CraigJ
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| posted on 1/12/09 at 09:28 AM |
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Buying a business?
Right im looking into buying a local business to me. It is a Motor spares shop and is for sale for what i thing is a cheap price. The think is i have
never run/owned my own business. What are the important things i need to find out, ie the numbers that i need to know?
Currently i know it is for sale for £16,000. The property is on lease hold and the rent is £650pcm, The sales revenue is £40,000 and the Gross profit
is 50%. this is all the info i have so far.
Any advice from anyone running or having owned their own business would be great.
This is the add for the shop
http://secure.businessesforsale.com/Car-Parts-Retailer-In-Featherstone-For-Sale.aspx
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Schrodinger
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| posted on 1/12/09 at 09:42 AM |
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Well with a GP of £20k and rent then to come out of that at £7800 plus other expenses like pay, NI, Rates etc do you want to work for that low an
income.
How many people do they employ?
Keith
Aviemore
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nib1980
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| posted on 1/12/09 at 09:42 AM |
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a business declaring 50% profit, i find very hard to believe.
go speak to your solicitor and accountant first
make sure your buying the business and stock
check your contract of sale and make sure your buying the supplier contacts too, and that the current owner won't set up in busness again for 3
years
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nib1980
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| posted on 1/12/09 at 09:44 AM |
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also don't forget
1) no more holidays ever
2) everyone you know will want a discount
3) you have more thieves than you realise
4) you can't trust your staff
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02GF74
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| posted on 1/12/09 at 09:51 AM |
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why is it being sold?
if it was such a great money spinner, noone would be selling it.
do your research and tread very carefully.
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quinnj3
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| posted on 1/12/09 at 09:52 AM |
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Unless you are planning to invest in pushing the business on, I doubt it if there will be much in the kitty to pay yourself after all your expenses
are taken out such as rates, electricity, heating, staff wages, accountants once or twice a year, £16000 loan etc etc. Even if you have the money to
buy it siting there it will take years to refill your account. you will be very lucky to get £15k home at the end of the year. Then you have to
think of the long hours you will have to work due to paper work etc.
If you think you can live on a low income for a while and think you can expand and push sales by quite a lot, go for it but I would not be paying £16k
for the priviledge. Your best bet would be to invest the money in a rented space and start your own motor spares shop in a better location. If that
is what you want to do.
my aim is to build my own locost wether it takes me a week or 10 years to get started, i'm sure i will sometime
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Mr Whippy
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| posted on 1/12/09 at 10:17 AM |
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I nearly bought the local model shop when it was being closed due to the owners retiring. Got a good job offer so in the end didn’t take it on.
One thing I always felt that would massively improve its profits and something the older owners did not get to grips was is setting up a web site and
doing online mail order rather than waiting for someone to walk through the shop door.
These days all my model stuff is ordered this way from shops all over the country and those that do and do it well, I’m sure are doing a roaring
trade. Anything you just wanted rid off like stock that was slow to sell, just chuck it on e-bay and see what you get.
I don’t agree about not ever having holidays, they just put a notice up saying that they were closed for 2 weeks etc and it never did there business
any harm.
Fame is when your old car is plastered all over the internet
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swanny
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| posted on 1/12/09 at 10:18 AM |
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i'd agree with the above. £40k is very low turnover, (less than 800 sales per week)
50% gross profit is pointless, if the costs outweigh the profit. Net figures would be interesting. Looks like theres no profit left in the business
for incidentals like salaries.
there might be mitigating factors however, has the business been allowed to stagnate by an ageing owner? do you have a raftof ideas to transform the
business, (go online, offer repairs as well, specialise in one area, like high end car parts for example)
another thing to coinsider long term is the overall market, picked this up on the net which is US based but doesnt sound like this is a potential high
growth area.
The automotive aftermarket for parts has steadily, albeit modestly, increasing demand. In the US, increases in the number and age of vehicles, number
of miles driven annually, licensed drivers, and total number of light trucks (which generally require greater upkeep) provide for a relatively steady
and growing automotive parts market.[4] The market, however, is mature and unlikely to experience significantly higher rates of growth. Also,
increases in the quality of cars may offset the need for secondary purchases of repair equipment and parts.
DIFM is a slowing growth category The company operates in a domestically mature and fragmented auto parts market, and growth has been respectable,
though modest recently and driven almost entirely by new store openings in the DIY category, which accounts for nearly three-fourths of revenue, as
opposed to the increase in same store sales driving the DIFM category (one-fourth of revenue). Additionally, the same store sales growth in DIFM has
been slowing down from 22% in 2003 to a slower 10.8% in 2006, suggesting that the DIFM market may be creeping towards saturation.
