Advice on buying a new business

There is a small leisure based business that operates near where I live and it is being run very badly from what I can see.
The opening hours are erratic and next week they are closing down for 2 weeks for the summer holidays.
The thing is, I can see a lot of potenticial in this business and if it was better run it could be highly profitable. When I say better run, I mean taking a few small steps to bring more customers in.
At the moment it seems to be a one man operation being run by an amiable chap close to or at retirement age and from what I can see he has no apetite for the business and is happy enough to let things slide as no effort is being made to bring in new customers.

I want to make him an offer to buy the business but I have no experience of doing so. As it appears to be so poorly run I don't expect he will have accounted turnover figures or if he does I don't expect them to be accurate.

It looks to me like this business is more of a hobby to the guy than a money making exercise so I am unsure of how to approach him. I don't want to pay over the odds but again if I make the approach I will be putting the ball in his court with regards to setting a price.

Any advice would be appreciated.

personally I tend to be a bit cynical about these 'under new management' type situations if I have been put off using the service for some reason previously (e.g. poor opening hours, poor service, prices etc). Generally I wouldn't be inclined (or bothered) to give the new owner the benefit of the doubt.

As such I would have concern over recovering the customers that have probably been lost (or never were) because of the erratic opening hours etc.

The_Banker said:

I can see a lot of potenticial in this business and if it was better run it could be highly profitable.

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Do you have any experience in this line of business? Surely it's impossible to make this sort of judgement without access to the details of the business (e.g. balance sheet and general accounts in particular)?

I want to make him an offer to buy the business but I have no experience of doing so. As it appears to be so poorly run I don't expect he will have accounted turnover figures or if he does I don't expect them to be accurate.

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If this was the case then you would be buying a pig in a poke. What if you end up buying into a situation in which there are tax or other creditor issues and you are left to pick up the pieces?

It looks to me like this business is more of a hobby to the guy than a money making exercise so I am unsure of how to approach him. I don't want to pay over the odds but again if I make the approach I will be putting the ball in his court with regards to setting a price.

Any advice would be appreciated.

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Get some professional advice - e.g. from an accountant who can help you to objectively assess and value the business and maybe advise on how to approach the current owner if it proves to be a viable proposition.

Thanks Clubman, all advice recieved gratefully.

I read your problem with interest, I could help you to buy this business either with as little money as possible or no money at all. I assume that the following are correct, if not then kindly confirm, this will help me to take you further down the track to negotiate a deal whereby both parties will be satisfied with the outcome.
(1) that you can run a leisure business
(2) that the person running the business is the Principal
(3) that it is a leasehold
(4) that the principal is not running the business very well
(5) that there are no financials to support the welfare of the business

Please note that it is not advisable to initially notify the Principal that you want to buy the business, there are various reasons,one of them is you don't want to find out later that this a business is not worth saving and you have committed yourself
I would suggest you have a friendly chat with the gentleman and ask the above (2-5) at different occasions, but limit the question to either one at a time or maybe two at a time the timing is all up to you, once this done I will be happy to take you to the next stage of the negotiations, please note that you cannot have enough information, the more you have the better position you will be in to assess the business, I think you would enjoy the experience, Good luck

It would be nice to have audited accounts, but if you don't have them, you are not necessarily buying a pig in a poke. Most people setting up a business from scratch have no real idea of what the revenue will be. At least you will have some information on this business as it is already in existence.

I am a great believer in being straight up. Call in and chat to the owner. Tell him you are looking around for a business to invest in. If he is interested at all, then you might be able to look after it for him for the next two weeks. That would give you a great insight into the business.

If he is doing it for a hobby, he might be delighted to hand over the hassle of running the business to you. You could keep him involved by getting him to mind it when you are not around.

The worst outcome for you would be that you were humming and hawing and hinting and then you see a For Sale sign going up outside the shop so you are competing with everyone else and probably buying through an auctioneer.

Brendan

Out of interest, seeing as the business is poorly run, would you consider simply setting up in direct competition with the existing business?

That way you would have a chance to establish your own name and reputation. Assuming he's a poor operator, then surely a new player could win customers fairly quickly? In addition, given the state of things now you might have the opportunity to have a lower cost base than the established operator - you can probably get a lower rent rate than him (he's probably tied to a contract), you can probably pay staff less/attract better staff (huge increase in numbers seeking work) and you could probably eek out the efficencies and change you see he needs to make, right from the get-go in your own business.

Only an idea.