Considerations before purchasing a small business?

My biggest thing is......why is he selling?!?!

I wouldn't sell my convenience stores EVER

1.I would lease them and collect rent

2.I would put a manager to run them if it was more profitable than renting it out

Depending on the type of business you are buying that's my first question. If it's any type of service business especially.

As for the books, you aren't going to be too happy, I really don't know any small business owner who reports every dollar truthfully. Nowadays with the high volume of Credit cards, you will get close to the real "sales" number bc sales are probably 80%+ with CC but I wouldn't put too much stock into the cash number......in fact its probably significantly higher and unreported

Just make sure you know what you are getting into if you are leasing, for example if its a triple net lease and you are responsible for property taxes,maintenance, etc

If you are financing, see if the owner would do owner financing bc bank financing on small businesses can be a pain in the keester

One final recommendation, if you are buying a franchise, please buy a big name one, what I mean is I've seen so many friends lose their hard earned life savings going into business opening :firehouse subs,roly polys,16 handles, etc ..... those companies are great but they dont invest enough in advertising so when people are given the choice of say subway or firehouse subs they choose the former on a much higer frequency. I hated seeing my friends blow so much time saving up at their previous jobs just to lose it in those ventures,so please be careful

right on vols, lots of times a small business owner knows a competitor is going up nearby and is worried about a change in his business. It could be something as simple as an exit on the highway undergoing remodeling for a few years affecting the business. There really is a reason he is selling beyond " I need the money for something else" .....people DO NOT SELL successful businesses, or let me rephrase that, they rarely sell successful businesses

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Which product sells quite a bit that you really don't make much on? (Other than gas, how much do you make on a gallon?)

Which product do you no longer carry because it was terrible?

Also, reaction to this article on PM? LINK

How do you decide how much of each product you have on hand?

Do you sell cases of diet mt. dew? It drives me crazy when I can't find those in a gas station.

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1.Gas is a funny game, it's all about location. I own 3 stores in bad neighborhoods where we make .08-.10 a gallon....and that's before CC fees, but we have to in order to compete with other stores(some are company owned) so with those they make a little more bc they own the jobber(gas delivery) so they make a little more but they make it tough to compete, so we lower prices to get people to come and hope they spend money in the store. I own a store at a super busy intersection and I make .20-.25 a gallon there, so it's all relative.

2.Lowest margin? Probably cigarettes, you make almost nothing percentage wise but in true profit its high, close to $1/pack. Some packs you get rebates from the manufacturer so it's a little more. Lottery sucks arse, 5% and they force you to buy high dollar tickets to get the cheap ones.I honestly wish I didn't have to participate in lottery, other than the days the jackpot is massive and we sell thousands of tickets its just a pain to deal with scratch-offs and they tie up your capital senselessly. I probably have $40K in scratch-offs in my 4 stores combined and they generate 5%/ticket....and we don't sell that much

3.I don't have diet mt dew bc that comes from a vendor where your margins are cut, I buy all my sodas/candy myself from sams club bc I save a good 30-40% and since I live around the corner from a sams club its easy to get an email everynight and pick up everything in the mornings since I have to go there to get the cigarettes anyways.

4.Don't read negative articles on PM, its a joke, altria/pm is the best performing stock of all time and that includes years of "smoking is on the decline" and the gigantic master settlement altria had to pay the united states every year still. They spun off PM bc there was no sense in the United States tobacco settlement hurting the company. Smoking rates are not declining whatsoever but some governments like the phillipines cranked up taxes on smokers last quarter which hurt shipments but higher taxes never stopped smokers here and as they adjust Im sure they will go back to smoking in other countries as well......its an addiction, its every hard to stop.

PM has a giant share buyback like $18B i think over 3 years which will reduce shares this will increase earnings. Live I've said before Im seeing more and more people choosing generic soda at my stores over name brands, so PM/MO is one of the few name brands not affected when customers start trying to save money, their cigarettes cannot be faked. PM owns 7 of the 15 top selling brands in the world, they have the market covered from high end to low end smokes.

Carlos Slim Helu the richest man in the world used to be on the board of the old altria when it was on its dominant tear and after it sell hard in the late 90's I read a piece on him buying a ton so i bought what i could at the time and it worked out very well.......today he is on the board of PM.

Thanks for the advice. I cannot disclose any details at this time but we are taking this very slow and being very methodical with our decision making. Attorney is on board.

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Negative, ghost rider.

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Could he be talking about earnings per share? Would that not increase ?

If you make x amount of money and there are y amount of shares, earning per share is x/y

If you decrease y by 200 then earnings per share go down to x/(y-200) > x/y assuming y is not less than or equal to 200 and x is non negative

Wouldn't the dividend increase in the long run though due to less shares?

wrong....EPS would rise bc there are less shares. Personally I don't like buybacks, but I do see where they're coming from they DID NOT USE CASH but used cheap loans to buy back shares paying 4% in dividends using our low interest rate environment to arbitrage.

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Increasing eps is not increasing earnings (what you claimed). You were wrong.

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He clearly meant earnings per share. You two are arguing over semantics and a misinterpretation there

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And how will they pay back those loans? Please explain to me how it isn't with cash.

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When a company buys back those high dividend shares, they essentially get to keep the dividend/are paying themselves the dividend however you watn to think about it.

So for example, if you took out a loan that you have to pay back at a 3% interest rate and you have dividends at around 4%, you are paying back all the interest with dividends that you saved by buying back from stockholders (since those dividends are staying with the company not leaving for stockholders) and you also have 1% left over to pay back the principle.


Essentially PM is pocketing that difference in yield and interest in the long run as they get to hold the value of the stock and are not losing money to interest