AAP auto part suppliers have been experiencing a wave of consolidation Auto part manufacturers, which operate in a generally troubled industry, have
been consolidating via mergers or considering consolidation of late.[5] A more concentrated vendor base for auto part retailers, then, limits the
number of companies that the firm can purchase inventory from, and may provide suppliers with greater pricing power, putting pressure on AAP’s
margins. No supplier, however, represents more than 6% of AAP’s inventory purchases.[6]
Oil Prices continue to rise. As oil prices continue to increase, drivers may begin to purchase newer, more fuel efficient vehicles--including [[hybrid
and fuel cell vehicles]--and/or limit their driving mileage. Greater numbers of new car purchases and fewer drivers accumulating heavy mileage mean
that consumer demand for repairs and new parts may be hampered, thus diminishing AAP's sales.
i'd contact the british library business reading rooms, they have all sorts of industrial data and market reports on a variety of industries.
They may have an autoparts report. These are normally very costly, but can be accessed for free at the British Library. They will generally show key
players and market forcasts.
Paul
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Mr Whippy
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| posted on 1/12/09 at 10:50 AM |
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There is the simple fact that far less people these days who are willing to service their own cars due to less serviceable parts and a very high
perceived complexity.
My dad who originally taught me when I was a kid how to service the family car (read child slave labour) now hasn't a clue with modern cars.
Even once caught him trying to work out why his car was idling erratically and the airflow meter was lying on the ground still connected to the air
filter...
Just look at shops like Halfords and how few spares they now keep, in a few years they’ll be mostly cycle shops.
Fame is when your old car is plastered all over the internet
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designer
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| posted on 1/12/09 at 11:03 AM |
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Check what the property rates are, they can be extortionate.
Plus check rubbish disposal as a bin (expensive) could be needed.
Find the value of the stock and ensure that the stock value is maintained for the change of owner.
The price seems to be cheap, especially as it should include stock.
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Richard Quinn
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| posted on 1/12/09 at 11:12 AM |
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quote:
Originally posted by Mr Whippy
There is the simple fact that far less people these days who are willing to service their own cars due to less serviceable parts and a very high
perceived complexity.
My dad who originally taught me when I was a kid how to service the family car (read child slave labour) now hasn't a clue with modern cars.
Even once caught him trying to work out why his car was idling erratically and the airflow meter was lying on the ground still connected to the air
filter...
Just look at shops like Halfords and how few spares they now keep, in a few years they’ll be mostly cycle shops.
Even Demon Tweeks have
started selling bikes now!
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big-vee-twin
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| posted on 1/12/09 at 11:17 AM |
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I started my business four years ago 50% gross proffit is not un-common but this is quoted before taxes.
A small business with Ltd status has to pay 21% coporation tax out of the gross proffit.
Dont forget business rates as a rule of thumb there around 50% of your monthly rental
So pay £650 pcm rent aprox £325 rates
£ 975 per month which is aprox £12k taking corporation tax into account lets say you have fixed cost including the above of £15k you would pay 21% of
£5k i.e. £1,050.00
So that adds up to £ 16,000.00 leaving £4k for you, less any utilities bills and insurance costs so you would end up with around £3k.
Seems to be somthing wrong somewhere.
What you need to do is see if the turnover can be increased and while doing that get an accountant to go through the books, if they have any loans etc
they need discounting from the sale price.
[Edited on 1/12/09 by big-vee-twin]
Duratec Engine is fitted, MS2 Extra V3 is assembled and tested, engine running, car now built. IVA passed 26/02/2016
http://www.triangleltd.com
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smart51
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| posted on 1/12/09 at 12:24 PM |
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quote:
Originally posted by big-vee-twin
So pay £650 pcm rent aprox £325 rates
£ 975 per month which is aprox £12k taking corporation tax into account lets say you have fixed cost including the above of £15k you would pay 21% of
£5k i.e. £1,050.00
So that adds up to £ 16,000.00 leaving £4k for you, less any utilities bills and insurance costs so you would end up with around £3k.
From the vague distance of my university days, I remember the rule of thumb for valuing a business. I was told it was 3x the net profit (to
shareholders) plus the sale value of its assets (stock, buildings, vehicles, tools) less the cost of its liabilities (loans, debts and bills).
From the numbers above, the parts business makes 3k a year, all of which will be wages (and that’s only £58 per week for a 6 day week!). So profits
of nil. Assuming the seller pays up all his debts and bills before signing over, I’d pay no more than the eBay value of the stock, plus what I
thought I could get for the remaining lease on the open market, less 30%. I bet that doesn’t add up to £16k. You could argue that a regular customer
base is worth something, but not much, I’d have thought.
