Do I or Don't I

[Eaglewis]

Hello Everyone,

I am new to this forum (first ever post) and have a dilemma I am hoping someone or everyone, can help me with. I have an opportunity to "take over" an upholstery business. I know, as I have read a post on this subject before, that the reputation goes with the original owners. But, honestly, I have been working with the owner, learning the trade (I am a complete newbee) and the people that come in to the shop really don't know who the actual owners are. So I think I am safe there. They want to sell me the whole building for, well let's just say, a lot of money. I already have a mortgage and really can't afford another. I have asked to lease the building, but the owners live out of town and are frankly sick of the drive day in and day out. Like I said, they have been teaching me and letting me do some work for them and I have been having a blast doing it. The are more than busy with the upholstery but, have another business that is really taking off and they want to focus on that. They are super nice and helpful and I have told them that I am for sure going to take this leap of faith and eventually do this full time, lease or no lease. I am hoping to have them tell their current customers that I am going to be around for years to come. I have A LOT to learn, and I did buy the DVD's from here and working with them, I hope to have the basic and essential skill to do most of the jobs presented to me. If anyone has any words of wisdom to pass on, i would greatly appreciate it.

Thanks for your time,
Wade

[sofadoc]

Nobody can "do the math" but you. Is there enough potential revenue to cover lease/mortgage payments?
You're saying that you hope to retain the previous owner's reputation. Be carefull what you wish for.
They can use that reputation to jack up the selling price.
If the asking price seems too high, think long and hard before taking the plunge. I've seen some stitchers make a nice living working from their garage.
It sounds like you have a true passion for this work. Good luck.

[byhammerandhand]

There is money you will pay for "assets" -- building, equipment, supplies, etc.
There is also money you will pay for "goodwill" -- business name, reputation, customer lists, phone number, etc.

For a small operation with minimal growth, there is very little value in "goodwill"   Plus if you assume the goodwill, you also assume the "bad will" -- jobs that didn't go so well, people who bring stuff back in for "warranty repair,"  etc.  There is a lot of goodwill with Coca-Cola, not so much with Smith's Upholstery.

You can always counter that there is nothing that prevents you from opening up across the street (or in your home) and starting a new business there.   If a customer is a repeat customer, they will probably recognize your face, if it as you say.  (This assumes you do not have a "non-compete agreement.")

It might pay to get their income statements for the last few years and hire an accountant, lawyer, or business consultant to evaluate the value of "goodwill."   You could also try SCORE to get some advice here. 

You may even get advised to do an "assets only" purchase so that you don't assume liabilities of your employer.   You certainly don't want to have to start replacing the last five years worth of foam cushions that have gone flat or that have been determined to be out-gassing toxic fumes.   Then you just organize a business with a slightly different name, e.g., "Smith's Custom Upholstery" 

I would not attempt doing this without some serious help from an accountant (CPA) and lawyer.

[Ihavenoname]

It's all about price vs income and what you want in 3 to 5 years.

I can only speak for myself on this one.

For me, I would really think twice about buying an upholstery shop especially if I was planning on being the main work force. If they have a great system of income and customer generation where I was not the main work force then I might consider it. But I want income not just a job.

In other words, I would not be willing to buy a job. That is a business that lacked a willing, trained or trainable work force, with a great customer acquisition system,  with a proven positive passive income. For most upholstery shops this is not true.

If you "ARE" the business why would you buy one?
If it's a business that is an asset that produces passive  income then why would they be selling it?

I'd say no for me from what I have heard so fare.

I don't want to be working harder for less money in my pocket. And take all the risk as well.

For me, I can start an upholstery shop in pretty much any U.S. Town for about $15,000 from scratch.

At best I would give them used asset prices like $1000 for a 5 year old $3000 sewing machine or $30 for used $120 staple gun. Other wise just buy new or buy used as you go.

A role of cotton is $45 or about so to liquidate someone stock I'd go with $25 tops. Other wise, I'll buy new thank you.

Also, most customers don't buy year after year after year, they buy once and never to be seen again or maybe in 5 or 6 years so why buy a customer list that has no real value.

