Article Review: Advice for Buying a Business in a Small Town | FinanceTownhall.com

Cliff Ennico | Feb 10, 2016

Eric Gall:  I believe there are some good bits of advice in the bottom half of this article beyond normal financial due diligence.  I've highlighted them in red text.

The author was looking to buy a business he could work with his college graduate daughter who he expected would eventually take over and run the business full-time.

He found a hardware store in a small town an hour away with 50 year's history and financials compiled by a reputable accounting firm.

The Seller accepted the author's offer; however, they refused to disclose if there were hidden liabilities or if their equipment and inventory were in good condition. 

The author recognized the following problems in this transaction:

• I was not a "local," and therefore do not have local knowledge about the business, the community, and things going on there.
• Financial statements show how the business performed historically. They say nothing about how the business will perform in the future.
• There may be things happening in the community that will change the way the business will perform after acquiring it and the seller is under no legal obligation to tell you.

Here are the sorts of questions you need to ask:

• Is a major competitor (such as Lowe's or Home Depot) moving into town?
• Is a major corporate employer moving out of town and destroying the tax base?
• Are the town's demographics changing in a way that won't favor a family-owned hardware store?
• Is the DOT shutting down the road going by the store for major improvements?
• Is the town changing its zoning laws so that the store will become a "nonconforming use" and difficult to sell to someone else?

If you do decide to buy a business on the seller's terms here are three things you need to do.

• Hire a Good -- Local -- Accountant or Lawyer. You need to work with a local resident who can answer some of these questions, someone who's been around a long time.
• Spend time in town. Spend a couple of weeks in the town, chatting up locals, read the local newspapers, and find out if things are happening that will affect the business.
• Contact the local Police Department first and make sure they know what you are doing.

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For additional information regarding Florida business sales, acquisitions and valuations, please contact Eric J. Gall at Eric@EdisonAvenue.com or 239.738.6227. Also, visit our Edison Avenue website at www.EdisonAvenue.com or my personal website at www.BuySellFLbiz.com.