Buying a sandwich shop may be a start to owning your own business.
But just as you would with any other business, you need to make sure that you have looked in to all aspects that can impact on your ownership and management of the business. Here are a few things you might want to consider before you buy a sandwich shop.
1. Leases and legal issues
Unless you are purchasing the property containing the sandwich shop, you will most likely be renting the premises. Having a lease in place for a number of years gives you the legal right to trade from that premises for a number of years, provided your rental is paid monthly. You may look at taking over the lease from the previous owner or signing a brand new lease, but these need to be discussed with the landlord before you take ownership. Read all the clauses in the lease agreement properly to see what is allowed and what is not on the premises so that you do not later find yourself restricted from improving or changing your business slightly. You also need to be aware of all public space rules including public toilets, parking areas and so forth. You also need to ensure there are no unresolved legal issues or possible changes in the area that can have a long term effect on the business. All licences and registrations must be in place and be transferable. All legal issues need to be resolved before purchase. Investigate any changes in the area such as road closures, development plans in the area, trading activities and time changes and so forth. If possible, get an expert to do due diligence on these aspects before purchasing the business.
2. Revenue and profits
What makes up the income? How many customers are needed on a regular basis to keep the turnover as it is and how can you improve on this to increase your sales? Where do most of the sales come from? Is it food platters, sandwiches, beverages and so forth. Look in to the sales as well as the expenses of the business as carefully as possible. Look at financial records for 3 years if possible. A detailed accounting of items that may not always go ‘through the books’ are also very important, such as staff meals, outside catering or anything else that is not detailed. This will then give you a good insight in to the business and where you can possibly save costs or generate extra income. Make sure you have a good handle on the large expenses such as wages, rent and cost of the stock. Your rental should not be higher than 20% of your revenue and the wages should not be more than around 30% to a maximum of 35%. These costs must include your personal drawings as well to establish the actual labour costs.
3. Cost of the business
Once you have done your research and due diligence, it is also a good idea to establish why the current owner is selling. Often this is for personal reasons, but there may be issues you do not know about, and often you need to search deeper if the answers don’t seem legitimate. If everything seems okay after looking at revenue, the lease, issues in the area and so forth, you need to then look at the actual asking price. Is the business worth the cost? When you look at the price, you need to ensure that you will be making at least 40% to 50% of the asking price back in profits each year, excluding the cost of your own personal drawings. If the current revenue of the business does not seem to indicate that you would be earning this type of return, the price is too high.
Find out if all of the equipment is owned, free and clear as items on hire purchase cannot be sold until paid in full. All equipment should be in good working order and you need to check on replacement cost for the future should anything go wrong. If appliances etc. need to be replaced straight off the bat, you might want to negotiate a reduction in the asking price to allow for the purchase. Make sure the appliances have been serviced regularly and ask about any issues experienced, relative age of the items and if there are any warranties still in place. Make sure this is thoroughly investigated as it could cost you later on if you haven’t assessed this properly.
For some business owners, it may be worthwhile to keep the current experienced staff especially baristas and chefs that offer their customers something unique. Speciality foods and even an established goodwill with the current staff can be important to the well-being of the business. However, if the staff are earning wages in excess to the normal wages for the position or are not suitable for the changes you want to bring in, you may want to look at changing staff. Before you purchase, you might want to visit the premises as a customers once or twice, chat to the staff, take a look at the service and quality of the food and beverages and so forth. This may help with your ultimate decision making on the staffing front.
There are many other aspects to look at when purchasing any business, including a sandwich shop other than those listed above. These are just a few of the primary aspects you may want to consider when purchasing a sandwich shop. Make sure you have done adequate research and your due diligence before signing the sale agreement.