Despite changing shopping habits over the years, the convenience store still retains an important place in every local community. An evolution of the humble corner shop, convenience stores now sell everything from newspapers to lottery tickets – some even host a post-office counter.
And, while supermarkets and discounters continue to capture the lion’s share of the family groceries budget – and have even encroached on the convenience store format with smaller ‘express’-style shops – well-run independent convenience stores are still proving to be successful. According to the ACS 2018, there are 46,262 convenience stores currently operating ain the UK, serving thousands of customers every day.
It’s a popular choice with business buyers and investors looking for regular returns and – in some cases – the potential to diversify and grow revenues. There are some cons – long working hours, for instance. But there are lots of pros, too: most conveniences stores are situated in handy locations which offer shoppers an easy alternative to visiting an out-of-town supermarket. It’s a business model that’s also appealing to an increasing number of entrepreneurs looking for a solid return on investment.
Decide what type of store you want
Obviously, location is key but there’s no single right answer to where you should buy a convenience store. Stores that are close to busy urban train stations often do well, but so do those near to large housing estates and in small villages. Parking helps – but so does being on a bus route. Where your store is located will dictate the kind of customers you attract and the stock that will be popular, so you’ll need to give this some thought.
If you buy a store in an affluent village, you may be expected to carry more high-end food and drinks;make a name for themselves by providing locally grown produce and deli items, for example. Stores in more densely populated town and city settings make their profits on sandwiches, snacks and scratch cards. Consider where you’d like your store to be and tailor your offering accordingly.
Do your homework
If the business you’re buying includes a post office or a lottery concession – or even an alcohol licence – you’ll have to apply to have the licences transferred; don’t assume this will happen automatically. The same applies to other terminals such as mobile phone top-up services and you may have to set up a new merchant account to take debit and credit card payments.
Conduct a thorough investigation of the store’s finances. As the price you’ll be paying reflects how successful the business is, you need to know exactly what kind of return on investment you can expect. Keep an eye out for areas of the business that are under-performing or unexplored – if you can cut costs or increase sales, you’ll be able to add value in short order.
Check and double check the figures
Make sure you have access to business accounts (full and final accounts with profit and loss statement) covering three to five years so you can average out net profits to make sure you’re not basing your offer on one unusually good trading year. The P&L account should make clear how much salary the owner is taking from the net profit figure. Your business will need to pay you a salary AND show a profit, otherwise you’re buying a job, rather than a business.
Investigate the lease
If you’re buying a business that is operated from a leasehold property, be aware that the lease will not automatically transfer to a new owner and will have to be granted by the landlord. The existing lease may contain an assignment clause, allowing the leaseholder to sell it on, but it will also likely stipulate that they must also obtain the landlord’s permission and approval of the new tenant. Take legal advice on this and make sure you don’t buy a convenience store without nailing down the lease first or you could have a shop with no premises.
Dig into the detail
Most convenience store owner expect to work long hours but you’ll also need to be realistic about what you can and can’t achieve. Are there any functions you may have to outsource – payroll, for example – that you don’t have the skills or training to do yourself? Try to discover the real reason for the vendor’s decision to sell. Check out any local planning applications – perhaps plans to restrict parking or pedestrianise the area outside the shop – that may impact its viability.
Assemble a team of professionals – solicitor, accountant, financial advisor – to help you navigate through the detail and avoid expensive mistakes.
Pay what it’s worth
Which isn’t necessarily the same as the asking price. Sometimes the vendor will base their valuation on what they’ve invested in the business over the years or how much they paid when they bought it. None of this should concern a buyer, who should only be interested in the return on investment it can generate.
Posted on December 13, 2018 | buying a business, buying a convenience store, how to buy a business