If a business is for sale there is a reason. Determine the reason 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 consider having 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.
 

• 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 other format? 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.
• Client Records. The client list is a critical factor. In the next section we will review a system to help establish a better value of the client list. We have experienced sellers with almost no client records and yet selling their businesses for tens of thousands of dollars. If a grooming business doesn’t have excellent client records you are at risk and the selling price should reflect this serious deficit.

Obtain the following documents for businesses in which you have a serious interest.

• Client Records. Does the business keep a client list with service histories? It is one of most important assets of the business. Many grooming business owners easily throw around the size of their client base, like "I have 1,000 regular clients." What is "regular?" There are no rules in the pet industry. Our opinion this. If pet owners don’t schedule grooming appointments at least 2 times a year, and you may want to up that to 4 times a year, we do not consider them as being valuable to the purchase of the business. Examine every client’s record for their repeat appointment frequency and separate them those that are entirely random, those that come in 4 or less times a year and finally those that schedule 5 or more times a year. The latter are the ones you can best count on for future cash flow, and these are the ones that back the asking price of the business. All too often we have seen claims of 1,000 clients or 2,500 clients and after a review of the client records we discovered that less than 50% of them came in regularly for grooming. Sometimes the records even showed a substantial number of pet owners had not returned in over a year. If they are not regular clients be realistic and understand that random customers add little value and potential for your business. You can use your study of the records as a negotiating tool if this happens to you. It’s very common.
• Bank Accounts. A list of all business accounts.
• Asset List. Asset list of all real estate, equipment, tools and supplies including intangible assets like trademarks and licenses.
• Real and Personal Property: Documents such as mortgages, deeds, leases, appraisals, loans and insurance policies.
• Sales Records. You want the back up sales records that correlate with the financial records and tax returns.
• Advertising and Promotions: Obtain copies of past and present advertising, brochures and Buyer's Guide ads.
• Inventory Receipts. If you are purchasing inventory, check a list of inventory and examine ALL inventory to ensure it is still worthy of selling based on condition or product dating.
• Supplier List. You want a list of all sources the owner uses to obtain supplies, tools, equipment and other vendors.
• Employee Records. When you are going to employ existing employees you need their personnel files including any benefits information, payroll records etc.
• Licenses and Permits. You need to have all certificates, permits and licenses issued by federal, state or local agencies.

You must evaluate your chances for successfully owning and managing the business you may purchase. That means fully understanding how the business was setup and run until it became available for sale. Can you fulfill the management system running it now? Will the owner provide assistance including consultation assistance for a period of time after the sale is complete? Will the present owner really be able to persuade most of the existing clientele to stay with the business? Oh yes, does your contract of sale ensure that the seller won't open a competing new business in the same trade?

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