Help ! Considering buying existing biz with issues

[Tmmlove]

I'm considering buying a 10 yr existing salon. The biz is an LLC. I have zero experience in such a thing as my own salon is a sole proprietary. The owner took expense deduction for a lot of his personal things. The groomer took a lot of cash as pay off the books without paying taxes. I had asked to see a couple yrs tax schedule c forms as the info he fave me from accountant looked fishy. It was very vague on what expenses were deducted and taxes paid etc.
Another issue is he says there are 600 plus clients. But nothing was computerized nor even written on client file cards in a way that can be easily decipered. It's likely a new owner would have to be in contact with prior groomer on a steady basis in order to overhaul the files and put them in software like 123 pet.
The sale includes all cages, tubs, tables, some appliances, decor items, client files, biz name and phone number. Rent is paid to the landlord which includes all utilities, WiFi and basic cable tv. The salon only does grooming however there is room to do a small daycare or boarding. There is no grassy area to potti the dogs, only a small cement area in back of salon and sidewalk around the rest of it.

The asking price is 25,000 . Given the current state of how the taxes/income have been handled and how much work needs done to correct the issues I've mentioned.... is this place worth the risk at that price ?

Also would it have to remain an LLC ? I have no knowledge of how that works.

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[Emma123]

Yikes.
No.

[Admin]

Actually it could be, but would I pay that? No. I would have to know more about the building and location, such as in a strip center. $25K rarely covers the startup costs in a strip center today and with the equipment. We did barebones recently in LA and it was way more than that for electrician, plumber, inspections, etc. So that is already done. But why pay more than you have to? They are not running a business really, almost more like a hobby as the IRS would say. If you had an accurate client list, that has value, but if not documented and VERIFIABLE, no that makes it almost valueless but they do have a 10 year build of goodwill.

If you do purchase you MUST get the help of attorney and CPA to make sure you do NOT inherit via the business transfer of ownership making you responsible for their "mistakes." Like not being on the books. I cannot stress enough how critical this small investment is, and a contract of sale that bulletproofs this protection, or really, don't do it. Being off the books for years can lead to penalties and interest and back taxes in 5 or 6 figures, no kidding. So I am just going by what you said for the record, as I don't know this business and owner.

So look around. How much would it cost you for the equipment in used condition, and the signage, the improvements to a new space to buildout into a shop...all this would be in a business plan...and you might find the cost easily to exceed $25K, but again, every purchase of a business is a lot of legalities, but the price is always a poker game. They cannot validate the value of the clientele in this case, so that is a serious flaw, and it is going to cost you some fees to clear your inheriting their business problems, so I would definitely do a counter offer if you proceed knowing all of this. Be sure to have your professionals do whatever kind of background checks on the business to make there are no outstanding liens etc too. Always talk with the landlord, will he or she be raising the rent soon? If you proceed as you know get employees on the books, in fact, make sure you have a new EIN number again not inheriting problems, your cpa and attorney will understand.

[HoneyandChewiespal]

Others are more experienced s out this BUT all the varied businesses and properties I've seen sold are sold for a profit and an expectation of what someone could earn from it. If this person. Is only asking $25K then I'm thinking that he's losing his shirt and needs some fast cash to stay out of jail. (Wink).
Seriously - it sounds as this is a losing proposition or a money pit. Before even going any further I'd be checking out the landlord and seeing what zoning issues / development plans are in the works for the area. Is the area growing or on the decline? Is there major construction going on in the area? Housing growth( and what kind).

That said unless you can afford to re-build a business from the ground up then I'd pass. It just doesn't feel right from dust you e presented ( and I have a feeling that you're not entirely enthusiastic about it too)

[Tmmlove]

I'm very enthusiastic about the potential given what I saw of the downtown area, house development s, etc. The salon is in a small 2 businesses building. The owner of the building has the other biz space for herself and lives upstairs.

The salon owner says the equipment being included is worth 8,000. I disagree. He has wire cages, a metal tub and a plastic tub, microwave, cell phone, a chair, 3 grooming tables, a cart with tools,etc (not a whole lot really of them), a couple fold up banquet tables, 3 dryers, flat screen 24 inch tv...not much other than that....granted the cages are newer and really heavy duty wire and great sizes but even so I don't think 8000 is right.
His groomer 30%partner quit so he is now desperate to sell rather than it sitting there losing its 600 plus cliente. He had said when I first met him he may sell out all the equipment if he can't find a groomer or a buyer.

I've crunched numbers several ways and it's just not financially able to cover all the biz expenses plus the added cost of the 25000 loan by only grooming 6 pets per day like the other groomer was doing. The amount that she was paying to herself would have to be diverted to make the loan payments, thereby leaving no way to pay myself or any additional staff. I can no longer do 6 per day alone (disc disease) which is why I want to buy a bigger place and do the management, staff training,etc and then groom just a few Lil ones for fun and to keep skills current.

I'm thinking maybe u should let him go out if biz. Then I speak to landlord about my then renting the space. All I would need to start working is to take my table, a dryer, a tub that I have, the rent and security for the first month, get insurance, out out some advertising basically ( I know there's more , im just listing main equipment, etc). The landlord is committed to having the space to continue being a grooming salon....the current owner told me that himself. He also raved on and on about all the clients calling for appts right now and that more ppl are moving there every month.

Yes I think I will crunch numbers on this latter idea. Since there's no competition close by....I should be certain to get some in if what he is saying about the calls and the 600 plus clients is true. How's that sound???


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[Emma123]

Much less risky to do it that way. Good luck!!
You can probably get the equipment for very little, since if he doesn't sell it, he'll have to pay to move it out of the salon.

