BUYING A LIQUOR BUSINESS - BASIC GUIDELINES AND INFORMATION

 

Introduction

Buying a business - basic guidelines and information - is intended as basic information for the first-time buyer and buyers with some business experience. Detail explanations on the subject under discussion falls outside the scope of this “Basic guidelines” and should you require further information kindly contact your business broker and liquor license consultant, Frik Liebenberg at 082 556 8368 or frik.christien@gmail.com FOR FREE ADVICE.

 

Reason for buying a business

Be sure that your reason for buying a business is logical and based on facts. To be relieved of stress from your present work situation is generally not a good reason to buy a business. There are no stress-free businesses. It is advisable to have the support of your spouse in this venture, especially if you are a first-time buyer.

 

Choice of an agent/business broker and liquor license consultant

Your business broker should have a working knowledge of contract law, financial statements (and be able to read between the lines) be able to determine the market value of a business and have practical business experience. Your business broker should spell out the process and implications of the transfer of a liquor licence, cost of stocking and running the business.

 

Your liquor license consultant must be competent and able to supply references. Make use of specialised and professionals to ensure a smooth transition of the business and the Liquor license.

 

BUYING A BUSINESS - A COMMITMENT

Don`t buy a business if you are not prepared to make a total commitment. Nobody will make a commitment on your behalf while your money, job and assets are safe and secure. The risk in business is real, and there are no guarantees, however the reward is out there for the person who is prepared to take a calculated risk. Take a calculated risk by considering all factors at your disposal.

 

Cost of buying a business

If a business is advertised for a specific sales price, you will need more than that price to purchase the business because of “Hidden Cost” which are not always spelled out by the seller or agents.

 

The “hidden costs” are made up of the following:

  1. Rent deposits

Your first month`s rent payable might be higher than anticipated. Most lessors

require two times your monthly rent i.e., one month’s rent in advance plus one

month’s rent as deposit.

  1. Electricity deposit

 

 Some buildings, not all, will include the electricity deposit in your rent deposit.

 Otherwise, you may be liable for a deposit which is +/- three times the average usage.

  1. Stock

Your business broker should find out what is the optimal stock value for running the business most efficiently. Then: - if stock is included in the purchase price, calculate the fast-moving stock value which you must add to the stock and add this to your hidden cost. Then: - if stock is excluded - add the total stock value required to run your business, to your hidden cost already calculated plus the cost of replenishing the fast-moving stock.

 

PLEASE NOTE:

The prospective buyer must realise that when a seller, sells a business, and the contract reads that the purchase price includes a specific value of stock, that value of stock should be in the business at the time of the handover. But the seller will most likely deplete the fast moving stock and refrain from buying stock or consumables. That means, when the buyer takes over the business, it could be that he or she will have to purchase a specific amount of stock. It is therefore advised that the buyer does not rely on the value of stock in the business at time of handover to generate profit and a turnover as previously, because of the unbalance in fast moving stock and slow moving stock.

 

 It is therefore of extreme importance not to put down your last cent and expect the business to give you a good return. Examples of above could be for instance that the purchaser who takes over a restaurant, will have to replace all the cooking oil at a considerable cost, because the seller will stretch the oil as far as possible. Package material, cleaning material and popular items on the menu will not be in stock and items which are kept in stock exclusively as a service item will be in abundance, but unfortunately slow moving.

 

Working capital

Most businesses fail primarily because the owner has run out of cash to sufficiently stock and maintain the business.

 

 A professional broker can establish the cash you need to run your new business. The cash required/working capital differs from business to business.

 

Handover of business

Your broker should be present during the handover procedure to ensure:

  1. All the assets are in place and in working order.
  2. Stock taking is done to acceptable accounting procedures and correctly valued.
  3. All conditions of the contract are adhered to and all suspensive conditions are met.
  4. To act as mediator in the event of a dispute between the buyer and the seller.
  5. A formal handover document signed by all parties must be completed to ensure all parties are satisfied and all monies are handed over.
  6. Any amendments or new agreements signed and accepted by all parties.

 

Contact your Liquor License Consultant to advise you on the transfer of your Liquor license to avoid closure of the business by the authorities.                                                                                               

Frik Liebenberg

 

Frik Liebenberg Business Advisory Services cc 99/05522/23

 

082 556 8368

 

frik.christien@gmail.com

www.liquorlicensing.co.za


Follow us on Twitter @licensingliquor


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