Buying a Retail Business? Here’s How to Spot “Diamonds in the Rough” with Untapped Potential
By Richard Parker: President of The Resource Center for A Retail Business™ and author of How To Buy A Good Retail Business At A Great Price© .
It’s great news if you are thinking about buying a retail business. However, just be sure to take your time and do your homework.
Because the fact is, some stores have tons of untapped potential to earn big money in the hands of the right owner. Other stores are simply duds, with no potential. No amount of work will turn them around.
How can you tell the difference? You can start by asking the right questions:
Does the store have unrealized demographic potential? Perhaps you are looking at an older “mom and pop” food store in a neighborhood that has recently been transformed by the arrival of younger, well-to-do families. If so, you can look at adding some items that address the new demographics. Or maybe you are buying a bicycle store in a wealthy suburb that really should be offering high-end trail bikes and road bikes – not just the plain-Jane selection of mid-price models that are currently on the selling floor. Note that this kind of problem often exists in retail; a Seller has been in place for too long to notice that demographic changes have brought new buyers, with new tastes, into the area.
Is it a good store that has suffered from shoddy supervision or management? Often, such problems are easy to spot. Perhaps you are considering a store with a great location and good inventory – but an indifferent and hostile sales staff. Or perhaps the Seller is an absentee owner who has never supervised operations sufficiently - and the store went downhill. If such conditions are present, they may offer you the opportunity to boost profits by making quick, pinpointed improvements.
Could technology boost the profit potential? Are employees spending their time doing manual inventory, labeling products by hand or engaging in activities that can now be handled more cost-effectively by automated equipment? I would suggest doing a careful analysis to find out how many hours – and how much money – automation improvements can provide.
Do vendor relationships need to be reviewed and/or changed? Effective retailers are constantly on the lookout for new vendors and products– and constantly reviewing the terms offered to them by their current providers. Be sure to ask the Seller who the current vendors are, how long they have been in place – then contact them to negotiate for more favorable terms. Also, be aware that new vendors can offer highly attractive terms to win your business. Signing on with them can give your store a quick boost in cash flow and profitability in your first months of ownership.
Those are only a few nuggets of wisdom about buying a retail business with unrealized potential.
This article represents a fraction of what you’ll learn in How To Buy A Good Retail Business At A Great Price© - the most widely used reference resource and strategy guide for anyone thinking about buying a retail store. Read a detailed listing of what you'll learn.