Opportunity to buy a business

[gwen's mom]

My husband has been employed at a local bakery for the past 5 years. The owner is a great person but not a good businessman and basically drove the business into the ground. The owner had it for 30+ years and when DH first started there business was great. In the last few years the owner has grown more and more tired of the business and his effort has been minimal. He has not kept up on maintenance in the past year. He was trying to sell the business and building for 425K but ultimately the business has closed and gone into foreclosure. The building also has 3 apartments on the top floor. Now that the business is in foreclosure we could buy it for 140K. This would mean we would have to sell our house (which we owe 210K and is worth 270K) and move into the apartments above the bakery, using the profit on the house to remodel the apartments and repair the bakery. Here are the pros and cons that I have thought of:
Pros

• THIS IS HUGE: DH would have his own business, something he has wanted FOREVER
• We would be able to recover financially...we have a very large mortgage and with DH out of work for a few months we are currently operating in the red
• Maybe, someday, we could be profitable enough for me to drop to part time.

Cons

• We would have to sell our house which we have owned for 2 years and have been remodeling since we moved in. We are finally hairline close to being done and now we would be starting over with remodeling the apartments into a family living space
• There are, of course, cons to owning a food service business…the work is never done, rush times are around holidays, lean months of January and February, DH is a workaholic
• The kids would loose their yard , no kid neighbors, where would they ride their bikes?

Would you take the gamble?

[MacroMama]

Have you and your DH come up with a business plan? Checked to see exactly what it entails to run this business?

Before proceeding, I would make sure you knew every aspect of what it would take to run this business inside and out before even considering it.

Personally, I wouldn't do it because of all the cons you listed, but it really depends on your family.

Good luck either way!

[Defenestrator]

I would take the gamble, but only if you could access enough credit in an emergency to deal with a major equipment repair or major building maintenance (like a roof).

On the plus side, if the business does really well, you could probably afford to move back out again and rent the apartment out and get a more traditional house. YOu might just have to wait a few years.

[A&A]

There are economic factors to consider, as well. The business is probably down because most businesses are down. So your dh may not be able to "turn it around" as quickly as he thinks. No yard for the kids would bug me.

Where will your dh work if the bakery closes and he doesn't take over?

[VisionaryMom]

Is your DH still in touch with the previous owner? Talking to him about what happened may help. Just because business is brisk doesn't mean it's profitable. I have friends who run a super-busy coffee shop. They both work as consultants but wanted to run the coffee shop. It's far busier than when they first started, but they're still in the red. It's getting better, but even with a constant line at the door, profits on baked goods is tough. The average given for restaurants often is 5 years before it's turning a reasonable profit.

Your husband may have had access to the books, and this is a moot point. I just wanted to point out to consider that you may not have the whole picture on what went on with the previous owner. I mean someone who owned a business for 30 years probably didn't just wake up one day and stop caring about it, ya know.

I'm all for entrepreneurship, and I tend to think "woo-hoo, go for it!," but it's obviously a risk. You really need to look at your budget seriously before making a decision. Also consider visiting your local/regional Small Business Administration office and talking with them. They should be able to give you some help.

[Caneel]

First thing I would do is completely ignore the prior asking price. I was a business analyst at a bank for 7+ years and more often than not, owners have wildly inflated ideas about what their business is worth on the open market.

Is the $140,000 for the real estate only? I wouldn't give any going concern value to a business in foreclosure. As far as machinery and equipment, 10 cents on the dollar is a reasonable value. Used commercial baking and kitchen equipment is very easy to come by, there is a good market for used stuff so don't pay much of anything for it.

In addition of the Small Business Development, SCORE is another very good resource.

Originally Posted by VisionaryMom

Is your DH still in touch with the previous owner? Talking to him about what happened may help. Just because business is brisk doesn't mean it's profitable. I have friends who run a super-busy coffee shop. They both work as consultants but wanted to run the coffee shop. It's far busier than when they first started, but they're still in the red. It's getting better, but even with a constant line at the door, profits on baked goods is tough. The average given for restaurants often is 5 years before it's turning a reasonable profit.

Your husband may have had access to the books, and this is a moot point. I just wanted to point out to consider that you may not have the whole picture on what went on with the previous owner. I mean someone who owned a business for 30 years probably didn't just wake up one day and stop caring about it, ya know.

I'm all for entrepreneurship, and I tend to think "woo-hoo, go for it!," but it's obviously a risk. You really need to look at your budget seriously before making a decision. Also consider visiting your local/regional Small Business Administration office and talking with them. They should be able to give you some help.

Ditto to all the bold.

[SleeplessMommy]

with your time frame, selling the house then buying the business probably would not work. (unless the business is still on the market in six months?) it sounds very scary, actually.

[cristeen]

Honestly, I would do it.

Definitely work up a business plan. Talk to the SBA. Try to get ahold of the previous owner. But if all of that looks reasonable, I would totally do it!!

[sleepypeanutsmom]

Gwen's mom, what more have you learned since posting? Does it look more promising?

I'm wondering how close it is to a park? Within walking distance? You could use that for your kid's outdoor playtime. Are there good bike paths in your town?