Hello-
I am thinking of purchasing a grocery store/Deli for 135K. Has anyone purchased a deli before? I am not sure how it works compared to buying a home.
I assume you are buying the business and not the building? This is way too complicted to cover in a paragraph, but you value it based on how much profit it makes. Have your acountant go thru the books. You can find books at the bookstore on how to buy a commercial business. If you dont know the deli business be careful. I saw a guy who was not chinese buy a chinese restaurant and lose his investment because he didnt understand the business.
The writer is right-- if you are planning to operate the store be prepared for long hours and develop an eagle eye.
The documents and process are similar to house buying contract (purchase agreement, due diligence period, closing) but the similarity ends there. Value is usually determined at three or four times the average net of the last three years. This is not like real estate which is relativly passive by comparison.
Investigate every aspect of the business for sale, the industry, the customers, the financials, the suppliers, the employees and the competition to be sure that you learn everything before you buy!
Keep in mind the past financials will help determine the purchase price but they do not guarantee what the business will look like in the future.
Above all check with the city planning office to see what if any upcoming projects are salted that could have a positive or negative impact on your business.
Let me give you an example:
I was making a purchase on a medium sized strip mall with 18 retail units leased but most were coming up for renewal. 12 units as retail, 2 units to a doctor, 3 units to a lawyer, and 1 unit to a small church.
On the same corner lot Wal Mart has a presents for over 10 years. Let me tell you this looked like a sweetheart deal until I went to the city zoning and planning commission and found out that Wal Mart was approved to build a new super center 5 miles away from their present location.
The move of this retail giant would just about kill all the traffic for the retailers in my strip mall. Wal Mart moves and so do my retail renters.
Would have caused a major negative cash flow. So check all the details before jumping into this.
[addsig]
You would be looking more for commercial tenants. You might have larger vancancies.
I assume you are buying the business and not the building? This is way too complicted to cover in a paragraph, but you value it based on how much profit it makes. Have your acountant go thru the books. You can find books at the bookstore on how to buy a commercial business. If you dont know the deli business be careful. I saw a guy who was not chinese buy a chinese restaurant and lose his investment because he didnt understand the business.
Deli stores are mostly cash businesses. This means no absentee ownership, unless your immediate family of priest is on the register.
If you buy, be prepared to work 80 hours a week.
The writer is right-- if you are planning to operate the store be prepared for long hours and develop an eagle eye.
The documents and process are similar to house buying contract (purchase agreement, due diligence period, closing) but the similarity ends there. Value is usually determined at three or four times the average net of the last three years. This is not like real estate which is relativly passive by comparison.
Investigate every aspect of the business for sale, the industry, the customers, the financials, the suppliers, the employees and the competition to be sure that you learn everything before you buy!
Keep in mind the past financials will help determine the purchase price but they do not guarantee what the business will look like in the future.
Above all check with the city planning office to see what if any upcoming projects are salted that could have a positive or negative impact on your business.
Let me give you an example:
I was making a purchase on a medium sized strip mall with 18 retail units leased but most were coming up for renewal. 12 units as retail, 2 units to a doctor, 3 units to a lawyer, and 1 unit to a small church.
On the same corner lot Wal Mart has a presents for over 10 years. Let me tell you this looked like a sweetheart deal until I went to the city zoning and planning commission and found out that Wal Mart was approved to build a new super center 5 miles away from their present location.
The move of this retail giant would just about kill all the traffic for the retailers in my strip mall. Wal Mart moves and so do my retail renters.
Would have caused a major negative cash flow. So check all the details before jumping into this.
[addsig]