Buying a One-Man Shop
A young woodworker starting out asks for advice on purchasing an existing business. December 7, 2008
I am looking into purchasing an existing one-man cabinetry/furniture shop in my hometown. The owner is a long time friend whose health is failing and is looking to sell his shop and business. I am especially interested in whether I should buy the shop as a business or have him liquidate and sell me the building and assets for me to form a new business. Also, what works for a woodworking business - LLC, Inc., etc? What types of insurance do you carry on your shops, businesses, and tools? Like many of you, I am cursed with being a woodworker first and a businessman second! This is a huge decision and this is my first time buying a business.
(Business and Management Forum)
From contributor J:
Bruce Williams (radio/newspaper advice source) always recommends that you buy "assets only"! His reason was to legally avoid any previous and future liabilities.
From contributor S:
Buy the assets and customer list.
From contributor O:
Unless this person has developed some exceptional product line or history of work for fabulously wealthy clientele, his business ends when he stops working it. Even if you want to step exactly into his business shoes, you may not get any work from his past customers, or from the location that he occupied. You can benefit from an already set up shop, assuming the equipment is right for the work you plan to do, so that is a minor bonus on top of the assets themselves. But lacking a track record of your own, or a well-developed business plan for how you will acquire work, you're basically stepping into the great unknown. If you can find a way to start the business without incurring debt and/or significant overhead, you would have a chance to be sure it's where you want to go. Maybe you can work out a contingent deal that allows you to test the waters before making the purchase - for example working for/with him for several months.
From contributor H:
I second contributor T's idea. I sold my 4 man shop in Montreal 4 years ago to a complete neophyte who did not know melamine from wood veneer. He gave me a deposit that would be non-refundable and signed a waiver of disclosure and worked with me for 30 days to see if this was something he would like to do. The agreement was that after 30 days he could walk away or buy the business retroactive to the day he started and I would stay on as advisor for 60 more days with a percentage of the profits as my recompense for that period. He gave me 50% of my asking price and had 1 year to pay me the rest in monthly installments. After 90 days I moved to South Florida and was available by phone when he needed me. Keep in mind he had 4 great cabinetmakers to help him as well. It took a little longer than we agreed to get paid up, but basically the plan worked out well. He is still running the business and I had the funds to start over with a new shop in Florida.
From contributor W:
Chances are he wasn't flipping burgers before he bought your business, right? What was his background?
From contributor H:
He was fresh out of Rabbinical college, 22 years old. His father had some money to set him up, and he had helped a friend install an Ikea kitchen... Believe it or not.
From contributor T:
I don't think that we have enough info to give you really good advice. For example, what portion of the business is most attractive for you? Is it the equipment, is it the existing customer list, is it the reputation in the industry, is it relationships with other customers?
One thing is for sure, this one person is the entire business. It would be to your advantage to keep him on for as long as possible to transition the business over to you. He can certainly help with training, but more importantly, help you with business relationships.
I would typically recommend an asset purchase, with some potential for including extra for goodwill, including the name of the business, customer database, etc. However, if all you care about is the equipment, then have him close the business and sell the assets, where you only buy used equipment, and not any extra money toward the business.
From contributor C:
Assets may be the only thing that exists. And even that needs serious scrutiny as those could easily be overpriced. It may be hard to look at this as objectively as necessary given that it's a friend. If you could buy the building with contents for an affordable price, it could be a good move, as in the end you would have a place to work as well as a real estate investment. (Note: investment = buy low and sell high.) Get an appraisal on the building and land and go from there. But keep in mind that good used equipment is abundant and easy to acquire. As for LLC's? I'm just a one man shop and have never seen the need to be anything more than the sole proprietor that I am, though I'm sure others will have different viewpoints. If it can be had for less than it would cost to put something comparable together, it may have merit. The downside is you pay now. Putting something together a little at a time means you pay a little at a time as funds allow.
From contributor R:
But with used equipment only, remember that in place, hooked up and running is worth a lot. Sweat equity, yours or his, is a factor.
From the original questioner:
I'm currently a student in an architectural millwork program at a community college. I will graduate later this summer, and going into business has been my goal all along. I had hoped to start small like a garage business and build up from there, but now this opportunity is staring me in the face. I would have liked to approach him with an offer about 2 years from now, but since his health is failing, he wants to sell now, and he'd like to sell it to me before anyone else.
The owner does custom high-end, mostly residential, with a fair amount of furniture. He's pretty old fashioned, but charges accordingly for the extra time he spends. The building is 40x80, built in 1990. The equipment varies, not a lot of big stuff, but the usual collection of hand and portable tools; an inventory of hardware, fasteners, and lumber that he's accumulated in 30 years of cabinetmaking. The shop sits on about 3 acres in a light industrial park.
I'm having it appraised soon, but my banker tells me that his asking price is probably about right for the property alone, without tools or customer list. So it looks to be a reasonable real estate investment as it is.
I plan to work at a plant nearby to have a steady income until the business gets some air under its wings. I'm single and young-ish and have nobody to support but myself, for now anyway. Has anyone else been through the same situation where the opportunity is there, but you're not sure if you can swing it just yet?
From contributor C:
If in fact you are just paying for the real estate, this could be what they call a no-brainer. These don't come along very often. Can you rent part of the space to help cover expenses until you get it all figured out?
From contributor A:
If you pay the value of the land and existing building, I'd jump on it. You can build another building on the 3 acres and start a little business park. Around here the big deal is warehouse purchasing. Basically you would build warehouse space, partition it off, then sell the space to the tenant. Kinda like a town home. But you still own the land. Or however you set it up. Darn fine business opportunity I see here. Darn fine in many ways.