What to consider when buying an existing resale store
March 27, 2018
Buying an existing resale store has pluses and minuses
Here’s your opportunity. An established resale business is for sale. You get all the advantages of a ready customer base, established consignors and name recognition. Someone else has done all the really hard work, right? Not so fast. There are a multitude of things to consider when buying an existing resale store. Now’s the time to start asking questions.
The #1 question
First and foremost, you need to know why the owner is selling the store. There are many legitimate reasons for selling. Retirement, health issues or a myriad of other life changes can all be motives. It may seem like prying, but you have every right to know exactly why the owner is making this decision at this time. Don’t be afraid to ask the hard questions.
Require full disclosure
When buying an existing resale store, require full disclosure on all financial records. If they resist, walk away. Unless you have a strong financial background, hire a professional to look at the books. Take a hard look at the business practices of the previous owner too. Many resale shop owners understand secondhand buying and selling, but do not know how to run a brick and mortar business. Do you see areas of lack that you know you could improve? Ask yourself, “What is my potential return on investment?”
Study the location
It’s drummed into our heads when we buy a house…location, location, location. The same is true for a small business. Changes in the demographics of a community, new business regulations, even possible legal issues can negatively impact its success. Find out if the current lease is transferable. Study it closely. If the lease isn’t transferable or the landlord isn’t willing to work with another owner, it may be necessary to relocate. Moving locations will greatly impact your bottom line. Take a close look at the physical building too. Is it near other businesses with lively foot traffic? Does it have adequate parking? How’s the current signage? Factor those issues into the final buying price as well.
Keep everything you want
It needs to be a turnkey purchase. You get the entire inventory, and the complete list of consignors and customer contacts. By closely reviewing both consignors and customers, you can determine if the store’s success is primarily the result of a few customers or a few consignors. That makes the purchase a bigger risk if those few consignors and customers are loyal to the existing owner. If it’s a consignment shop, require the owner to pay each consignor in full before buying.
Request all of their equipment, racks, computers, label printers, labels, etc. This will be a huge time and money saver for you, unless all of it is outdated. If so, use that as a bargaining chip to reduce the sale price. Together, with the owner, take a full inventory of exactly what items you want to be included in the deal. Then, determine the overall value of the store. Don’t accept the “personal opinion price” of the current owner.
Legal Advice Is A Must
Budgeting for an acquisitions attorney to review the contract of the sale is essential. It’s easy to miss legal details on the terms of sale. Unless you have legal experience, don’t skip this step. The seller may knowingly or unknowingly have financial or legal skeletons you know nothing about.
Interview customers, consignors and employees
Before buying an existing resale store, ask for a 2-week trial period where you work as an employee. Watch how the current employees interact with customers. Talking directly with all those involved with the store will tell you far more than the store owner. Ask them how they would feel having a new owner. Is the merchandise the type and quality they are looking for? By working in the store, you can also decide whether the current staff should stay or go. It’s helpful to have employees that are knowledgeable about the business, but only if they work well with customers. Make sure you understand their salaries and any benefits they may also be receiving.
Determine its current reputation in the community
Make sure you read any online comments about the shop. Visit Google, Yelp and any other local sites that might have reviews. It takes a long time to overcome an existing negative reputation. Even “under new ownership” can’t help if shoppers have never had a good experience. It would be necessary to completely re-brand the store with a new name, logo, signage, etc.
The final sale
There can never be too many questions before buying an existing resale store. The more you ask, the more prepared you’ll be as a small business owner. As the buying process is taking shape, be sure to sign up for your free 15-day trial of SimpleConsign web based software (unless, of course, they’re already a customer of ours). We’ll show you how to save time and money.
