Beware: If you’re considering buying an existing convenience store
business be sure to consider all the issues, obstacles and processes
before closing the deal
PUBLIC'S demand for local convenience stores has increased, so too
have the number of convenience stores and their value. Many investors
and entrepreneurs interested in the food industry have recognized that
convenience stores are an attractive, fast-growing and creative
alternative to other conventional retail food formats.
as the demand for successful and well-run c-stores has increased, many
retail owners have been able to command high purchase prices for their
businesses. While there are many excellent opportunities, purchasing a
c-store is a risky endeavor where:
seller assurances may not in fact be guaranteed or adequately secured;
of capital are required up front (i.e., the down payment, cash
portion of the purchase price, working capital, etc.) and over time
(assuming a portion of the purchase price is payable via promissory
will be undertaking a Herculean physical, financial, emotional and
psychological effort, in an attempt to ensure that his or her decision
to purchase the store was justified.
is a brief overview of the issues and considerations involved in
buying a c-store.
Phase One. When
considering acquiring a c-store, it's vital you ask yourself the
following questions to ensure success:
What are your
short- and long- term goals (financial and personal)? Why do you
believe that buying a store will serve to achieve those goals?
understand the risks associated with buying and operating a retail
food business? Have you ever worked in a c-store before?
prepared a business plan that compels you to consider all of
the relevant issues, thereby identifying in advance your strengths and
weaknesses? (If you have a partner, ask these questions of him or her
currently in a position (financially, personally and experience-wise)
to go forward and commence the due diligence process?
Before going any
further, interview and retain the counsel of a competent accountant,
business consultant and attorney (counselors); they have the
professional experience and insight to assist you in your Phase One
analysis. Further, consider having a meeting that all of the
counselors attend. Their insights are far more valuable when they can
brainstorm collectively. Lastly, consider having a third-party
colleague sit in on the meeting and take detailed notes to help
you recollect the details of the group discussion and, more
importantly, they may raise issues you had not mentioned or
Phase Two. Once
you are confident you have a good perspective on the endeavor and are
prepared to proceed with the preliminary negotiations, ask yourself
the following questions:
On what basis
has the seller determined the purchase price? How does he or she
was your due diligence (investigation) into the business in question?
What is the
advice of your counselors?
conducted a trial run in the convenience store you plan to buy?
Why is the
seller selling the business?
every seller will have any number of seemingly acceptable reasons why
he or she is selling and why you are getting a great deal, remember
that the seller's job is to overvalue the business and possibly
dispel any concerns that you have or should have about the value,
profitability and/or viability of the business. Remember, owners are
more likely to sell their business when it is troubled, rather than
when it is thriving.
Once again, bring
your team of counselors together and get their collective input at
this stage. Have your counselors prepare a cumulative checklist of
questions (for each prospective seller to answer) and a list of
documents (such as tax returns, books, records) for prospective
sellers to provide. Be careful! Do not negotiate or sign anything
before consulting with your counselors.
Phase Three. It
is imperative that you not narrow your focus to any one business. For
negotiating leverage and added perspective, you will be well served to
consider a number of other possible target convenience store
businesses. Once you have narrowed your search to a few c-stores you
can commence a more thorough and detailed due-diligence investigation.
(See "Selecting an Attorney and the Due Diligence Process,"
Page 54 in the March 6, 1995, issue of CSNews.)
You, not the
seller, are taking the biggest risk in this transaction! If the seller
is reluctant or unwilling to address the questions posed by your
counselors at this point, he or she may be attempting to conceal
certain detrimental factors that could adversely effect the value,
profitability or viability of the business.
Have your counselors
arm you with a list of questions specifically tailored to the
businesses you are considering. Once you have gathered the information
from the prospective sellers, meet again with your counselors and have
them critically evaluate the merits and detriments/risks associated
with each potential deal.
Phase Four. Before
going to contract, have your counselors conduct their respective due
diligence. By doing this before negotiating the terms of the contract,
your attorney will be armed with the respective insights of your other
counselors and will be better able to identify and address the
apparent and not-so- apparent risks associated with this business,
which could significantly reduce your exposure.
point, you may be asking yourself, "At what point in the
negotiations is the deal not worth proceeding on?" This is
precisely why you must pursue a number of possible acquisitions. If
you are being requested by a seller to make too many concessions, you
will be able to make a comparative analysis and know when to walk
While a favorable
con- tract is a prerequisite to going for- ward, guarantees and
assurances stated in the contract are only valuable when supported by
protections such as an escrow fund, which can be used to off- set any
breaches or misrepresentations by the seller.
In the final
analysis, the most essential consideration is basic: "Why is the
seller really selling?" Another question you must ask yourself
is: "How salable is this business?"
addition to the stream of' income you hope to generate, you should
also take into account the resale value, profitability and viability
of the business and the potential capital gain you will realize when
you decide to sell the business. Lastly, because entrepreneurs are
often by their very nature over-confident, attempt not to taint your
analysis of the business with any expectations of increasing the value
of the business. The business must stand on its own two feet.
investors and entrepreneurs have recognized that convenience stores
are an attractive, fast-growing and creative alternative to other
conventional retail food formats.
NOTE: This article
is intended for information purposes only and is not to be considered
legal advice. Do not attempt to solve your individual problems based
on the general information provided here.