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Jewelry biz valuation


#1

OK guys, you are all so intelligent about everything and I love
reading your posts daily, so I came here with my questions. I am
interested in buying out my owner’s business and wondering how the
business is valued in the jewelry/art business. Any insight would be
appreciated.

Best,
Nikki


#2
I am interested in buying out my owner's business and wondering how
the business is valued in the jewelry/art business. Any insight
would be appreciated. 

There are appraisers for businesses, they determine the value of a
business – it’s physical assets, its customer list, etc.

In addition, you could visit a SCORE counselor.

Elaine
http://www.CreativeTextureTools.com


#3

I think the first, and perhaps most important, item is to have the
business evaluated by an accountant (and perhaps an attorney) of
YOUR choosing. I purchased a business from my employer in 1994. In my
lack of knowledge, I accepted a valuation provided by his people, I
believe based primarily on the average income for a period of
several years. Somehow, and I’m not sure just how, you should also
factor in the potential for future business. As it turned out, I
should probably have paid about half of what I did. The business was
a trade shop in a region with comparatively few jewelry stores, so
when anything happened to one of the customers, it happened to me,
too. As the customers retired or closed for other reasons, it was
very difficult to find replacements, and after 5 years, we gave up
and closed. Unfortunately, this now left us with a significant debt
to the previous owners and nothing coming in to pay it.

Some things to consider: The income for a number of years, seller’s
willingness to assist in the transition, loyalty of the customer
base, potential for building new clientele (especially in this
economy). A clause in the sale requiring the seller NOT to compete
with you. Basically, cover yourself for all the bad that can happen.

Jim
http://www.forrest-design.com


#4

Hello Nikki,

I have just counted up five jewelry stores I know of in my area that
have gone out of business without finding a buyer in the past ten
years. In one case the owner died, but the four others tried to sell
and never could close the sale. I am not really in on the specifics,
but I think price was probably a big issue. These businesses were not
worth as much as their owners thought they were, this proven because
nobody bought at their price. Two of these were well established
businesses that had been around for over 150 years and were in their
day top local merchants.

I also know of two other business sales that failed. In these cases
both deals fell through over disagreements over the value of the
inventory. One was a hardware store and the other a gas
station/convenience store. In both cases ownership of the building
was part of the tranaction, but in both cases the seller wanted more
for the inventory than the buyer was willing to cough up.

One jewelry business sale that I am very familiar with was a casting
company that I believe was sold for too high a price. In that case
the buyer defaulted on his payments to the seller after a year or so.
The seller reposessed the equipment and sold it all to me at
fire-sale sort of prices, which I was glad to pay. In my opinion, the
down 40% down payment was probably more like what the buyer should
have paid in total to have any chance of really making the deal
profitable for the new owner. It is a real shame that a good business
was ruined in the process.

My point is that most small businesses are difficult to sell for what
their owners think they are worth. If someone offered me a million
dollars for my business today I probably would turn them down because
I love what I am doing and have no desire to give it up, not even for
a million dollars. But if I went to sell my business I might have a
hard time finding a buyer at $150,000. Even though the building,
equipment and inventory all add up to more than that, I think
existing small businesses are difficult enough to run that I probably
could auction off the equipment, sell the building and take a deep
discount on the inventory and still get more than I would get for the
whole package.

I would be willing to bet that very few Orchid members bought their
businesses. Most of the jewelers I know of my generation (now age
50) started from scratch.

Good luck. I hope you can make a good deal.

