What should I do????

paul12345

I have worked in retail for 15 years as a trainee manager and now a manager. I have worked in one place for about 8 years SPAR/CENTRA/LONDIS style store know everyone for miles, know the place inside out and like my work.

The owner has just told me he is leasing out and has offered me first refusal. Details below.

Business type - Convienience store

Weekly T/O 32000 excl lotto - includes phone credit + bus txs

Area - quiet area with large development within 5 years - residential - possible shop?

Shop down a fair amount due to owner upsetting a lot of locals - I am seen as ok

General outline.

Key money 400K with rent 60K per annum

I know the accountant and he knows me. Have been allowed to arrange a chat with him but he has already said to the owner it is viable.

I respect what he will say to me by giving me straight answers but am aware he is still acting in the owners interests not mine. I plan for the meeting to be honest and straightforward and am looking for ANY input, observations, suggestions etc etc etc.

I know I need to get an independant accountant but that is for later not right now.


PLEASE GIVE ME SOME ADVICE !

jetsonx

do you know the real motivations of the manager in leasing it out. If the
prospects are so good why does he want to lease it out? (that is the question you have to ask yourself)

paul12345

I am the manager. The owner has been in the place quite a while and he has other pans in the fire - so to speak. He does not want to spend the time there. He is moving onto his other businesses which are more lucrative.

drdre

jetsonx wrote:

do you know the real motivations of the manager in leasing it out. If the
prospects are so good why does he want to lease it out? (that is the question you have to ask yourself)

I would agree, Thats the main question

jetsonx

ok, maybe his reasons for selling are bona fide - I would still not take the
chance though. There is a plethora of things that can go wrong here. Problems with the lease, future retail developments setting up in the area (does he know something you don't) etc.

Speak to a trusted independent accountant to review the books of the business for the last five years.

information

1: What does the owner do in the business ?
Can you run the business if the manager leaves ?
Ordering from wholesalers.
Managing and hiring staff.
Setting prices and what to stock.
Opening hours, relialible people so you are not working 24/7.

2: What are you buying ?
Are you buying the lease or the business that owns the lease ?

3: The valuation.
An accountant will go through the books and tell you the status of the business.
Are there any rent reviews coming up.
If the owner is upsetting locals is there goodwill in the vauation.
Does all stock and fixtures come in the deal.

4: The future.
What is the potentical for the business, the accounts will only show the past.
New developments usually attract new shops, which could be more convenient for your customers.
Can you do something to increase the turnover of the shop and compete with new shops ?

I like conveniences stores as a business as people will usually pay higher prices to get what they want there and then.
Michael O Leary left his first job to setup a convenience store, as he felt it was the only way to make money.
You can get foreign nationals to work for you at minimum wage so your staff costs are low, they are also vey relialible and hard working.
Its also a cash business.

The one worry would be that a new and shiny fully equipted shop will open, with better branding and product offering (hot food, smoothies) that could wipe out your business overnight.

stepbar

First question - What the profit?
Second question - What the profit?
Third question - What the profit?

My point is, its all very well and good having a 32k weekly T/O but bare in mind that you probably will have to borrow the key money and stump up 60k in rent a year there after. By my reckoning you would need a minimum of 110 - 120k (50 - 60k repayments + 60k rent) a year for the next 10 years just to keep the open signs up. Lot of money. Is there sufficent profit to meet this? Whats the cashflow like? How long it it taking stock to move? How many credit days do you get from suppliers? etc etc

Half way through a new development is proposed. This is key. You need to find out exactly what is being proposed and figure out how it will affect your business (positive and negative).

I think also that you need to get an independent accountant to run over the figures and sort out your projections. This should be done sooner than later. You may find that it is not worth the effort involved. The opposite is also true. At least you will have a second opinion.

Then I would be taking a look at the marketplace around you - e.g. what’s your competition like? Are there any plans for further development in the area? Schools houses etc, Is there any legislation coming up in the pipeline that would affect your business? You have to be asking yourself these sorts of questions. A bank will ask them if you go looking for money (BTW if you are looking to get finance sorted drop me a PM, I work for one of the main banks and we’d be happy to talk to you).

Finally, good luck with it!