I'm very enthusiastic about the potential given what I saw of the downtown area, house development s, etc. The salon is in a small 2 businesses building. The owner of the building has the other biz space for herself and lives upstairs.

The salon owner says the equipment being included is worth 8,000. I disagree. He has wire cages, a metal tub and a plastic tub, microwave, cell phone, a chair, 3 grooming tables, a cart with tools,etc (not a whole lot really of them), a couple fold up banquet tables, 3 dryers, flat screen 24 inch tv...not much other than that....granted the cages are newer and really heavy duty wire and great sizes but even so I don't think 8000 is right.
His groomer 30%partner quit so he is now desperate to sell rather than it sitting there losing its 600 plus cliente. He had said when I first met him he may sell out all the equipment if he can't find a groomer or a buyer.

I've crunched numbers several ways and it's just not financially able to cover all the biz expenses plus the added cost of the 25000 loan by only grooming 6 pets per day like the other groomer was doing. The amount that she was paying to herself would have to be diverted to make the loan payments, thereby leaving no way to pay myself or any additional staff. I can no longer do 6 per day alone (disc disease) which is why I want to buy a bigger place and do the management, staff training,etc and then groom just a few Lil ones for fun and to keep skills current.

I'm thinking maybe u should let him go out if biz. Then I speak to landlord about my then renting the space. All I would need to start working is to take my table, a dryer, a tub that I have, the rent and security for the first month, get insurance, out out some advertising basically ( I know there's more , im just listing main equipment, etc). The landlord is committed to having the space to continue being a grooming salon....the current owner told me that himself. He also raved on and on about all the clients calling for appts right now and that more ppl are moving there every month.

Yes I think I will crunch numbers on this latter idea. Since there's no competition close by....I should be certain to get some in if what he is saying about the calls and the 600 plus clients is true. How's that sound???


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[cockerlvr]

Less risky, but you also run the risk of someone else buying it. It only takes one person.

Offer a much lower price,and see if he will take it. If he does then make sure you're covered, like admin said, from not taking over any liabilities.

[Tmmlove]

I did much evaluation last night and decided buying it for his price 25000 plus the risk involved because of the shady tax and sales issue is not worth the risk.
Even if one person buys it and runs it alone in order to make any profit they would have to have the 25,000 out right instead of getting a loan for it. Because once you factor the loan payment in there would be no profit after expenses. You would have to do more than the 5 pets per day just to break even and you couldn't afford a bather either. You'd work yourself to a frazzle for no profit.
I know he told me if it didn't sell VERY soon he would just shut it down and sell equipment. He is paying 650 in rent according to the little info he gave me but said rent would be 800 for new owner.
Landlord is committed to it remaining a salon even if he sells out. So I could get a much smaller loan and start it fresh and properly. I would only need 4 per day in order to make enough profit for expensed and then some for my personal bills. I don't need thousands to live on....we aren't materialistic. We just want to be comfortable and have a little to save for retirement and some entertainment.

I emailed his cpa since he said I could. I'm hoping she can shed more light on the situation.

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[violet2]

Sounds like you are making some progress and being careful, that's good.

[mypoketa]

Hi tmmlove,
Your situation is exactly the same situation I had 11 months ago. It seems like you already made your decision. Good luck and I wish you the best!!

[HoneyandChewiespal]

Love your approach to this. You're a good model for others to follow and learn from. Am sure you've thought about this aspect as well but what if you rent table space to another groomer to ease your load and bring in some additional cash.

[Tmmlove]

Thanks for the support and positive remarks. The cpa says she never prepared financial statements she only file his taxes based on info the owner gave her. So I asked him again
..please give me 2 yrs of the business tax info, not your personal tax info. I told him no one will buy a business without the info as a bank will want it to approve a loan. He says he gave me all he has...well if that's all of it it is S ?!#. That means he hasn't filed any takes for the past almost five years or he is hiding the info that the biz sucked and hoping someone will just take his word on it that it made X amount and has 500 plus clients (which are.not verifiable ). Either way somethings VERY WONKY HINKY Goin on with it so I told him I would be interested in buying some used equipment when he has to shut down end of june.

I then emailed the landlord and told her I would not be buying and that I'm still interested in the space. I asked her to clarify the rental terms since he was paying 650 and lied and told me 800. I gave her my current shop website link so she can see what I am about.
I priced all the equipment basics needs plus a few wants like change of decor and furniture ...I could start the place fresh for less than 10,000 including 2 months rent and security deposit prepaid. I'm praying it works my way. I have a possible grooming school graduate I'm considering hiring "on deck" .
I also have a bather lined up for my current shop 2 days per week .

I know I've a long way to go to reaching my dream of owning and managing 2 locations....but I think HE is trying to get me on the right path.

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[Tmmlove]

As far as renting a table....I'm not keen on that....then we would be competing I think....if we agreed to have her do the medium and larges and I got first pick of the smalls then it might work. But I can't afford to compete with another groomer in MY own shop....I have bills and expenses to pay and if the other groomer sucked up the majority of the pets available in our area I would be stuck. I have no issue doing bath and brushes on short or medium hair dogs that are 30 lbs and up.... I just physically can't do the shave downs on them anymore....15 yrs of the once per year farm dogs covered in burrs and farm waste was and is my limit. Lol I also can't do the full coat newfie, pyrnese, etc dogs....way more descending and brushing than my arm and wrist can take.

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[Tmmlove]

For some reason my moderate length reply disappeared. I'm brain tired and snoring sitting up....will redo tomorrow. .....zzzzzzz

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[Tmmlove]

Weird now I see it after I logged in...well anyways. ... I have had a terrible time logging in with this taptalk thing....keep needing to reset password.

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