September 15, 2014
I get questions from time to time from individuals who are interested in running food businesses but don’t necessarily want to start from scratch. If this sounds like you, then here are some tips on what you need to know and what questions to ask the existing owners if you plan on buying an existing small food business.
1. Understand the company’s business model. How has the company been selling their products to date? How have those different sales methods worked for them? Are there areas you can see where you can grow the business further if that’s your ultimate goal?
2. Understand the company’s P&L. Make sure you look at the Profit and Loss statement not just from this year but from the previous few years. This will provide you with insight into the financials – which are the backbone – of the company including if what the current owner is saying is proving out to be true in the numbers. If you’re not comfortable reading a P&L you should ask someone else to help you.
3. What equipment and/or inventory is transferable with the sale?
4. How much training is going to be included with the sale? This is especially important for artisan food businesses where you as the owner might be responsible for some of the production. Even if the company has a staff or co-packer for production, you need to make sure you understand the food part of this business if you want to be successful.
5. Are there any debts or liabilities that are being transferred with the sale? This can happen in certain business transactions but you should make sure you understand what you’re getting into and make sure the purchase price reflects those risks you’re assuming.
6. Are the margins realistic and are the prices appropriate for the marketplace. Someone may have a great concept but if they haven’t been able to make it pencil out numbers-wise then you need to ask yourself why and determine if there’s something you can do to change that.
7. Does this business and business model fit with your lifestyle? The food business is notorious for its odd hours and hard work. Even if you’re ready to undertake the work, make sure you understand how this business will fit into the rest of your lifestyle so that if you move forward it’s something that you love building for years to come.
This is, of course, not meant to be a complete list and you should certainly enlist the help of an accountant and a business attorney throughout this process to make sure that you are financially and legally protected throughout the process.