Advice on buying a retail business

When you buy a retail business, any business for that matter, you do so based on the performance of the business.

Do your homework. Satisfy yourself that the sales numbers are the numbers. Cross check against P&L, tax returns and source data from the software. They need to match.

The purchaser of a newsagency recently discovered the hard drive of the main computer reformatted on the day of take over, all historic data lost. No backup.

A good contract of sale for the business should provide adequate protection in this situation. Thorough due diligence prior to purchase should have uncovered possible fraud.

If you are buying a shop, do your homework. Make sure you understand what you are buying, what your dollars are paying for.

Here is an updated list of data I suggest prospective newsagency business purchasers access from the vendor or their representative:

1. P&L from the accountant for the last two years. i.e. not a spreadsheet created for the purpose.
2. A list of add-backs used to achieve a profit figure on which the asking price is based.
3. Tax returns for the same two years. While note always appropriate given business structures, they can provide a cross check with the accountant P&L.
4. Sales data reports, for the last two years, from the POS software in use – to verify the income claim. This source data is key.
5. Sales data reports from the lottery terminal to verify the income claim.
6. BAS forms to confirm data in the P&L.
7. A list of all inventory in the business including the purchase price and date last sold for each item. And, copies of invoices from which you can randomly select to verify.
8. A copy of the shop lease.
9. A copy of any leases the vendor expects you to take on board.
10. A list of all forward orders placed on behalf of the business.
11. A list of all employees: name, hourly rate, nature of employment, start date, accrued leave and accrued long service leave.

This is good basic information, a starting point, which will enable any purchaser to undertake reasonable assessment of a business.

My advice to newsagents looking to sell who may be concerned about this list is: think about it now and focus on your business so the data I have listed looks good. The time to prepare your newsagency for sale is every day you are in the business.