Business Issues - Update (was Buying a Business)

[DanGarion]

Can any one give me some tips on what I should be aware of to ask and know before the deal is done?

My fiancee will be purchasing the dog grooming shop that her boss runs soon, because of health issues in his family. He's already been showing her the ropes of running the buisness and everything else involved but I want to be sure we cover all bases. The business is making money, and that's really the most I know right now, but since this shop will be both of ours I want to know what we are getting into.

[Godzilla Blitz]

Don't know a heck of a lot about this, but outside of the basic financials, one of the key issues with a sole proprietorship is to what degree the value of the business is inherent in the owner.

Also, I would think in your case you'd want to make sure that a lengthy non-compete clause is included in the final agreement. You dont' want him getting healthy six months from now, deciding he wants to work again, and then starting a new grooming business that goes after your customers.

[DanGarion]

Well I know her boss, his father is really sick and he just wants to get completely out of the business. From what I know of him he's a really good honest guy and he's never steered her wrong since the entire time she has worked there.

[digamma]

I would strongly, strongly advise you to work with an attorney in the transaction--and an independent attorney, at that (i.e., the boss's attorney shouldn't be the only one involved in the process).

In addition to what GB suggests above (which are both good ideas--particularly really getting to know and understand the financials), you also need to review all contracts the business currently has in place (how long are the contracts? how long is the lease? are there any restrictions on transferring the business, so would you need to seek a waiver on those restrictions from vendors? etc.). Also, you should probably do a lien search on the business name. You should also find out if any trade marks have been registered, and if so, whether they're registered to the individual or the business.

Those are just a few off the top of my head. The main point is you need to work with an attorney.

[GrantDawg]

Well I know her boss, his father is really sick and he just wants to get completely out of the business. From what I know of him he's a really good honest guy and he's never steered her wrong since the entire time she has worked there.

Still get it in writing. The nice people on earth can still burn you.

[Godzilla Blitz]

Well I know her boss, his father is really sick and he just wants to get completely out of the business. From what I know of him he's a really good honest guy and he's never steered her wrong since the entire time she has worked there.
Six months from now...

The issue with his dad is resolved. He's thinking about what he wants to do to make money. He needs money to feed himself, family, pay debt, whatever. He'd like to do something else, but both misses the grooming business and realizes its his best way to make money quickly. A good friend of his has a grooming business that is struggling about five miles away from yours. He offers to help his friend out, and simply lets people know that he's back at work at his friend's place. Word gets around and half your customers switch back to him.

In such a case, you're screwed. In his mind, he's only done "good", and there are a million ways he can rationalize his behavior.

If he's a good, honest guy he'll realize that a significant portion of the value of the company is directly tied to the fact that he won't be competing with you for its business.

One of the easiest ways to screw up a relationship is to make some kind of a business transaction without putting the essential details in writing. People come to transactions with so many assumptions. The written word clarifies them, and protects both the transaction and the relationships of the parties involved.

And speaking of legal contracts...

I've used a couple of websites that have legal contract templates for all sorts of transactions. Offhand, I don't remember where they are (Google to the rescue), but you can print contracts out for a fee (sometimes free) and get a good chunk of the legal work done yourself. Most standard contracts aren't all that complicated. Asking a lawyer to look over a contract is cheaper than getting one involved in writing it.

[Marc Vaughan]

Also check out if there are any insurances/guarentees which won't transfer over to you when you take over the business.

Do any other staff work at the place? (I'm guessing not, but thought it sensible to check) - have you sounded them out regarding the change of ownership and are they happy with the idea?

[ISiddiqui]

Since I work in the pension and health care field, naturally what I'd ask you to look at are those health care and pension plans, if they have them. If the pension plan (probably a 401k) has not had timely remittances, you'd be on the hook for them if you continue that plan.

[Grammaticus]

I would strongly, strongly advise you to work with an attorney in the transaction--and an independent attorney, at that (i.e., the boss's attorney shouldn't be the only one involved in the process).

