From: Sylvia Rognstad <[EMAIL PROTECTED]> Subject: [h-cost] Buying a costume business
I just heard about an opportunity to buy a costume business and recalled that someone of one of these lists was discussing such a prospect that
came up in >Denver, CO. I am a costume person, not a business person and know absolutely >nothing about such purchases. I was wondering if anyone has any knowledge of >costume rental/construction businesses or if anyone here owns/runs one and >might be able to give me some insight. All I know so far is that the owner wants >30 grand for 2000 costumes and equipment, I assume. Sylvia, The methodology that is normally used for valuing a business is called Valuation. There are many books on the shelves in the business sections of bookstores and biz-schools. You are looking at a business that combines elements of the service industry and retail industries. The inventory sounds like it's primarily comprised of short term durable goods with a relatively long shelf life. One very readable book is _The Darkside of Valuation_ which takes the reader thru a step by step process of valuing Starbucks. The process is the same, irregardless of the size of the business. Some things you'll do: * You'll evaluate current income & expenses. You look ahead to see where you can expect sudden or seasonal changes in either and map these out. * You evaluate the discounted cash flow the business produces. * You'll find some comparatives in similar business. While this is harder with private businesses, some business brokers do maintain records & certainly keep up with the gossip. * You'll have to estimate future growth (in part this will be based on what you think you can accomplish). Using all of the above you come up with an estimate of the value of this biz. You might even take this valuation with you to the bank to show asset value (and to establish the fact that you did carefully consider the value). This doc will also help if you need the biz itself as collateral for any business loan you may want. (That's much better than offering your house as collateral!) Of the top of my head, I suspect you should get some experience running the storefront and keeping the books of this particular shop to gain some understanding of the business and whether you wish to purchase it. Secondly, you should ask the current owner what method s/he/they used to value the business and evaluation it in against your own work. Next, in an unrelated comment, you might wish to consider an assets-only purchase to reduce business risk from any outstanding warranty, unpaid taxes, loans or debts. If, on the other hand the value of leases and other obligations is better than the current market, then you might want to purchase the whole business. Your best info will come from key reccurring customers and from any major suppliers (perhaps that trucking or shipping company). Make a point of visiting the major creditors such as banking officer, landlord(s) and lienholders. You should probably have the seller introduce you face to face. This should be an overt & aboveboard investigation not some cheesy TV private eye routine.
Apparently she has done very well in the
business over the years. Is there any way to find out what her profits have been? Can I see her tax records? You can see I'm very green about business matters. If the business is public (which i sincerely doubt) then the records are public. If it's privately held, then the only legal way to do it is to ask nicely. If she says "no", walk, no run! away from this "opportunity" with all speed.
...need a lawyer
YES! but not til after you do the valuation. I suspect this is either an S-corp or a std corporation. The lawyer will ensure that all the things you purchase end up in your possession. FYI, my MBA is in finance with a valuation emphasis. I'm happy to answer questions. --cin Cynthia Barnes [EMAIL PROTECTED] _______________________________________________ h-costume mailing list [email protected] http://mail.indra.com/mailman/listinfo/h-costume
