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

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?

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

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

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.

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.

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.

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

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.

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.

quote:

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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.

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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]

quote:

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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.

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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!

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 .

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

I wonder if a good way of expanding a business like this would be by internet sales?

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.

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?

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

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]

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?

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.

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?