Accy cyclist
Legendary Member
- Location
- The hills of Accrington
I think i know which shop the OP's on about. Buying loads of expensive stock hoping you'll shift it, then when it doesn't go having to sell it at cost price. Is it really worth it?
You've just described the guy who used to run our local Raleigh dealer.![]()
Good luck! In every business purchase I have been involved in there is at least and I am being VERY conservative 30% of the stock is redundant.I can't give too much away now in case the sellers are reading this but I'm as prepared as I can be for today's adventure! I appreciate the advice and tips from everyone (except you-know-who) and will be in touch with what I'm prepared to reveal later.
See you on the other side, everyone!
Good luck @PaulB
I've worked in the finance industry for 30+ years. Over this time I've seen 3 recessions which in addition to 'fashion' trends, cyclical events and changes to buyer behavior, all have had an impact on many small businesses. I've seen some startling successes, but also a number of good hardworking people being wiped-out.
I appreciate that you appear to be buying this from savings/investments rather than utilizing borrowing, but I hope that the following info it might give you some benchmarks to consider while weighing up the pros and cons of proceeding
When viewing proposition to lend to such businesses we look at 3 factors, Product, Management and Financials.
For Product we need to understand the marketplace the business is operating in, whether it is mature, growing, declining, and what trends (social, economic, environmental etc) are influencing these. We then consider where your business sits within this. To help this process, Google Porters 5 Forces, PESTE, Boston Consulting Group Matrix and SWOT. In this instance, my local cycle shops are palpably less busy at present, and having had 5 or so years of steadily increasing numbers of cyclists on the road, I think that this has peaked if not declined of late.
For Management, we look at relevant experience of the owner(s) and how this meets the various areas required by all businesses, namely sales and marketing, administration, product/supply, HR, Financials. We consider what gaps the owner's skill-set may have, and have they identified this themselves and if so how they are addressing this (i.e. outsourcing, partnering with other businesses, taking on other partners who have complementary skill-sets etc). We also consider age, health and protection (i.e. insurance), and secondary management team (i.e. who would take over in the event that the owner is ill/away)
Only if we can box-tick the above two categories do we look at the financials. Can I add to the earlier “Turnover is vanity, profit is sanity” comment a final rider “…but cash is king”. No business goes bust because it runs out of profit; it goes bust because it runs out of cash.
We need to be certain that the owner understands the cash cycle of the business, i.e. how much stock is appropriate to carry, how much credit you will get from the suppliers (and don’t forget that for a new owner the suppliers may provide more cautious terms than for the current owners at first) and how much credit your customers will require. We then look at historic financial trends, are sales and margins flat, growing or declining. Are these in common with the industry norms, and if not why? How much profit is the company generating and how long does it take to turn this profit into cash? Is the cash sufficient to meet all of the cash outflows of the business with a margin to cover any unexpected changes? We then sensitise the forecasts with a series of what-ifs and see if the model still ‘works’, i.e. what if sales drops by 20%? What if costs increase by 10%?
While this might seem exhaustive, may I respectfully suggest that you should be able to answer positively to most of these areas. If you cannot, and losing your investment in the business would substantially impair your financial position going forward, I would be extremely cautious about proceeding.
Do I get a prize for longest ever reply to a thread?