I’d want a decent income out of running a business. £5.75 ph for 48hrs per week, 52 weeks a year is about £14,400 + employers NI. Why work so hard
for minimum wage?
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hampshe
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 posted on 1/12/09 at 01:14 PM |
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My family had a motor accessories shop in our local shopping centre, the main problems were the amount in cost of stock required, the location, ours
was in a shopping centre, so not much passing traffic, also customers like to park outside with their cars, sometimes because they want an easy life
and others because they want you to look at the car for parts info.
So the maths apart, a couple of things to consider!
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Blackcab
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| posted on 1/12/09 at 01:45 PM |
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Based upon them numbers the business is losing and will lose money after rates, rent, initial investment are removed - so the 50% margin which seems
pretty good would need to be attached to a much higher sales revenue of prob 2 to 3 times as much .
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JonnyS
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| posted on 1/12/09 at 01:59 PM |
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Based on current multiples, the business will be making a profit available to the owner of £3000-£5000 per annum...
You should only buy this business with a view to expansion and already have good plans about how to achieve this.
If the owner NEEDS to get out of the lease, you may be able to pay much less than this.
There are many issues, many of which have been discussed above. However if you do decide to consider it seriously find a good ICAEW or ACCA registered
local accountant
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mookaloid
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| posted on 1/12/09 at 02:10 PM |
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I wonder if a good way of expanding a business like this would be by internet sales?
"That thing you're thinking - it wont be that."
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morcus
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| posted on 1/12/09 at 02:12 PM |
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I don't know much about this, but I would love to do something simillar if I could make a living that way. As others have said, you need to
diversify as not many people service their own cars (Though I don't think its all down to knowledge or complicated parts, I think that people
now don't buy cars less than 10 years old without full service histories).
I'd reckon your best bet is the max power type modifing market as all the places round here seem to sell alot of that stuff.
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RK
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| posted on 1/12/09 at 02:31 PM |
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Above all, just think "what would I want if I were searching for car parts?" Firstly, you don't want to pay anything. First clue.
Secondly, when was the last time you worked on your modern tintop? I won't even change the wheels on my Audi anymore because the thing is so
heavy, I'm scared to drop it, the wheels weigh a tonne each, and finding the jacking spot isn't obvious enough. I won't even
mention under the bonnet issues. Now, why is the person of this day and age, going to go into your shop again?
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Steve G
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| posted on 1/12/09 at 03:11 PM |
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50% gross profit!! Well I find that hard to believe myself.
If you are seriously looking at this then i'd ask to speak to the small business advisor at your bank and get their advice. They should be able
to assist you with advice on how to proceed
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JonnyS
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| posted on 1/12/09 at 06:05 PM |
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Gross profits vary from negative to almost 100%. 50% on car parts really isn't unusual.
Small business advisors are a good idea, but you have to get one of the good ones. Some of them don't know their ar$e from their elbow.
Oh I should say, I'm an accountant 
[Edited on 1/12/09 by JonnyS]
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GaryM
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| posted on 1/12/09 at 06:24 PM |
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I would guess that this type of business's biggest customers would be independent service/repair garages as franchise dealers/service
centre's buy parts direct from their manufacturer.
I wonder to what extent the scrapage scheme has removed the older cars (typically 'serviced' by these garages) from the roads?
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CraigJ
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| posted on 1/12/09 at 06:33 PM |
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Right just got back from meeting the owners. One was a silent partner who owns his own garage and the other owns another local company doing satellite
installation. Both have good reasons for selling. Neither of them have the time as their own companies are too busy. They had a guy just running it
for them who had no interest. The books do look good and the 50% GP was wrong. I am meeting them later in the week to get copys of the accounts so i
can have them looked at.
The Shop has lots of scope for improvement as it is just a car spares and nothing else, so a lot of things can be added to the business.
Wheels/stereo/body mod parts etc also i plan to use the internet to sell also.
and all the current stock is included. The price is also negociable as the stock is now less than when the shop was advertised. Should be able to get
them lower along the lines of 13K now.
At a quick glance it looks ok but i will know more later this week.
Thanks to every one who had given me advice today. It was quite helpful.
Craig.
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Schrodinger
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| posted on 2/12/09 at 10:15 AM |
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I would want to be able to increase the turnover to something like £100k before thinking of this, also are they paying the redundancy costs of the
current employee?
Keith
Aviemore
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