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Why Buy an Existing Grooming Business - Part One

If you don't want to start a grooming business from scratch, buying an existing one may be your alternative. First of all, there are the plusses and minuses.

The plusses are:

Existing Customers: Customers and loyal clients have already been developed. Ensuring that they are likely to stay with your new ownership means you will have demand for services from the start, and that means cash flow from sales of services. Businesses started from scratch have much less initial cash flow.

Immediate Operation: You can start immediately.

Existing Goodwill: Presumably the present owner has created goodwill towards the businesses grooming and other pet care services.

Financial Planning: Financing may be easier to obtain because the business has a track record.

Eliminate Competition: Buying a business may eliminate a competitor had you started your own business.

The minuses are:

Problems: There may be unapparent problems in the business that you do not discover till after the sale of the business.

Cost: Sometimes buying an existing business costs more than starting one from scratch.

Obsolete Equipment: Grooming equipment, tools and leasehold improvements may be obsolete or in need of substantial repair.

Personality Conflicts: If some of the existing employees are staying in your employment, there may be personality clashes. Specifically, owners new to the grooming industry keeping very experienced employees may be pushed to pay higher commission wages or salaries or other scenarios taking advantage of the new owner. It really helps when the new owner(s) know how to groom and are not dependent on having no choice but to maintain the present full-charge staff.

Receivables: If the seller is owned receivables from clientele, you may find they are worthless or hard to collect.

When buying a business you should exercise caution throughout the entire process from researching it to finally signing a contract of sale. You are strongly urged to have the assistance of a lawyer and accountant throughout the process. Not having both has often been the cause of problems when buying an existing business. Unscrupulous sellers can take advantage of buyers, the courts have seen many such cases. Never buy a business without a contract of sale reviewed by your attorney, never. Don't sign documents relating to the sale without your attorney's prior review.

You start by locating a business to buy, researching it exhaustively and making the decision to buy or not.

Locating a Business to Buy: Our PetGroomer.com Classified Ads list grooming businesses for sale. Major pet grooming industry trade magazines also have business for sale classifieds. Your local newspapers, especially major metropolitan newspapers occasionally have grooming business for sale ads. There are major Internet based classified ads web sites you can research from most of the major search engines like Excite, Lycos, and Yahoo. Ask your local commercial real estate broker if they access to regional business for sale listings.

Researching the Business: After you locate a business that interests you, start researching it. Now is the deadline to have an attorney and accountant representing you and your interests. The more you research the business the more likely you will make the right decision to buy, or not buy, an existing business. You should be very confident in your purchase.

The seller may ask you to sign a letter of intent to purchase the business, a non-binding offer for the business, before exposing any sensitive information about the business. You may also be asked to sign a confidentiality agreement promising that you won't use the information released for any purpose other than to make the decision to buy.

If a business is for sale, there is a reason. Determine the reason very clearly. Is the business having financial problems? Is the economy of its market area and demand for pet care services eroding? Is it simply poor management? Is the owner simply retiring? A thorough investigation is absolutely warranted. Any problems uncovered must be weighed in making your decision to buy.

A business investigation involves taking a hard, OBJECTIVE look at every aspect of the business. Sometimes the investigation continues even if you have made an offer to purchase, and an escrow has been opened. Your attorney can request that should certain problems be discovered during the escrow you can request adjustments, reimbursements or other solutions to uncovered problems. Here is where you are very much aided by an attorney.

We strongly urge you to have a certified commercial appraiser perform a written appraisal of the business. The owner may have had one done, but you should two. They are excellent tools to use in price negotiations.

Your investigation should include reviewing the business' documentation, including:

Contracts and Leases: Property and machinery leases, sales contracts and purchases contracts. What are the obligations you are assuming?

Organization: How is the business organized? Is it a partnership, corporation or ? How is it capitalized? Who are the owners, all of them? How is their ownership documented and do you have copies?

Financials: Examine the last three years of financial statements, or further back, to determine the financial condition of the business. Your accountant can be very helpful in this investigation.

Tax Returns: Examine the last three years of business tax returns, or further back, to determine if the business has been profitable and whether there are outstanding tax liabilities. Again, your accountant and lawyer will be very helpful in this part of the investigation.

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