A friend recently said, “If you’re looking for investment ideas, stick with things you understand. Keep it simple!” This seems like good advice because it’s easy to complicate your life.
I’ve thought about buying a small business that’s already up and running. One of my contacts runs a small jewelry and art kiosk at the local mall. She sells unique but inexpensive jewelry, local art, and sculpture. It’s a great place for me to enjoy grown-up time and I can take the kids with me.
Last weekend, the owner told me she’s returning to her home city as she wants to be closer to family. Although she’s taken on a part-time employee or two, it’s a labor of love for her. She enjoys making satisfied customers and says “We don’t use pushy sales tactics, just help customers choose what they already want. I always ask ‘What else are you looking for?’ or ‘If I find another piece from this sculptor, would you like me to call or email?’”
As you can probably guess, I like this business owner a lot. I love the gorgeous jewelry I buy from her and it never breaks the bank. She’s got access to artisans who use recycled materials. Last weekend, I bought a pair of gold hoops from a designer who works with a small metals refinery. I’d never find anything like them in a retail store and, even if I did, they’d cost much more. Other customers like this little store, too. She’s always got a good sized crowd looking around
So, here’s the thing. She’s thinking of closing down prior to her move but her lease doesn’t expire for another eight months. She’d need to absorb some early cancellation fees and, naturally, she’d rather sell to someone like me.
Pros of Buying
Let’s look at the positive aspects of owning a kiosk business near my house:
- The kiosk is an already profitable and cash flow positive business. I wouldn’t need to reinvent the wheel.
- The business has steady and loyal customers and I’d also get her supplier relationships and contacts.
- The products are fantastic and I’m passionate about them. I feel I understand the business model.
- She’s has promised to help me during the transition hand-off period. For instance, we’d work in tandem on the weekends.
- Unlike investing in a vending machine or two, there’s no ethical dilemma with the type of products I sell.
- Further, there’s no potential spoilage of stock to consider and I believe these goods make people happy
- I also approve of sustainable recycling and know there’s no child labor involved in the creation of these beautiful things. And almost anyone can afford to buy an item or two.
Cons of Buying
Naturally, I’m kicking the tires to identify reasons I shouldn’t buy the business. Here are some of the reasons I’ve identified so far:
- Upon signing the purchase contract, I’d be required to remit a large upfront payment.
- I’d also be required to take over the lease. That’s a significant—and recurring—financial obligation.
- I’m not confident about the idea of handing over most of the sales duties to part-time employees. Unlike the owner-operator, part-time employees probably don’t have fine-tuned sales or customer sales skills. Accountability could be a big issue. I also know myself and I don’t really like the idea of managing employees, even part-timers.
- Dealing with tax and accounting issues could be a headache. For instance, my financial adviser recommended that I look at the seller’s audited books. She kind of squirmed when I asked! Obviously, prior cash flow is one of the best ways to tell if I’m paying the right price for the business. If I buy the business, I will need an accountancy or bookkeeper to look after these details to keep things tidy.
- The current owner built the business from scratch and regular customers like me actually come to the kiosk to talk. She’s a lot of fun but I’m more introverted.
Ultimately, I’m concerned that my part-time help won’t be up to the task of managing the kiosk. I know that I’m not going to quit my current job. It looks like the kiosk still demands the owner’s full-time attention at this time.
I’m also a bit concerned about maintaining favorable terms with current suppliers. The owner has actually sought out artisans and, on occasion, features an artist show. She makes it look easy but I wonder how much time this requires and I’m not sure I can develop the same type of relationships with them not being an artist myself.
Finally, I’ll need a lawyer to make sure the transfer paperwork is in good order. I don’t have a lawyer and really don’t know where to find one. The few referrals I have want several thousand dollars on retainer!
As much as I’d love to buy this business, I believe there are too many questions about how to evaluate it. How do I know I’m buying right? What’s more, I believe this is also a high touch business that will require too much of my off hours.
Have you considered buying a small business or have you already purchased a small business? What about franchise options? How do you manage a small business if you’re someone else’s employee? I love my job as a nurse and hope I can find investment opportunities that allow me to use at least some of the skills I have. I’m not a natural salesperson.
What do you think?