Career Start Report – Page 25

Buying a Pet Grooming Business

PetGroomer.com Classified Ads has the largest collection of grooming business for sale or lease ads in one place since 1998. We suggest career seekers review the ads. You will love the ones with pictures too! You can learn a great deal about buying a business just from reviewing them, but there’s a lot more to learn.

Advantages of Buying a Business

If you don’t want to start a grooming business from scratch, buying an existing one may be your alternative. First of all, there are plusses and minuses. The plusses are:

  • Existing Customers. Customers and loyal clients have already been developed. Ensuring that they are likely to stay with your new ownership means you will have demand for services from the start, and that means cash flow from sales of services.
  • Businesses started from scratch have much less initial cash flow.
  • Immediate Operation. You can start immediately.
  • Existing Goodwill. Presumably the present owner has created goodwill towards the businesses grooming and other pet care services.
  • Financial Planning. Financing may be easier to obtain because the business has a track record.
  • Eliminate Competition. Buying a business may eliminate a competitor had you started your own business.

The minuses are:

  • Problems. There may be unapparent problems in the business that you do not discover till after the sale of the business.
  • Cost. Sometimes buying an existing business costs more than starting one from scratch.
  • Obsolete Equipment. Grooming equipment, tools and leasehold improvements may be obsolete or in need of substantial repair.
  • Personality Conflicts. If some of the existing employees are staying in your employment, there may be personality clashes. Specifically, owners new to the grooming industry keeping very experienced employees may be pushed to pay higher commission wages or salaries or other scenarios taking advantage of the new owner. It really helps when the new owner(s) know how to groom and are not dependent on having no choice but to maintain the present full-charge staff.
  • Receivables. If the seller is owned receivables from clientele, you may find they are worthless or hard to collect.

When buying a business you should exercise caution throughout the entire process from researching it to finally signing a contract of sale. You are strongly urged to have the assistance of a lawyer and accountant throughout the process. Not having both has often been the cause of problems when buying an existing business. Unscrupulous sellers can take advantage of buyers. The courts have seen many such cases. Never buy a business without a contract of sale reviewed by your attorney, never. Don’t sign documents relating to the sale without your attorney’s prior review.

You start by locating a business to buy, researching it exhaustively and making the decision to buy or not.
Locating a Business to Buy. Our PetGroomer.com Classified Ads list grooming businesses for sale. Major pet grooming industry trade magazines also have business for sale classifieds. Your local newspapers, especially major metropolitan newspapers occasionally have grooming business for sale ads. There are major Internet based classified ads web sites you can research from most of the major search engines. Ask your local commercial real estate broker if they access to regional business for sale listings.

Researching the Business. After you locate a business that interests you, start researching it. Now is the deadline to have an attorney and accountant representing you best interest. The more you research the business the more likely you will make the right decision to buy, or not buy, an existing business. You should be very confident in your purchase.

The seller may ask you to sign a letter of intent to purchase the business, a non-binding offer for the business, before exposing any sensitive information about the business. You may also be asked to sign a confidentiality agreement promising that you won’t use the information released for any purpose other than to make the decision to buy.

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.

Your investigation should include reviewing the business’ documentation, including:

  • Contracts and Leases. Property and machinery leases, sales contracts and purchases contracts. What obligations are you 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 Resources Directory 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?

What should you pay for a business? Good question and let’s consider that important step next.

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