Looking for Information in several areas

[Seatbelt99]

I am looking into purchasing an exsisting, successful business. I need some help primarily in applying for grants and loans, and also writing a business plan.

I'm in Michigan if that matters, is there anyone here with experience in this?

Thank You!

Details:
The business is an ice cream / sub store. It has been open 17 years and the owner is just looking to retire. The business has been quite successful (judging by the impressive cars the owner drives and things like that). I'm waiting on the owner to get me tax and financial information to bring to the bank for a loan.
It is for sale for $475,000 and comes with all the equipment, the building it's in which has a 2 bd room apartment on top with a tenant in it, and a residential house which is right next door (also to be rented out).
There is little to no competition anywhere near by, the shop is next door to a veterans home which brings in quite a few visitors, it is in the middle of a residential area, and also a large public park.

I have never owned a business before but have about 8 years of management experience in my existing job as does my wife. My wife has experience working in an ice cream shop so she has some basic knowledge of how to do this. A family friend owns another ice cream shop on the other side of town so we can consult with them on getting up to speed with those types of questions.

[rshughes]

Congratulations on finding this opportunity... you're in for an exciting process! (in a good way)

I did something similar about 15 yrs ago though mine was/is an industrial business, not retail. Your opportunity is unique in that it includes income property - lenders generally like this aspect a lot, as it gives them some substantial collateral to base a loan on. In fact, in the underwriting process they might not really consider the income from the business at all, or possibly appraise the entire thing based on only the properties' values. How the loan is packaged will depend on how creative the lender is (though I hate to use that word "creative" in today's risk-sensitive climate).

What I would do is talk with several local lenders (not just banks), making sure at least 1-2 are SBA lenders. I believe SBA rates are near their all-time lowest point, but the appeal is that you'd only need 10% down, depending on which program. Speak to each lender about your buying opportunity, and see if they can come up with a way to package the loan and give you a proposal. If you can get several proposals, you can decide which would be best for you. In addition to the financial info you're getting from the seller, they may or may not need a business plan (but don't fret, it shouldn't be too hard to write).

Tell us how it goes, and good luck!

[MyITGuy]

The business has been quite successful (judging by the impressive cars the owner drives and things like that).
Never judge a business/success by the cars/things that the owner has. You don't know if he inherited a bunch of money, has been saving up all his life, has severely leveraged his credit or if his significant other is making the money to buy these items. It all comes down to what the bank statements and IRS returns can prove.


The business is an ice cream / sub store. It has been open 17 years and the owner is just looking to retire.
It is for sale for $475,000 and comes with all the equipment, the building it's in which has a 2 bd room apartment on top with a tenant in it, and a residential house which is right next door (also to be rented out).
There is little to no competition anywhere near by, the shop is next door to a veterans home which brings in quite a few visitors, it is in the middle of a residential area, and also a large public park.

I have never owned a business before but have about 8 years of management experience in my existing job as does my wife. My wife has experience working in an ice cream shop so she has some basic knowledge of how to do this. A family friend owns another ice cream shop on the other side of town so we can consult with them on getting up to speed with those types of questions.
I see two concerns here,
First - It sounds like the price of this "company" involves property...which right now the real estate market is down almost everywhere. The current owner may be over-valuing this property.
Second - While you seem to be in a good location for the Ice-Cream portion of the business, this would be a very limited portion of your business as I'm assuming you would only sell Ice-Cream seasonally (3 to 6 months out of the year) due to the colder temps in Michigan. On the flip side, the location probably sucks for a sub shop, ideally you would want to be close to businesses so employees can frequent your business during lunch times or picking up a light dinner on the way home. Otherwise since your already in a residential area where your clientele lives, what would stop them from just going home to make their own sandwich?

Something you should ask your wife and family friend is what their approximate gross sales are per day/week/year...and how long out of the year are they open? This will give you a rough estimate on the type of income you can see from this business.

Personally, I think the asking price is a bit high. I'm a frequent sub shop visitor and get to know most of the managers in these shops and I frequently hear how much they make per day which on average they gross around $500 per day. Initially this sounds great, but then you have to think about your overhead (Mortgage/lease, utilities, maintenance, supplies, employee wages/taxes, advertising and etc) and this amount quickly dwindles.