Stephen Walker


#5

Don’t offer more than 1/2 of whatever they are asking (and frankly
that’s probably too much too). Owners of small businesses
consistently overvalue their businesses when it comes to selling
them. You have to remember that if they are making $100,000/year now
from the business but they want you to pay $3-400,000 you have to pay
down the debt on the $3-400,000 from that $100,000 per year which
usually leaves you with just about nothing. Even if you have the
investment money and don’t have to borrow it, you still could be
using that money to produce other income so it still has to be paid
back out of the business. You CANNOT plan on the best case scenarios
when figuring these things out either. If the business is currently
doing half a million per year, figure out how you can pay the debt
back if it’s only doing $300,000/year. If the costs are currently 65%
of sales, figure out what you would do if they become 75%. Also
remember that with any small business a lot of the business is often
based around the current owner’s personality. You will lose some
customers no matter what you do (although if you’re more personable
eventually it will go the other way). Get a good accountant to look
at everything. If they don’t have pristine records don’t believe a
thing they tell you about how much the company is making. Just
because you’ve been an employee (or even a friend) doesn’t mean
you’ve been privy to all the secrets. Unless they are being extremely
reasonable, the only advantage over not opening your own place from
scratch is the potential for existing customers. That has to be
weighed very carefully against the costs involved in buying the
business.

Daniel R. Spirer, G.G.
Daniel R. Spirer Jewelers, LLC
www.spirerjewelers.com


#6

Nikki - First you need to list what it is that you are buying - a
building, a lease, fixtures and furniture, tools, a customer list,
debt, inventory, design rights and whatever else might be part of the
deal. And what is the value of each? Other than money, what does the
owner want out of the sale, and why is he/she selling? Is the
business so tied to the owner’s reputation and history that you would
have a tough time making it go without him/her?

Then examine the financial records of the business. Have they made
money and paid themselves? I would look for a five year history,
including income tax records. Beware of businesses that keep two sets
of books - one for the feds and then the real books.

When you have this if you are not experienced in
business, you should get professional financial advice. You need to
consider the terms of the sale, cash up front or payment over time?
Is there sufficient real profit, measured in free cash flow, to pay
back the loan in a timely manner and still make a living? What are
your long term obligations to creditors and to the landlord? What is
the business climate in your area? Could you just as easily start
such a business on your own without purchasing someone else’s deal?

A business financial person would be able to help you understand
what you are getting into. If the owner is asking you to set a price,
you need to have some help determining what is reasonable. If you
don’t currently have a financial and tax advisor, you might look to
SCORE - an organization of retired business professionals that work
for free to help you find those answers.

Finally, you would do well to examine your capability to run the
business. Are you the bench jeweler? The salesperson? Do you have a
spouse with a regular job that could insulate you from some parts of
business variables?

There are certainly formulas for purchasing a business. Those
formulas are dependent on what exactly you are buying.

And yes, in my checkered career, I’ve done mergers and acquisitions.
That’s why I’m an artist now, I don’t much care for the types of
folks I had to deal with in large corporate finance. The Wall Street
types.

Judy Hoch


#7

Listen to Daniel Spirer - “Don’t offer more than 1/2 of whatever
they are asking (and frankly that’s probably too much too). Owners of
small businesses consistently overvalue their businesses when it
comes to selling them.”

So true. Personal experience says that. If they want $250,000, it’s
probably worth about $100,000, and you may have a hard time making
the payments on that figure.

Judy in Kansas, where the trees are turning and I’m harvesting my
winter squash.


#8
I would be willing to bet that very few Orchid members bought
their businesses. Most of the jewelers I know of my generation (now
age 50) started from scratch. 

I subscribe to that. Trying to buy jewellery business is like buying
a used car. If car is in good working order and gets the owner from
point A to point B, in owners point of view, this car is worth
almost as much as brand new. But a buyer want to buy it at or bellow
Blue Book value (any CPA would insist on it), and such deal could
never be closed. Both point of view are valid, but only one can be
right. There are only 2 choices; either overpay or build your own.

Leonid Surpin
www.studioarete.com


#9

So Nikki: What exactly are you buying just tools from a shop? A store
Jewelry ? Inventory ? Metal and stones? A customer base? an e-bay
store? The list goes on an on you need to be more specific. dave Owen


#10

One could write a book on this subject, in fact many have! I’d
suggest you read read read.

My own outlook…

Break the business in to its value components. You will handle
fixtures, lease, inventory and goodwill differently.

