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Old 29th July 2010, 09:46 AM   #1
jackyd968
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Cool Not A SB Owner Yet, But Seriously Considering It

Hi all!
My name is Jacky, and I'm a 40 something-ish woman, married with 2 kids, 1 home, a middle schooler, the other that just spread her wings and flew to her first apartment : )

My husband has ALWAYS wanted to own his own small biz, me, I've always had a workers mentality. We have an opportunity to purchase an established ice cream franchise business in town. It is the only one in our area for at least 40 miles. The owner freely admitted that he has NOT done enough marketing, and the business is at a break even level. They are an older couple, he has another business that he runs, and like I said he admits he hasn't paid it due diligence, and she just wants to be done with it.

At this point, we're both out of work, and this seems like it could be a way for us to break out of the working for a nameless, faceless corporate entity that just walks up to you one day and says you're out of here. We both know it will be hard work, stores like this are open 7 days a week, and we know we're probably giving up our lives for the next 3-5 years focusing on getting this store where it needs to be. Aside from getting an accountant to look over his books and a lawyer to l create the purchasing documentation, is there anything else we should be looking for? Anyone here who has taken the plunge, and can talk to me about how you made it happen for you? Anything we should know about buying into a franchise that we should know about? The owner is saying he owns the equipment, and once our note is paid, it belongs to us, which I think is a good thing, at least until something breaks. We are complete newbies, after I post this, my next call is to the local SBA to see what they can help with, materials to read, etc.

I really LIKE the idea of being the owner of an ice cream shop! People, for the most part, are happy walking in, and happy when leaving (I know there's always a problem customer, I've been behind a counter before). Am I being to simplistic?

Feedback/advice appreciated, thanks for reading this far, and letting me talk, I'm nervous, and excited about this!

Jacky



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Old 29th July 2010, 10:35 AM   #2
mktgbiz
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It's America!!! Go for it, full tilt boogie!!! Enjoy the experience many would give their first born for!

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Old 29th July 2010, 11:15 AM   #3
jackyd968
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Thank you Mktgbiz!

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Old 30th July 2010, 06:08 AM   #4
BizDoc
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Default Not so fast...

Quote:
Originally Posted by mktgbiz View Post
It's America!!! Go for it, full tilt boogie!!! Enjoy the experience many would give their first born for!
Possibly this is a great opportunity; possibly not. You want to kick the tires. There are so many pitfalls when you take over an existing business.

Just a few tips (way too many to post all here):

1. You mention the business is just 'breaking even.' Is that including the owner's or manager's salary? Because if net profit is zero before you get paid, the business is worth exactly nothing.
2. Determine the payables and receivables are current; you don't want to take over a business with outstanding bills and delinquent clients (although an ice cream store would likely be predominantly cash business unless you have a large catering clientele.)
3. Make sure you have a market that will support your business. Your statement that there isn't another store within 40 miles is a good sign but how many people that are willing to drive to your store are there that you can sell to? If you're in the boonies and people have to drive 20 mins to get to you, your audience will be significantly smaller since ice cream is largely an impulse purchase.
4. What equipment will be included? Is it serviceable and in good shape? What repairs are needed?
5. Consider creating a new entity and buying only the assets of the business under your new business. That way any old debts and problems remain the responsibility of the old management. You can continue to rent at the same location and for all intent and purposes, it will be the same business. But legally you'll be released from anything the former owners did.
6. Get a business appraisal from an expert who specializes in business evaluation. These aren't cheap but they're like a house inspection; they're worth it.
7. Make sure the old owners stick around during the transition. That will help if there are any loyalty issues or bookkeeping, training, etc.

Ask for audited financials. Get independent assistance. Don't get sucked into what appears to be a folkesy deal and turns out to be a money pit. The zero net profit would scare the hell out of me, frankly, and you should make sure it's only a marketing deficiency, not something else. A business is valued at a multiple of earnings, and you have no earnings to start. Unless you're an ice cream marketing genius, you'll need at least a year to develop at least the same level of (in)competency that the current owners have. It's possible that you can fix the business and increase profit, but that usually requires capital and experience, and you're starting with no cash flow and no capital buffer. You'll both be working sixteen hour days and exhausted while you're learning the business. Be very careful or you'll lose your life savings and end up in bankruptcy.

Sorry to be a wet blanket but I've seen too many patent 'great deals' falls apart once you started kicking the tires. Don't get passionate about buying a business. You will always end up spending too much and overlooking things. Be hypervigilant. Once you own it, then unleash your passion. But until then be critical, skeptical, and wary.

Cheers and good luck!

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Old 30th July 2010, 10:16 PM   #5
jbarrios
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Hi Jacky,
I agree with Bizdoc, It could be a great opportunity but first you can do some research just to make sure you are making a good decision, you will never be 100% sure about a business; but Bizdoc information will help your decision to be closer to the 100%.
Good luck !!
Jose

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Old 31st July 2010, 12:37 AM   #6
jackyd968
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Thanks for the thoughtful response BizDoc. How does one find an expert to do a business evaluation? Is the cities chamber of commerce be a good place to start, just call and explain what I am trying to do?

I'm going to have to poke a bit at exactly what "breaking even" mean. As for audited financial, I'm not sure I'm going to be able to get these records, As the current owner explains it, he has an accountant he uses quarterly, and then files the taxes with. I think the best I am going to get are the tax return records.