In addition to what GB suggests above (which are both good ideas--particularly really getting to know and understand the financials), you also need to review all contracts the business currently has in place (how long are the contracts? how long is the lease? are there any restrictions on transferring the business, so would you need to seek a waiver on those restrictions from vendors? etc.). Also, you should probably do a lien search on the business name. You should also find out if any trade marks have been registered, and if so, whether they're registered to the individual or the business.

Those are just a few off the top of my head. The main point is you need to work with an attorney.
Regarding contracts, if the shop accepts bankcards (Visa/MasterCard) for payment, those contracts are NOT transferrable. Your wife will need to setup an account for the shop and do it prior to taking over as it can take time to locate options and select the right processor. You do not want to start running the business and all of the sudden be unable to accept credit cards.

If you do not advise the credit card processor of the ownership change and setup a new account, you risk having your funds held as they sort through the situation, when they find out. Plus the old owner will still own the contract and can have the funds routed wherever they want without telling you. I've seen the closest of friends and relatives do this to each other.

[digamma]

One more thing: if the business is a true sole proprietorship, once your fiance takes control she may want to consider incorporating the business or forming an LLC to hold the business. Sole proprietorships are easy to run, but they also result in personal liability attaching to the owner. Forming a corporation or an LLC requires some maintenance and added recordkeeping, but you get the benefit of limiting personal liability. There may also be tax considerations involved.

[DanGarion]

One more thing: if the business is a true sole proprietorship, once your fiance takes control she may want to consider incorporating the business or forming an LLC to hold the business. Sole proprietorships are easy to run, but they also result in personal liability attaching to the owner. Forming a corporation or an LLC requires some maintenance and added recordkeeping, but you get the benefit of limiting personal liability. There may also be tax considerations involved.
Yes I'm looking into an LLC because I remember that's what my old boss did at a print shop I used to work at when he sold it. I mentioned to her regarding an LLC but I know that will require a bit more work to set up plus additional tax rules to deal with when she pays herself out from the business.
I know they have liability insurance on the business in case something happens to a dog, not sure if that actaully covers everythng or not.

Regarding contracts, if the shop accepts bankcards (Visa/MasterCard) for payment, those contracts are NOT transferrable. Your wife will need to setup an account for the shop and do it prior to taking over as it can take time to locate options and select the right processor. You do not want to start running the business and all of the sudden be unable to accept credit cards.

Ah very good to know, I'm taking notes on everything everyone is suggesting.

Since I work in the pension and health care field, naturally what I'd ask you to look at are those health care and pension plans, if they have them. If the pension plan (probably a 401k) has not had timely remittances, you'd be on the hook for them if you continue that plan.
No insurance for the employees and no pension plans so one less thing to worry about.

Also check out if there are any insurances/guarentees which won't transfer over to you when you take over the business.

Do any other staff work at the place? (I'm guessing not, but thought it sensible to check) - have you sounded them out regarding the change of ownership and are they happy with the idea?
Including my S.O. there are three employees, I know they are aware that he's planning on selling it eventually, because he did offer to sell it to the senior groomer someday but she passed on it, that's why he's grooming (no pun intended) my S.O. to run it. I wouldn't see any reason why they would be against it since money would be the same for them.

The issue with his dad is resolved. He's thinking about what he wants to do to make money. He needs money to feed himself, family, pay debt, whatever. He'd like to do something else, but both misses the grooming business and realizes its his best way to make money quickly. A good friend of his has a grooming business that is struggling about five miles away from yours. He offers to help his friend out, and simply lets people know that he's back at work at his friend's place. Word gets around and half your customers switch back to him.

In such a case, you're screwed. In his mind, he's only done "good", and there are a million ways he can rationalize his behavior.

If he's a good, honest guy he'll realize that a significant portion of the value of the company is directly tied to the fact that he won't be competing with you for its business.

One of the easiest ways to screw up a relationship is to make some kind of a business transaction without putting the essential details in writing. People come to transactions with so many assumptions. The written word clarifies them, and protects both the transaction and the relationships of the parties involved.

And speaking of legal contracts...