Fixtures. This is the showcases, PCs, desks blah blah. What is the
ACV (actual cash value)? What is your boss going to sell these for on
the second hand market, these will be liquidation values, tag sale
prices. These are NOT replacement values. If the cases are twenty
years old they are worth NOTHING. What you are trying to do is
estimate how much the owner will yield from the sale of these items,
separate from the business. You need to know his alternative. If you
don’t buy what is he going to get? For you own purposes ask yourself
how much life is left in the fixtures. If you can squeeze 5 years
more out of them (factor in the ugly thing, old cases may be cheap
but they cost you sales because of lower image) it might be OK just
to get your foot in the door.

Lease. Incredibly important, pivotal. What’s the going rate of
similar locations in your market compared to the present and future
rents under the existing lease? If the going rate is higher than the
lease, that’s very good, you’ve got a bargain lease. If the going
rate is significantly lower than the lease, why would you assume it
(IF the lease is assignable)? How much time remains on the lease? 5
years is to your advantage, you’ll know what to expect and you won’t
have to shell out $ if you have to move (you’ll likely not HAVE the
capital to move in the early years). A short lease…Oh God,
consider walking away. This makes it a real crap shoot at a time you
may not have the bucks to bounce back with. Your lease is your single
largest recurring cost. It can make you or break you. Calculate the
difference in actual lease cost Vs market value. Add or subtract this
from the value of the business.

Inventory. If the sale ‘must’ include the inventory you have to buy
it at a discount from cost. The owner certainly isn’t going to get
his cost back if he liquidates, he’d be lucky to get 30 cents on the
dollar if he uses a jewelry liquidator as opposed to a GOB(Going Out
of Business sale, which frankly is his best move, but don’t tell him
that, because depending on state law the business may not be allowed
to reopen after the GOB, so if he has a GOB and plans to sell you the
rest of the business you may be unable to operate unless you make
some legal entity changes, which is certainly doable but its going to
cost you fees and the goodwill just went out the window…which
could possibly be a good thing, don’t discount any options til you
explore them). More than likely the inventory will have a lot of
dogs, stuff he couldn’t sell at any price, this should be evaluated
at something below scrap, if he wants more HE can scrap it…why
would you pay interest on scrap only to actually scrap it, makes no
sense. However, if the inventory includes some really worthwhile
goods, it might be good to accept the dogs if you can still get the
good goods at a reasonable price. You should consider NOT buying the
inventory. If you have the resources, a fresh looking inventory will
boost sales in the beginning period (at full markup), which you will
need. My own opinion here is that owners who want to sell to
employees or other neophytes do so hoping they will get a better
price.

Goodwill. This is the value of the clientele. This is tough to gauge
but the trends of both total sales and year end profit will give you
a clue. Going up…terrific. Going down…watch out. You may hear
something from the owner like, “Once you get in here and work you can
increase sales” Well, that’s YOU doing it, not the business you just
paid for. Your determination and hard work have no bearing on the
price you pay to the owner.

You really have to look at a startup also. Make two business
plans…one for buyout, one for startup. Do them side by side so you
know what your alternatives are. Compare the pros and cons. A lot
will depend on your capitalization. Have lots of money?, look at
startup more seriously. Very little dough? the buyout may make it
easier to get in but be aware that the price you truly pay may be
found in the long run and it may bite you in the behind if you don’t
do your homework. Above I mentioned avoid a short lease in the
buyout. However for a startup a short lease or one with some sort of
escape clause is very reassuring and indeed may be necessary.

If you are buying the corporation be aware that you might be liable
for all debts, including any overdue taxes. Talk to your attorney
about this, but he’ll probably bring it up before you do.

What may wind up being the deciding factor for you is the financing
of this buyout. Is this deal owner financed? Or do you have to borrow
from the bank? If owner financing is offered and its your only
available source of credit you may decide to eat the high asking
price just to realize your dream of owning a jewelry business. Be
very careful about this, very careful. Because you are his employee
the two of you already have a master/servant relationship. If you go
with a bank (well these days banks may be shy but…) they are going
to be more willing to go along with a buyout of a sound company than
your startup. Banks are not venture capitalists. You won’t find a VC
for something this small. Unless your uncle is an ‘Angel’ (Really
that’s a customary financial term.)

There’s more, much more but that gives you a bone to chew on.