For what it's worth, I just did a quick average on 25 sub shops for sale and it came back at 141K (Most were below 100K, with a handful in the 225K range)....just something to consider...

[SC93]

I agree with MyITguy.

The thing to remember when buying a business that most don't consider is marketing after you buy the place. Have you checked in to how much radio and print advertising are? These are the simple things that make people go out of business the first year... but they blame it on the economy, all the while it was just failure in planning.

I'm all in for the ice cream bandwagon though. A friend takes a soft serve machine to a dirt track every Saturday night and in 6 hours makes about $800 profit after all is said and done.

[Seatbelt99]

Thanks for the information/tips so far. I really appreciate it.


Never judge a business/success by the cars/things that the owner has. You don't know if he inherited a bunch of money, has been saving up all his life, has severely leveraged his credit or if his significant other is making the money to buy these items. It all comes down to what the bank statements and IRS returns can prove.
Yeah, that's true! Good advice. I'm still waiting on getting the financials from his business (supposed to be here Tuesday). Hopefully they will support my belief in the potential for this business.


I see two concerns here,
First - It sounds like the price of this "company" involves property...which right now the real estate market is down almost everywhere. The current owner may be over-valuing this property.
Second - While you seem to be in a good location for the Ice-Cream portion of the business, this would be a very limited portion of your business as I'm assuming you would only sell Ice-Cream seasonally (3 to 6 months out of the year) due to the colder temps in Michigan. On the flip side, the location probably sucks for a sub shop, ideally you would want to be close to businesses so employees can frequent your business during lunch times or picking up a light dinner on the way home. Otherwise since your already in a residential area where your clientele lives, what would stop them from just going home to make their own sandwich?

Something you should ask your wife and family friend is what their approximate gross sales are per day/week/year...and how long out of the year are they open? This will give you a rough estimate on the type of income you can see from this business.

Personally, I think the asking price is a bit high. I'm a frequent sub shop visitor and get to know most of the managers in these shops and I frequently hear how much they make per day which on average they gross around $500 per day. Initially this sounds great, but then you have to think about your overhead (Mortgage/lease, utilities, maintenance, supplies, employee wages/taxes, advertising and etc) and this amount quickly dwindles.

For what it's worth, I just did a quick average on 25 sub shops for sale and it came back at 141K (Most were below 100K, with a handful in the 225K range)....just something to consider...

Yeah, we looked up the going rate for the property alone (house and business) and the total is approximately $160-180,000. (my wife works for a mortgage company so that helped. :)) That means the business alone (plus equipment) has to be worth around 300k which I am not yet sure if it is. I suspect the owner is valuing the property a little high but we'll have to see what his financials say the business is worth I guess. This business is in West Michigan which has been especially hard hit in the economy so property is WAY down in the area (which may work out to my advantage in offering him significantly less than he is asking).

The ice cream portion is open and busy about 5 months a year. I live about 1/2 mile from the place and drive by all the time. During the summer months it has a line waiting just about all day long so that's good.

I agree that the sub shop is not ideally located. It is directly in between two major business areas (about a mile from each) so I was considering looking into some delivery options which may boost sales, and help sustain the profit during the winter months. Still too early to know much about this though for me...More of an idea than anything I would base buying the business on yet.



The thing to remember when buying a business that most don't consider is marketing after you buy the place. Have you checked in to how much radio and print advertising are? These are the simple things that make people go out of business the first year... but they blame it on the economy, all the while it was just failure in planning.

I'm all in for the ice cream bandwagon though. A friend takes a soft serve machine to a dirt track every Saturday night and in 6 hours makes about $800 profit after all is said and done.

From what I can tell this place does no marketing at all right now. I've lived and worked around hear for 5+ years and have not seen/heard anything. I do plan on doing some marketing and things like that, especially trying to get more business from the near by public park...if I do end up owning the place.

All in all this has been very exciting so far and I'm still just in the early stages. Hopefully it goes well. I appreciate everything so far and will keep you guys in the loop on what happens next week with the financials.