For me, the 2 or 3 years it takes to build an upholstery business is not worth buying from someone else. Also buy a building. No way. I've seen it and it's not worth it. Are you planning on staying there for 20 years? No way.
If you want a street front store, look at all the empty for rent or for sale signs on commercial property in your town. Go to one that you like that has been vacant for a time and ask to rent it Month to Month for half the usual rent. If they rent it at full price or sell it then you move out. I've seen pretty big businesses use this pretty well. There is a mattress store that does just this in my town. The owner rents vacant store fronts for half and agrees to move out with in 30 days of notice if it sells or the owner can get full price rent. It works. I've seen it. And he is there for some times years before he has to move.  It's a pretty cook trick.  You can even go to the guy who is selling the shop you are looking at and do the same. I'd ask why leave it empty when I'll stay here and keep it heated, clean and minimally maintained while you sell it. When it sell's I'll move out with in 30 days. All I ask in return is half off the rent. It' works. It really does.

In short, I'd say don't  for me anyway. It's to easy to build it from scratch. Plus it sounds like we are just learning upholstery. Work for someone for 3 or 4 or 5 years first and really learn the trade and start a  business part time from home if one can.

Minimally remember the buyer can make  the rules since it's their time, their money and risk.

I've seen shops like this just fade out and new ones open to take their place. I don't need to buy used when you can build from scratch.

Best of luck.

[baileyuph]

In a word, sounds like the requirement is being a good craftsman and being a good business manager.  Those are totally two different dimensions but sounds like a high requirement in this case.

Only you know where you are at with these requirements, but it is essential that you have a lot of experience in both dimensions to make it.  Some people are literally outstanding as a craftsman and others not but good at business management. 

Takes both, ready to check both boxes?

Doyle

[Eaglewis]

Thank you all for the words of wisdom. I am taking every suggestion and putting together a "plan of attack", so to speak. I have read almost every post in this forum and there is a lot of good advise to be had. Although I consider myself a fast learner, I don't want to rush anything.

I spoke with the owners today and buying the building is not necessary. They also said there would be "competition" as they are going in a different direction, (natural food store vs. upholstery) They have customers booked out for another 5 months and until I walked in to their shop asking questions, had stopped taking orders. They also said they would train/mentor me, as long as need be. They also have some really good commercial accounts, fast+easy+profitable, that I sure would like to get a hold of. I am setting up an appointment with a lawyer and an accountant for next week and see what they have to say. I am also going to try the "rent until the building sells" idea. (Thanks OneBoneHead!)

I will keep everyone updated as things move along.

Big thanks, again.

[kodydog]

Trust me on this, you have a huge upper hand.

Selling an upholstery business is difficult and the previous owners are lucky you are even considering buying it.

Many years ago I tried to sell an upholstery business with great location, 3 months backlog, up to date books and in my opinion good reputation. One year later not a bite. We sold the building without the business. I've also noticed in the Upholster Magazine classifieds a business for sale for over 1-1/2 years. I'm not saying its imposable just hard. A buyer with experience can start their own upholstery business and a buyer with no experience can find a business that is much easier to get into.

I would take the attitude that the business is of little value and put more value on the building. Remember its a buyers market, especially commercial real estate. I would do owner financing, bank rates, maybe balloon payment in five years. Of course you'll need a down payment. And five years would give you time to prove yourself and get a bank loan.

"They also said they would train/mentor me, as long as need be". This would be nice but you can't count on it. Sounds like they are busy people. What will you do if they leave you high and dry. But if their doing owner financing they will want to make sure you are successful so they can get that big payment in five years.

Good luck, keep us posted.

[Ihavenoname]

Kodydog,

I agree 100%. An upholstery shop is not easy to sell. The reason is your just buying a job and not a very good paying one at that.


Anyone that has the experience will simply just start their own. Location helps but with home based businesses becoming the norm today, it doesn't seem to be as big a deal to have a commercial location. Having a home based business has become  a real competitive advantage anymore. As long as the work is good no one really cares most of the time.

[Gregg @ Keystone Sewing]

Like everybody is saying, the value of the business is what you put into it. 

Just as well, it maybe a bit premature if your current experience level my limit you.