Best of luck


#11

Nikki,

You are going to want to hire a Business Valuation Expert (BV). Log
onto www.appraisers.org. This type of consultant will most likely
(if he/she is smart) contract a jewelry valuation expert for
inventory, tools, and anything else he/she is not a connoisseur in.
After which, he/she will be able to give avalue for your buy-out.

In the mean time, consider the “purpose” and “Type of Value” needed
for this job. The purpose will most likely be “consultation for
acquisition” and the type of value sought depends on timeallowed for
sale, etc. For example, if your partner/friend has to sell his part
of the business because the banks decided to rip him off and call his
loans, then you will probably be looking at liquidation value. If it
is a timely sale and there is no immediate force or need to sell,
then you will most likely be looking at Fair Market Value.

Hope this helps, feel free to shoot me a call or an email with any
other questions or concerns.

Warm Regards,
Kennon Young, GG, CBJT, AM
USPAP Current
www.vermontgemlab.com


#12

Nikki, here is my formula for pricing a jewelry business:

  1. Current inventory and supplies (less than 1 year old) are valued
    at 50% of wholesale cost or current scrap value, whichever is higher,
    especially if it is heavy in silver or platinum.

  2. Old inventory and supplies (1 to 3 years old) are valued at 35%
    of wholesale cost or current scrap value, whichever is higher.

  3. Dead inventory and supplies (over 3 years old, or anything that
    you don’t think will sell) are valued at current scrap value, or no
    value if they can’t be scrapped.

  4. New equipment and fixtures (under 1 year old and still in new
    condition) is valued at 50% of original cost if you plan on using
    them on a regular basis.

  5. Used equipment and fixtures (over 1 year old but still in
    excellent condition) is valued at 35% of original cost if you plan on
    using them on a regular basis.

  6. Old equipment and fixtures (any equipment or fixtures that are
    worn, damaged, outdated, or otherwise limited in usefulness) have no
    value.

Add numbers 1 through 6 to give you a 'cash or liquidation value’
for the business.

7a. Real estate - Is it a growing area, or in decline? Real estate
in a declining area is a losing proposition, but even growing areas
are suffering serious setbacks in value. If there are vacant
store-fronts in the area, it could be better to move the business and
allow the building to be sold separately, or to rent it from the
current owner.

7b. Rental - look at local rental rates, think about the remaining
lease term, and your responsibilities under it. Do you want to take
over responsibility for a 10 year lease? If the lease is ending, what
will it cost to renew?

  1. The business itself - Look at not only the books for the
    business, but its income tax filings.

a. If the business is operated as a partnership or sole
proprietorship by the owners, their salaries should be included in
the net profit figures.

b. If the business is operated as a corporation by the owners, their
salaries should not be included in the net profit figures. If
operated as a corporation, stop here and consult an attorney.

  1. Make a list of the last five years net profit, and look at the
    trend. If it is consistantly up, then add together the five years
    net profit and divide by 5. This will give you a relatively safe
    figure for expected average net profit in the upcoming 5 years. If
    the net profit figures are trending down, or erratic, take the LOWEST
    net profit figure and multiply by .75 for a probable average net
    profit for the next five years.

  2. Now, take the number of hours you expect to personally put into
    the business the first year and multiply that by 1.5 to approximate
    the time you will ACTUALLY need to put in. You WILL need to put in
    more time than the current owner to get then same results. Next,
    figure out the hourly wage that you will need to make a living in
    your area, then multiply THAT by 1.5 to account for taxes. Finally,
    take the number of hours you figured out and multiply it by the
    hourly wage you figured out, to find your needed GROSS WAGE per year.

  3. OK, we’re almost there. Take the average net profit from #9
    above and subtract the gross wage figure from #10 above. If the
    answer is negative, then you not only won’t make a profit on your
    business investment, you won’t take in enough money to pay yourself
    what you need to make it worth while to work in the business. in
    other words, RUN FROM THE DEAL.

  4. Assuming your figure from part 11 is positive, multiply it by 5
    to give a 5 year total net income (AFTER your salary, which is a
    required expense).

From the 5 year total net income, subtract the the total ‘cash or
liquidation value’ of parts 1 through 6 above. If THIS figure is
negative, then the expected profits from the business are not enough
to pay for the physical part of the business within 5 years, and
therefore a poor investment, even without paying ANYTHING for the
business itself or financing on the purchase.