As for location, there are other ice cream stores in town, but we are the only one of this franchise within 40 miles. And we're located in the heart of the shopping district, in between the mall and the discount stores, but on the same road. One of the things I think we have going for us is this is a well known NE chain, and this area has a lot of former NE'eners living here. Lots of happy memories for me growing up going to this store for B day cakes and special occasions, I'm not sure the other chains have collective memory base as large as this one does. And there are a lot of residential homes nearby too, so I think there are a lot of potential clients nearby, as long as we let them know we are here.

Of all our issues, equipment, at least right now, is our easiest. My brother-in-law makes a very nice living repairing restaurant equipment, he is going with us this weekend so he can take a look at the equipment for us. If he says it's going to need repairs, or is near the end of it's serviceable life, we walk.

The owners claim they are going to be here for at least 3 months after the deals close, and have offered to let me come in before we get the papers to the lawyers to see how their day to day operations go.

If we hire an expert, he should be able to help guide us,, as to whether this is truly a marketing deficiency, or if this is the wrong store for the area, right? I am leery soliciting this type of advice even, there's a lot of effort to keep businesses going in this area (probably like any other mid sized city these days), how do I know I'm hiring an honest, impartial person, or the brother in law of the leaseholder, who obviously has a stake in there being a renter in the property?

I'm trying to keep my eyes open, thanks again for the thoughtful response!

Jacky D.

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Old 10th August 2010, 07:11 PM   #7
annam
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Hi,

I know quite a lot about ice cream business. where are you based and what kind of ice cream will you be making? Italian, soft?
This will help me answer your questions

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Old 10th August 2010, 08:14 PM   #8
BizDoc
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Sorry I wasn't able to answer sooner; the blog - and now podcast - is taking all my time these days.

Let me take your questions in order:

Quote:
Originally Posted by jackyd968 View Post
Thanks for the thoughtful response BizDoc. How does one find an expert to do a business evaluation? Is the cities chamber of commerce be a good place to start, just call and explain what I am trying to do?
Start with your CPA. Many appraisers are CPAs themselves so it's conceivable yours has a division if it's large enough, or can certainly recommend one. Business valuation is a very complex field; don't just accept any old 'expert.' Do your homework.

Quote:
Originally Posted by jackyd968 View Post
I'm going to have to poke a bit at exactly what "breaking even" mean. As for audited financial, I'm not sure I'm going to be able to get these records, As the current owner explains it, he has an accountant he uses quarterly, and then files the taxes with. I think the best I am going to get are the tax return records.
Breaking even is the point at which your gross receipts less discounts and returns (inapplicable in your field, I would think), minus customary expenses, labor including owner salary, interest expense, and professional services fees are zero. A sole prop doesn't always think in these terms; what's usually left over goes into the owner's pocket as salary. But do your best.
Tax returns should be a good start. Have your CPA and attorney and any expert you hire review them and point out any deficiencies. Also, contrast the P&L and income statement with industry financials like you'll find at http://www.bizstats.com.

Quote:
Originally Posted by jackyd968 View Post
As for location, there are other ice cream stores in town, but we are the only one of this franchise within 40 miles. And we're located in the heart of the shopping district, in between the mall and the discount stores, but on the same road. One of the things I think we have going for us is this is a well known NE chain, and this area has a lot of former NE'eners living here. Lots of happy memories for me growing up going to this store for B day cakes and special occasions, I'm not sure the other chains have collective memory base as large as this one does. And there are a lot of residential homes nearby too, so I think there are a lot of potential clients nearby, as long as we let them know we are here.
It's a common syndrome for a budding entrepreneur to mistakenly assume s/he thinks like their market. Test your assumptions. It may be true that everybody is just bursting waiting for you to offer an ice cream parlor, or they may not even consider it. Survey and evaluate your assumptions. Discount your own opinions entirely when you survey.

Quote:
Originally Posted by jackyd968 View Post
Of all our issues, equipment, at least right now, is our easiest. My brother-in-law makes a very nice living repairing restaurant equipment, he is going with us this weekend so he can take a look at the equipment for us. If he says it's going to need repairs, or is near the end of it's serviceable life, we walk.
Excellent. That's one sizable mark in the WIN column, especially if he is nearby. Maybe he can hook you up with other merchants out of your area, so they don't feel threatened.

Quote:
Originally Posted by jackyd968 View Post
The owners claim they are going to be here for at least 3 months after the deals close, and have offered to let me come in before we get the papers to the lawyers to see how their day to day operations go.
I would submit three months is awfully short to ramp up unless you get an expert onboard with whom you've worked before. When you're managing a new business, good communication becomes critical and acquaintances are better than strangers.

Make sure you get their promises in writing as well as lay out the terms they will be available for assistance.

Quote:
Originally Posted by jackyd968 View Post
If we hire an expert, he should be able to help guide us,, as to whether this is truly a marketing deficiency, or if this is the wrong store for the area, right? I am leery soliciting this type of advice even, there's a lot of effort to keep businesses going in this area (probably like any other mid sized city these days), how do I know I'm hiring an honest, impartial person, or the brother in law of the leaseholder, who obviously has a stake in there being a renter in the property?
There are different experts. I'd submit you want an ice cream guru, either a senior executive or former entrepreneur who would be willing to provide you the benefit of his experience for a little flattery and consulting pin money. You also want to talk with marketing people in the CPG arena. Investigate "Fast Casual" marketing groups and network.

Quote:
Originally Posted by jackyd968 View Post
I'm trying to keep my eyes open, thanks again for the thoughtful response!

Jacky D.
Absolutely. Hope this helps. You can check out my blog for general business tips as well.

Cheers!

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