Business Sales Blog

Read the latest updates about Hospitality Businesses in QLD

Before You Buy: Ask These 6 Questions During the Business Inspection

business inspection

Property inspection is another step you should take prior to buying a hospitality business. As part of your due diligence, it reveals aspects of the business that financial statements and other documents cannot provide, and will contribute hugely to your final decision to buy such.

You are entitled to sufficient time to perform due diligence. If the seller refuses to let you pay the premises a visit, consider it a red flag. This could mean that they are hiding something that could compromise the deal or put you at risk. Inspection is vital because it tells you the condition of the physical components of the business. It also helps you find factors that could mean additional expenses. Make sure to bring a notepad for your observations.

You should have access to all areas of the business. Check all elements of the building: the stairs, ceiling, walls, floor, shelves, windows, doors, counters and others. Turn the lights on and off to see if the switches are working. Test the power outlets. Test the faucet. Check the toilets. Look at the plumbing. Find the emergency exits. Ask if there is a firewall. Determine the noise levels in different areas of the building. Check for smells. Look for areas that need repainting.

At the same time, check the equipment. Are the cash registers working properly? Are the computers functional? Does furniture need updates or repairs? These will tell you if you need to spend more on replacing or updating equipment. You may include your findings in a property inspection report. Aside from being a handy guide, you may also refer to it when negotiating the price of the business.

During your inspection, you may take the time to observe the staff, in case you came at a working day. Take note of their behaviour towards customers and each other. Try to gauge the culture. You may also look at the shoppers for you to have an idea of their preferences. Your observation will prove helpful when you begin to determine strategies to interact and form relationships with them.

Before you end your due diligence, make sure that the following questions are answered:

Why is the owner selling the business?

You’d want to know this because it will provide clues on whether there is any trouble. There are many reasons business owners want to give up their source of income: pursuit of a different business, migration, shift in goals or focus, family troubles and retirement, among others. Depending on the level of discretion set by the seller’s terms, you may have to ask customers, staff and other individuals involved in the business to obtain a clear picture of the events that led to the sale.

When did the owner decide they wanted to sell?

When the owner decided to sell their hospitality business is just as essential as the previous question. Similarly, the answer can provide clues into how the business is doing. A good answer to this enquiry is that the owner decided to sell the business after much thought, and he has already implemented plans to make the transition to the next owner easier. A sudden decision to sell could be indicative of a problem but to be sure, best to check the business’ financial documents to understand better.

What are the provisions on lease?

You don’t want to buy a business only to find that the lease is about to expire. This could mean additional expenses and stress on your part as the new owner. Determine how long it will be before the lease expires. In case there isn’t much time, determine who will make the payment. Make sure that you are introduced to the landlord.

Does the business depend on one or a few customers or vendors?

That the hospitality business depends very heavily on any specific customer or vendor is not good news. Not only does this pose limits to your input as the store owner, mostly because your decisions will depend on the whims of said supplier or customer it also puts you in greater risk. Any trouble within this individual or supplier will cascade and affect your business.

How long or how often does the owner work in a week?

Running your very own hospitality business is a big responsibility, but it doesn’t mean you have to let work-life balance go. You can ask the seller how much time they spend working on the business every week so you have a good idea of the amount of time you have to put in. You may also ask how many days in a week the store is open. This way, you form an expectation of how you will manage the business.

Will the owner stay for a while after the deal is closed?

Taking over the hospitality business means inheriting the business’ customer base and management from the previous owner. The seller may stay behind to make sure you are introduced to the employees and to some of the store’s frequent customers. This is usually the first step in establishing a beneficial relationship in a setting where trust and familiarity factor in hugely. If the owner decides to move on immediately, then you should find ways for the customers and staff to warm up to you.

 

Facebooktwitterredditlinkedinmail

Leave a Reply