I've used a couple of websites that have legal contract templates for all sorts of transactions. Offhand, I don't remember where they are (Google to the rescue), but you can print contracts out for a fee (sometimes free) and get a good chunk of the legal work done yourself. Most standard contracts aren't all that complicated. Asking a lawyer to look over a contract is cheaper than getting one involved in writing it.
Very good points and something we will definately do, I talked to her about this today and she understands why we will need to get an attorney involved to atleast look over the paperwork, fortunately I have an aunt that is the business manager at a law firm so I should be able to find someone easliy.

In addition to what GB suggests above (which are both good ideas--particularly really getting to know and understand the financials), you also need to review all contracts the business currently has in place (how long are the contracts? how long is the lease? are there any restrictions on transferring the business, so would you need to seek a waiver on those restrictions from vendors? etc.). Also, you should probably do a lien search on the business name. You should also find out if any trade marks have been registered, and if so, whether they're registered to the individual or the business.
The lease is for another 2-3 years to my understanding, I was worried about the ability to transfer it, I'm pretty sure it's possible because he had it transferred to him 8 years ago when he bought the shop from someone as well.


Thanks everyone I appreciate all the tips, and so does my fiancee, she understands my concern and appreciates my assistance on getting this deal done. Fortunately we have probably 1-2 years till it's going to happen, his father is really sick and he's planning to move out of the area with his partner once his father passes away, but I will still make sure everything with our side is covered.

[DanGarion]

Just an update on this. My wife signed the papers for the business on July 1st.

Things are going great. She's been a bit overwhelmed at times, but I usually can put things into perspective and help handle the little things she's running into (on the business end).

I'm planning to take an accounting class so I can understand some of the stuff a little better with how it all works, but it's not like it's rocket science, and I catch on things pretty quickly. We had a CPA that does our taxes and everything now anyway. But it never hurts to learn.

She's been real busy, but I think she's enjoying it.

[Draft Dodger]

congrats!

[MikeVic]

Cool. Grats!

[DanGarion]

Well we have owned out business for 4 1/2 years and today I get a call from my wife saying she wants out. She's not happy owning the business and she just can't take some of the issues she has been having.

Most recently there appears to be an issue with our neighbor (another commercial tenant in the same strip mall). I guess she is complaining that our business makes too much noise. Water running, the drying running, the occasional dog barking. My wife tries to be a good neighbor but these are all noises of conducting a dog grooming business.

We already had the police show up once last year because of a person in the mobile home complex behind out business complaining about dogs barking. We typically have the rear door closed but during the summer it's nearly impossible due to the heat. That one really upset my wife and now this second event with our "neighbor" has basically made her want to fold and call it quits.

I'm not really even sure what to do. My wife is afraid we are going to lose everything, the house, etc, me. Because of the business. All I can do right now is just reassure her that none of that is going to happen and that if she wants out I'm fine with that, but that we need to look at this logically in the fact that none of that is going to happen just because of some noise.

I don't know, just looking for a place to vent and maybe get some advice. Thanks for anything.

[Dutch]

Wow, that sucks, but I'll speculate. How much for some new sound proofing and a stronger HVAC?

Cost to soundproof a room | Estimates and Prices at Fixr.com (http://www.fixr.com/costs/soundproof-room)

[DanGarion]

Wow, that sucks, but I'll speculate. How much for some new sound proofing and a stronger HVAC?

The neighboring tenant supposedly put in sound proofing on their side recently. HVAC could be an option but not a preference due to cost of installation and overall cost of electricity.

[JediKooter]

Who was there first? You or your neighbor? Can you buy them out? Did this neighbor never have any issues when the previous owner was running the place?

This whole thing seems odd to me. It would be like a business neighbor complaining about smelling gasoline when they are next door to a gas station.

[molson]

That sounds like understandable frustration but not a reason to close a business after 4 1/2 years.

People are complaining, so what? I'm sure it's not fun to for example, have the apartment above the downtown bowling alley, but I wouldn't except the bowling alley to shut down just because the guy living up there complained about the noise. If he had some kind of actionable legal grounds, then fine, evaluate the costs/risks associated with that and make a practical decision. But if you and your wife have the guts to own your own business, I believe you have the guts to deal with annoyances. I'm sure all small businesses have their own brand of unwanted annoyances, depending on the business.

