If I buy an established business, how much money would I need to ensure it runs smoothly in the early stages?

Question

I'm thinking of buying a small business - perhaps a UK newsagents for around £10,000 - £15,000. I've seen some for sale and the adverts explain the average weekly profit, but I was wondering how much extra I would need (or would be advisable) to save to get the business running smoothly in the early stages.

Answer 1

Ask for their Operating statement for at least the previous year.
From that, list all the fixed expenses, payroll, rent, utilities, phone, taxes, operating licenses, etc...anything that is a constant expense.
Do not list here the owner's salary.
Subtract that total from the gross profit generated.

Next, list all descretionary expenditures, owner's salary, travel and entertainment, auto, subscriptions, etc, anything that is under the owner's control, but not fixed expenses.

This is the real profit and should be less than or equal to the figure generated after fixed expenses are subtracted from gross profit.

With that number, calculate the income that you need.
Subtract your income from the "real profits".

Is anything left? You will most likely have some other descretionary expenditures, auto, travel etc.

You certainly do not want to assume any debts incurred/outstanding by the previous owner.

If you determine that the cash flow and "real profits" are ample to support you, and you will have a surplus in the bank, as capitol, then you "should" have enough capitol to operate within the expense picture.

I might suggest that you have enough cash to carry about a month. I say this because you may not receive all your sales in cash, immediately.
Check out the accounts receivables, if any, carried by the previous owner. This will give you an indication of cash flow.
Will you assume any accounts receivable?

Very often the price paid for a business is calculated by taking the "real profits" as a total for 5 years.
This can certainly vary, but that is often the fair price for a profitable business.

There is one more thing to consider. When ownership changes, some customers may leave that business. You will have to personally visit all the established customers and assure them that you can/will treat them as well or better than before.

None of this is in stone, so use it only as a guide.

Answer 2

In addition to the other posters: The Old Testament, The Septuagint [translated from Hebrew to Greek somewhere 250 BC] was in placed at that time, used even before Jesus' time. The New Testament was written 35-100 AD and translated to latin by St Jerome, sometimes 400 AD. It is still on parchments and read in the church, or preached orally. So, there IS NO NEW TESTAMENTS IN A BOOK/BIBLE FORM AT THAT TIME compiled with Septuagint.' Bible alone' theory is not in existence at that time as there is NO BOOK to call bible. It was the use of Oral Tradition up until 1400 when the 'compiled book form bible' finally hit the printing press. In other words, it took the Catholic Church about 400 years of gathering, editing, and sorting the ancient manuscripts and got printed in 1400. There were also a lot of uninspired writings [apocryphal books] that were floating around that were not cannonized.

Answer 3

If the business is established then you need to review the financial records of the business before buying. That will tell you the operating costs previously and will be a good guide for future cash needs.

Answer 4

You need to look at their accounts and, with your lack of expertise, you probably will need a business mentor to help you make sense of them. You'll probably be eligible for some help from a business mentor through your local enterprise agency or business link (whatever it's called where you live). Look at the website www.businesslink.gov.uk for help.

Answer 5

It will be different for every business. Ask them for a breakdown of their running costs and balance sheets. This should give you an idea. (if they won't give them to you, run a mile)