  1. Finally, if there is a positive number in part 12, divide this
    by 5 to give you an expected annual profit for the next five years.
    You need to decide whether how much of this figure YOU should get to
    keep, and how much (if any) you should pay to the current owner, in
    addition to the amounts from parts 1 through 6. This will give you
    the price you should pay for the business.

These figures ASSUME that there is a dependable, stable rental fee
for the premises, you personally will be able to do the ENTIRE JOB
performed by any and all members of the owner’s family that were not
on salary, and that the rate of interest to finance the deal is
negligible or subsidised by the current owner.

I know these figures seem pessimistic, especially the values for
inventory and equipment, but they may actually be a little on the
optimistic side. A store liquidator will pay no more than 10% to 20%
of cost to buy out a stores inventory, and often less!

One last word - If the owner IS the business, then it really has no
value besides the liquidation value of the stock, and should be
priced accordingly.

Good luck!

Lee Cornelius
Vegas Jewelers


#13
I am interested in buying out my owner's business and wondering how
the business is valued in the jewelry/art business. 

Holy cow, Nikki! That’s a big question. I’ve been involved in
several buyouts and changes of ownership, and that’s a question that
doesn’t have a real solid answer. There are formulas that people that
buy and sell businesses use, based on gross and net income, years in
business, value of equipment and inventory and intangibles such as
"good will" and other things. An accountant would be a big help in
figuring all that out.

That being said, formulas are about as valuable as the paper they’re
written on these days, with the economy doing what it’s doing, the
major changes in the jewelry business as a whole and the devaluation
of commercial property we’ve seen in the last few months. Projections
about the future of just about any jewelry business are almost
worthless right now.

You didn’t say what kind of business this is, so I’m going to assume
it’s a retail jewelry store we are talking about.

One of the huge things that a formulaic valuation doesn’t address is
the value of the owner to the business. If you have been there for
some time, and the customers wouldn’t even know the previous owner
wasn’t there anymore, it would have a completely different value to
you as compared with what it might be if you’ve been there for a year
and just stay in the back and none of the customers know you. How
about the other employees? I’ve seen more than one time where
everyone quit the day after the deal went through. Having someone go
from co-worker to “the boss” overnight is extremely difficult for
everybody involved, and many people just won’t have any part of it.
The worst part is most will say they’re cool with it until they have
something else lined up and then they’re gone. This is almost
impossible to predict and can be catastrophic.

Valuation of the assets is also difficult. If the inventory is all
new, made in-house and selling briskly, it’s worth something. If the
majority is older than a year or two, it’s worth a percentage of
scrap. Same with the fixtures like cases and such. Old display cases
needing a facelift, as opposed to new and clean ones may be more of a
liability than an asset and may cost more to move out and throw away
than you could sell them for. Even high dollar custom made cases.
Used tools and equipment generally will bring about 50% of new, even
in excellent shape, so don’t pay more than that.

Bottom line, if it’s not a business owned by a family member of
yours, and you are considering anything other than assuming the
remainder of the lease and paying 50% of the new value of tools and
fixtures, and a similar percentage for the inventory, I’d be really,
really cautious. I’d be even more cautious about any kind of
agreement requiring you to report your income for any reason (unless
it’s required by the lease), or any valuation containing the phrases
"projected income", “good-will”, “reputation” or anything else that
isn’t an actual tangible physical object. Working 60 to 80 hours a
week and seeing the fruits of your labor going to buy 100% of someone
else’s “good will” with only 60% of your “projected income” coming in
stinks. Trust me. Their “good reputation” however well deserved,
leaves as soon as they do and you will have to build your own. And
that can take a while.

Basically, you want to make sure that if you have to, you can sell
everything and pay off the balance (or at least come close), or you
might find yourself nothing more than an employee of the previous
owner, with all of the responsibility and risk, and very little of
the profit. If it is structured so that you can’t do that, you might
be better off to let them sell everything, go out of business and
just sign a new lease and start fresh, on your own. It’s not like
jewelry store buyers are just lining up to pay top dollar for
intangibles (or even tangible assets like cases or inventory) right
now, so you have the advantage in negotiations if they really want to
sell.