Easy for me to say, of course, I'm not there living it. From a distance though, I'd just suggest you either get a plan and attack this, or, ignore it and legally run your business, making appropriate adjustments if there are any legal concerns.

[stevew]

I mean, you've been there 4.5 years and however long the guy was there before you. Seems like for the lack of a better term she is going to have to get a thicker skin. I know she was having issues with some of the groomers, so I wonder if that is some of the issue. I'd look into mitigating some of the noise if it's possible. But I wouldn't lose sleep over crybabies who ca the cops. But it might be time to think about selling if she is truly miserable.

[DanGarion]

But I wouldn't lose sleep over crybabies But it might be time to think about selling if she is truly miserable.

Yeah, that's the issue my wife honestly doesn't feel she is cut out for it. Even though she has run the business (successfully I can say) since we have bought it, she really gets miserable when there are any slight issues. The only thing I'm worried about selling is that we bought in 2007 when money was free flowing and the economy was still doing well, here we are in 2012 and the economy isn't quite as good, but we've done well through it. And yes this is a build up from that previous issue Steve (it all adds up for her).

[DanGarion]

Who was there first? You or your neighbor? Can you buy them out? Did this neighbor never have any issues when the previous owner was running the place?

This whole thing seems odd to me. It would be like a business neighbor complaining about smelling gasoline when they are next door to a gas station.

The grooming shop has been in business for 30+ years and at this location for well over 10. We've been there longer then the other tenant. She bought it from the former owner like 2 years ago or something (and she worked their before that) It's a post office box / notary / tax place or something like that.

[DanGarion]

That sounds like understandable frustration but not a reason to close a business after 4 1/2 years.

People are complaining, so what? I'm sure it's not fun to for example, have the apartment above the downtown bowling alley, but I wouldn't except the bowling alley to shut down just because the guy living up there complained about the noise. If he had some kind of actionable legal grounds, then fine, evaluate the costs/risks associated with that and make a practical decision. But if you and your wife have the guts to own your own business, I believe you have the guts to deal with annoyances. I'm sure all small businesses have their own brand of unwanted annoyances, depending on the business.

Easy for me to say, of course, I'm not there living it. From a distance though, I'd just suggest you either get a plan and attack this, or, ignore it and legally run your business, making appropriate adjustments if there are any legal concerns.
That's pretty much how I feel.

[JonInMiddleGA]

Yeah, that's the issue my wife honestly doesn't feel she is cut out for it. Even though she has run the business (successfully I can say) since we have bought it, she really gets miserable when there are any slight issues.

Here's a little something for her

http://cn1.kaboodle.com/hi/img/b/0/0/5e/0/AAAAC7rzyhsAAAAAAF4L5g.jpg?v=1248246390000

[tarcone]

Get one of these

http://peoplethings.com/andblog/wp-content/uploads/2009/05/pipandco_dumbcar_090527_01.jpg

[JediKooter]

The grooming shop has been in business for 30+ years and at this location for well over 10. We've been there longer then the other tenant. She bought it from the former owner like 2 years ago or something (and she worked their before that) It's a post office box / notary / tax place or something like that.

Screw them then. They KNEW what they were moving in next to. It's not your fault or your wife's fault that the neighbor didn't do their due diligence. And it's a post office box place on top of that? I could see if it was a meditation place (even then, the grooming place was there first), but a post office box store??? Don't let stupid whiny bullies mess your livelihood up. Fight back man. As long as your stuff is within legal limits, I say your neighbor has two choices: STFU or move.

[Flasch186]

Hey what if there is a marketing opportunity here between the two of you. turn the negative into something to play off of? A combo frequent visitor card that makes fun of the noise? Mail and Ear clean Tuesdays? etc.

[Subby]

Here's a little something for her

http://cn1.kaboodle.com/hi/img/b/0/0/5e/0/AAAAC7rzyhsAAAAAAF4L5g.jpg?v=1248246390000
Awesome.