of check list so when some of us are ready to buy a established place we know what to look for… thanks in advance…

I do like the idea of a general checklist resource available for new potential buyers. There has been tons of stuff mentioned recently to the newer propectors . . . . I do so wish I had saved it all and compiled it.

Some ideas off top of my head include:

  • equipment list including model and serial numbers as well as manufacture date, if available
  • copy of business tax returns for 2 years.
  • access to at least 6 months, if not 18 months, of food invoices
  • payroll data for 12 to 18 months
  • copy of any existing lease(s)
  • complete and detailed list of all items included in the sale
  • architectural rendering/plat of space, if available, showing utilities, dimensions, etc.
  • copy of insurance showing premiums and any dislosures/waivers/riders

good input nick… anybody else would like to add to this check list??

One thing we came unstuck with was the electricity box. When we had some additional work done the electrician found our box wasn’t compliant. Half the circuit boxes weren’t cut out safety ones as required. We had to replace 4 of them (some big ones) which cost us around $1000+.
I never thought of getting an engineer to check these. Also fridge motors compressors etc need check for any faults or poor workmanship.
Next time I will do the thorough due dilligence on the financials but I will also get an engineer to check out the plumbing, electricals, equipment etc and ask him to be ruthless in his examination.
I have outlaid $0000’s in equipemnt replacement, repairs and upgrading to safety requirements since I have had my shop (16 months) and it really p*sses me off that I got ripped off real bad.
Now paying the “fools tax”, but won’t ever again.

The flip side…

As a seller of a “bona fide” business, I’m not willing to give up all the info/goodies w/o something from you, i.e. down payment, none compete/privacy clause (not sure of the correct legalize)

there are alotta lookie-loos that will waste your time…

that is one reason for using a business broker…more “rights” are protected for each party

Patriot has a very good point. this is a business relationship we are talking about, and the prospectic buyer needs to be mindful that this isn’t going to be a easy-breasy ride getting tons of info to whish through on a whim. I am speaking only of serious inquiries that have high likelihood of signing a deal. I am talking about primarily the negotiation phase for sale price. You can always walk away form a deal that isn’t working out, but we are asking the seeler to be vulnerable and provide private documents here.

This list is basically complete. I ask for tax returns and/or certified P&L’s and then I request all documents to support those. I take the time to match up all expenses, and I analyze the food invoices to make sure some were not withheld. If the seller cannot provide, I use my own wose case scenarios for an estimate on deciding if I still want to proceed.

And others are right, you absolutely need to give the sellers some assurance that you are not wasting their time. I will not request the supporting paperwork until there is a signed offer in place, with an escrow deposit. (which of course is fully refundable to me if it turns out I do not like his books). I do request a P&L ahead of time though. I then analyze that for reasonability before I proceed. You will be surprised how many places that claim 18% food costs and 14% labor, etc. I looked at a place last week that was claiming to be cash flowing $142k per year. I asked for a P&L and learned that sales was only $284k per year. I don’t need to see supporting data to know he is full of it. I walked away without wasting my time.

those are a lot of good points made… unfortunally a lot of people get screw when they buy an existing place… likr dave he had problems… it’s understandable that you will never get all the info that you want but it’s good to be ready and try at least. there is this guy around here that bough a shop thinking that the place was busy, didn’t do any research and about the place, went there for 2 days to see how the business is, the places was jamning for those two days and the guy though he found a gold mine. BUT guess whatN the seller had a whole bunch of people come in for those 2 days and eat for free… he actually gave money to his friends and family to come in and make the place look busy… so that buyer got screwed cuz this place sucks and probably makes 3k a week… that’s way I asked that question that way something like that or similar doesn’t happen to me when I get my own shop or any of you guys when getting another one…

If you’re buying a building as part of the sale and do not get an independent building inspection from a strong, reputable inspector, then you are a moron. I hesitated using that word, but it really does fit when paying hundreds of thousands for a business and real estate.

As some one who has just recently went through this process let me give you a few tips that could be helpful. First of all, prior to even signing anything try to get as much info from the broker/owner. I was able to figure out where the place was after asking tons of questions so I was able to visit the place as a customer several times prior to even signing the confidentiality agreement. Next thing I would do is stalk the place. You can save time if you have a partner or someone that can help with this (I however had to spend two weeks doing this). For one full week watch any door that customers or drivers will come out of, write down everything you see. Number of customers, number of delivery drivers, how many bags and boxes are leaving with the customers and drivers, and note as much as possible about the demographic of the customers. Also this is a good time to note what time all of the deliveries come in, this will help later on to verify what the owners documents say about how many boxes of cheese and pounds of flour. Another important thing that you should definitely do is try the food, I don’t think anyone else mentioned that but THAT IS NUMBER ONE!!! At least I think it is. Lastly, while you are in your due diligence (this means you should already have already agreed on a sale price and done everything mentioned in the first checklist up there) try to befriend some of the employees. This has a double benefit because they will hopefully soon be your employees and because they may fill you in on the little things that you may have never noticed. A good example of this is when I did my due diligence it was the dead of winter in Chicago (end of March is the dead winter in Chicago), however one of the employees was nice enough to fill me in that the AC was on it’s last leg and that I should check into that. That was something I never would have caught if it wasn’t for the employee telling me. Hope this helps.


PS. Make sure the owner doesn’t owe the land lord any money for back taxes, this will push your closing back and it sucks. We were suppose to close on Tuesday May 1. Hopefully everything goes through and tomorrow when we try to close again everything will be good. WISH ME LUCK.

good luck nasso… hopefully everything goes smoothly… I agree with you about making sure that the food is good. I also think is good to ask around about the repution of the place, it would suck to get into a place that is known for crappy food and bad service…

this are all good points… nice check list so far…