Please feel free to contact me off-list if you would like to have a
more detailed discussion. Been there, done that, and I would be very
happy to help you figure it out, if I can.

Best of luck,
Dave


#14

Right off the bat, the starting number is usually this:

The cost of their inventory is the “usual” number for the whole kit
& caboodle.

You add up all assets, like furniture and fixtures and depreciate
them. That’s easily 50%-75% les than they paid.

Then you take inventory and depreciate it too. Yes, inventory. Why?
Anything over a year old is “worthless” and they have plenty of it
I’m sure. Typically inventory, especially if its older, is worth
25-40 cents on the dollar.

Now add up all of the depreciated assets.

Then subtract all debt-accounts payable, long term debt, etc.

What do you get?

Darn close to the cost of inventory on the books.

Is the store worth more than that? The answer is yes if the owner
takes out a good salary PLUS has low debt. In other words, the
business carries itself and pays the owner well. Owner should get
paid, more or less, 10% of gross sales. More or less.

Yes, owners always ask for more than its worth but that’s the same
old game. And if you buy it, what about financing?

I helped one guy who worked in a store. Did $300,000 and had
$200-$400,000 in inventory (inventory should be a lot les than half
of sales. The owner wanted $400,000, then $600,000. Then said he’d
finance over 20 years at 1 million. I talked the guy out of it, it
was worth $100-$150,000 at most. Even spoke to the owner for him.
Stubborn. Result?

The store closed up 6 months later and the young guy picked up the
lease from the rental agent. Bingo, same store, bought his own
figures (they did a lot of repair) and he was off and started for
under $35,000. if he had bought the store he’d have massive debt
with average age of inventory at 7 years. Old styles that don’t sell.

Few stores are worth more than inventory cost unless it’s a highly
profitable, cash flow positive, pays its own debt, kind of store.

David Geller
JewelerProfit


#15

Well Nikki, you have launched a very interesting seminar. I will add
two points.

  1. Some of the money I invested in my business has gone to pay for
    mistakes. There are things I bought for inventory, tools,
    advertising, etc. that were not as helpful as I thought they should
    be. These are still a part of my investment in my business, but I
    would really be pulling a fast one if I could pass on even a small
    percentage of the dollar value of these mistakes to a buyer. Assets
    of the business that you are not going to use when you take over are
    not something you should put a value on in appraising what the
    busines is worth.

  2. The casting business that I wrote about before, that sold and then
    went out of business, the new owner told me he lost half his business
    in the first month when the customers found out there had been a
    change. He thought he was buying a customer list and good will. He
    did buy it, but the customers were under no obligation to honor the
    deal. Looking back on it I would have to say that half the selling
    price of that business was for the customer list and established
    reputation. As it turns out, this was nearly worthless.

I hope all this helps.
Stephen Walker


#16
wondering how the business is valued in the jewelry/art business.

I know much less than the other posters on this topic, but I’m sure
there’s one thing that needs to be clear about inventory, after
seeing that you say jewelry/art, which makes me wonder if it’s more
"art jewelry". If the inventory is gold, platinum and diamonds, it is
worth maybe a quarter million or whatever, just in scrap value. If
the inventory is copper and silver, it’s actual worth is a thousand
bucks - metal and stone value. I don’t know what the real inventory
is - none of us do - but just because somebody says it’s $500 doesn’t
mean it is - if it’s a lovely piece made out of $20 worth of silver
and some niobium, you need to keep that in mind, when you’re buying
the whole store. I know I wouldn’t pay 1/2 (even 1/3) - $250 - on a
wholesale buyout basis, if the scrap value is only $20…There’s
inventory and there’s inventory…

http://www.donivanandmaggiora.com


#17

I was once on the buying end of a jewelry laboratory. I had been
working for years as an independent jeweler in this lab and all of
her clients knew me. She actually moved out and left me with the
set-up as we tried to work through the buying-selling process and
evaluation. Not one of her clients ever ordered a piece of jewelry
from me.