Sponge Bob

spar have hammered their franchisees GP margins in the past 2 years ....just so you know. there may be more in the offing

HIS acountant WOULD say its viable, get your own accountant who has done a londis centra spar audit before

also ask an auctioneer what key money they would charge on a Centra with 1.6m a year t/o . Is it 25% of T/o as standard??

paul12345

Just to answer a few of the points above. I AM the manager. I do all the ordering, staffing, day to day running of the store. The difference will be I would be working for myself. The buck would stop with me. I deal with the reps. I deal with the staff. I deal in some instances with the accountant.

The real point is I need opinions. The owner makes an ok living from it as it is. After nearly 10 years working in the place, I know nearly every nut and bolt in it. As for the comment about getting an allowance in the payment to make up for the lost trade due to his "customer relations skills", I believe that when it is known he is gone and I have got it, trade will jump at least 10%. I am also aware of the falling margins, centra hammered the margins and loads of stores left - look at seamus griffin, he has sandyford and oconnell bridge among others. He left and went to Londis. It gave him more freedom to buy from who and where he liked. Spar is doing it as well

It has all the equipment. Is reasonably up to date. In the area that it is in, it would be a very brave person who would open a store here.

Up to now, it has been a case of telling yourself "The boss is always right" even as the customers go out the door never to return....

He is moving on to other and better things. The only thing that will change for me is that I will be the man - not him.

stepbar

TBH we can only give an opinion based on what you've told us. I dont know where this shop is so its hard to make a judgement on how successful the shop could be. I think you need to base your decision based on the information in front of you. Step back and go with what your head says not your heart. You have spent 10 years in this shop. Maybe it could be time that you walked away yourself and setup a shop somewhere else. Maybe its not the time. Thats why you need an accountant to help you make that decision.

Before I finish, there was a chap who posted on here a while back. He is doing something similer to you; except he sold his house and is now in the process of funding a new shop / unit down the country. I met him and he had all his plans in place, future projections, area plans etc etc. I was very impressed. And like you he had the experience to match. But I would strongly advise that you are fully aware of the figures before you commit to anything. You have to ask yourself is it worth the while considering the hours you are going to have to put in? Thats the bottom line.

antoinolachtnai

It sounds like you have a good feeling for this business and that's very important. At the end of the day, you have to decide yourself on the basis of this experience.

It's all about making sure the earnings are there really. You say the current boss makes an ok living from it as it is. Well, he's still going to be making an OK living, and he won't even have to go there anymore! Seriously though, the rent and interest bill you will be bringing to it is an extra burden that the business doesn't carry at the moment.

I think you should price in a refurb in your plans as well (although this obviously depends on the shop). I would also consider whether you need to extend into a nearby premises - a lot of existing convenience stores are now turning out to be undersize and need to be extended to make the most of the trade.

Re Londis/Centra in the city centre, I don't think the issue there is solely about wholesale prices. There is quite a bit more to it than that from what I can see. It is certainly worth keeping an eye on the lie of the land in the rest of the industry.

At first face, the key money seems a bit high relative to the rent. You would be better off paying a higher rent and lower key money. However, it sounds like your boss needs the cash, so if you can put it up, that's ok.

Be sure to think about what will happen in year 5-20, not just the first five years. Is he giving you a 5+ year lease? If he isn't, the development that's going in isn't going to make much difference to you. You need to discuss the lease in detail with your solicitor to make sure you understand what's involved.

I would also see if you can get some sort of help on the real estate side. Worst case, you need to feel that you can recoup most or all of your EUR 400k if something goes wrong (not necessarily with the business - you might need to get out for some family or medical reason, who knows).

I would see if you can think of some way to put in an option to buy at some stage. Sounds crazy, but might be worth a shot.

Like Stepbar says, you need to do the numbers for a few years out, to make sure everything really makes sense.

--amadeus--

Retail isn't really my area but the only comment I would make is that you should do a comparison costing.

In other words how much would it cost you to recreate the business in comparison to buying his. You may get better real estate terms if you shopped around, plus you would then have the freedom to negotiate all of your own supply arraingments without the baggage of the previous owner. From the sounds of it you're not actually buying much in the way of physical assets (ie the building). I am assuming from the reference to "key money" rather than business sales price that the current owner retains ownership of any equipment, shop fittings, etc and all you are doing is leasing the shop. The goodwill is yours rather than his, stock is transient so what are you getting for your 400K "key money"? Is 60K a year a resonable rent for the area?

Additionally T/O is pretty much irrelevant ("turnover for vanity, profit for sanity"). What profit is being made per year and will it be enough to give you an improved salary, cover 60K rent and the loan repayments on 400k?