Not only, I eventually said I was not interested and moved my
activity out of the area, telling MY clients to move over to my
colleague, as she would be re-taking over the operation. Not one of
my clients ever ordered jewelry from her.

Once our clients find us they are very loyal to us, the person. Any
lab, or jewelry store, cannot put into the sale price the list of
clients. What we do is not a franchise that can be passed from one
owner to the next and the client base never knows the difference.

Lois
www.loismartens.com


#18

It has been a long time since I have been involved in business and
real estate, but one basic avenue for the seller of a business to
determine what the business is worth is to use the Capitalization
Rate, i.e., to take the (I believe) net profit for a year, and divide
that amount by the Capitalization Rate the seller would normally
expect to earn by putting money in long-term investments, contracts,
etc. I have always used a 10% rate, which may no longer be valid
since the interest rates are so low. For example, if the bottom line
for a busines was $20,000, then the business would be worth $200,000.

Since interest rates are sooo low, right now we are getting only 7%
on long-term corporate bonds. That may be the figure that you will
need to use, but your will want to discuss any questions/decisions
you make with an good investment advisor and an attorney. After
owning four retail stores, I understand that you don’t want to take
any steps without knowing all the ramifications for the near and
distant future!!!

Good luck.
Kitti


#19
My own opinion here is that owners who want to sell to employees or
other neophytes do so hoping they will get a better price. 

This may very well be the most important point made so far, in my
opinion. As Neil also points out, you probably already have some sort
of master/servant relationship or at least a friendship, so it may
end up being very difficult for you to stand your ground on any
particular issue.

The more I think about this and reflect on the superb advice given
so far, the more I think the best advice may very well be to start on
your own, by yourself. The pitfalls and unknowns in the purchase of
an existing business are incredibly numerous as others have pointed
out, and an awful lot of these unknowns can turn around and bite you.
If you can get the space on a new lease (try to negotiate a
finish-out with new paint and carpet, etc), buy the tools at half or
less of new and get the safe, alarm/security system and cases for a
couple of thousand dollars (they will end up being all but worthless
to the previous owner anyway, you would be doing him/her a favor by
letting them leave without having to dispose of them), you might
have a shot at success. It will still be a gamble, but add anything
else and it becomes even more of a crap-shoot.

The only real, solid advantage to buying an existing jewelry
business as an individual metalsmith is the “warm” location, and I
would try to get that without buying much of anything else that isn’t
at bargain-basement prices.

Good luck,
Dave


#20
the more I think the best advice may very well be to start on your
own, by yourself. 

I purchased my first biz from the inside and started up three
businesses hence. Turned down a few other situations as I got
smarter.

I could point to challenges faced but every failure was my own
because it was my duty to NOT fail. The first step in success is
failure avoidance. As soon as you fail you’re out of the game,
period.
Like dodgeball. No do-overs(unless you’re extremely lucky) Getting
yourself burdened with crushing debt when you’re just learning what
it really means to run a business is an excruciating road to failure.

Buying from the boss would be OK IF its at an advantageous price
with reality based terms. You cannot just look at his gross(say
$300K) and assume you can service the debt because “300 is such a big
number how can I not service it”.

Buying a business as a going concern has the advantage of turnkey.
Sign the papers and get to work. But if you look at a lot of
corporate acquisitions the first thing the new owners do is clean
house, they reorganize the company acquired for profit. This is
something a new small biz owner might not realize, especially if he’s
a former employee, the company was for sale for a reason, it was not
so profitable anymore. If it was the original owner would have simply
hired a management team, semi-retired and collected monthly checks.
So your job as new owner is to turn that company around, which will
take capital, which you have just spent on acquisition…oops.

Startup has its risks too. The old adage, “Build it and they will
come” is pure hogwash. You have to make them come. If you don’t have
a personal/professional reputation in the area you need to spend
money to attract people and build a base.

However, with startup you control the game. Take stock of what you
have to work with. Money, reputation, volunteer help from family,
burning personal desire, access to merchandise, etc). Project what is
required to open the doors. Then massage everything til you can make
it work.

And don’t pull the trigger til you’re absolutely sure.