Me and the missus spotted a business for sale while we were out the other day. It's a Cafe in a touristy/outdoorsy area. It's quite well established – I remember going there nearly 20 years ago.
This is only pie in the sky but what would I need to know/find out to take it a stage further? Any common sense, advice, thoughts, encouragement, discouragement etc etc gratefully received.
Thanks.

Hire an accountant / auditer (?!) to go through the books with a very fine toothcomb.

What the hell is a toothcomb anyway – Ah!, sorry, a fine toothed comb.

look beyond the accounts as they often dont tell the whoel story – for example leases may often only show up as short term liabilities as there's no obligation to capitalise the non-contingent rent obligations of the future.

using the last 5 yrs trading accounts, test the strength of the business in repsonse to shocks by looking at key ratios.

What happens to free cash to equity (i.e. you) if interest on debt goes up by 2%, 5%, 10%?
How much debt can you raise if you need to refit the kitchen in year 2, or year 5 or year 10? and how much free cashflow to Eq is there when you service it?
How low can turnover fall off before you run out of a) drawings for you or b) money to pay creditors?

A few things to start with:

Turn over for the last five years.

Costs for the last five years (operating costs such as rates, service charges, labour, services (gas etc)

List of assets belonging to the business as well as value (be it from your own calculations)

Dilapidations to the property any any short term capital investments required

List of creditors and outstanding accounts

Outstanding supplier invoices

With this simple list you should be able to get a view on how the business has performed and is likely to perform under your control.

Also are you buying the business or taking on just the premises, if you are buying the business is it a limited company

What people are describing, and what you need to do, is "due diligence".

I would suggest that the primary area of concern is financial (does it stack up) and is the valuation of the busi9ness fair. After that, it's down to some legal DD – this would be pretty minimal in relaiton to this type of business, but should cover: property (lease), supplier agreements, any employm,ent contracts (and if there are employees, think about pensions, etc.).

If you are borrowing from a bank to make the acquisition, then the bank will likely want to be satisfied with the quality of the due diligence reporting.

Oh, and montylikesbeer asks a good question: is the business incorporated (as a company – identified as Name Limited) and are you to buy the company (i.e. acquire the shares in it) or are you buying goodwill and assets (i.e. a going concern)? I assume the business is trading, and not bust.

If you are buying a company, you take the whole thing with all of its assets and liabilities (but you need to do your DD to make sure you know what these are – you wouldn't want to be landed with an undisclosed tax bill). If you are buying the goodwill and assets, you can be more choosy, but the acquisition process is a little more detailed (you need to DD every asset).

In either case, you need the advice of (a) an accountant used to valuing and acquiring businesses of this type and (b) a lawyer capable of ensuring you are properly protected in case something does go wrong.

Don't let all this put you off – it's a normal part of any business acquisition from five grand to five billion.

Sounds exciting – go for it..!

All great advice above – just remember the costs of all this DD and advice; there's no such thing as a cheap accountant or solicitor!!!

The next question you have to ask is – what do you bring to the business? Are you experianced in running this type of venture? What can you do to improve the current owners business?

Final thing to bear in mind – buying it costs money and I'd guess you'd look to borrow it. As you'll have read that's not the easiest thing in the world at the moment!?! The chance of raising a mortgage/further lending against your home would be vitually nil, so you'll need to look at a business loan or commercial mortgage. The Lending Manager is going to want to see detailed business plans, cashflow forecasts and all the above mentioned DD – try the web-sites of Barclays and HSBC for some free start-up downloads. Business Link are also a good source of info for start-ups.

Finally, if you're goinig to see someone about raising finance to do this the old rules apply; if you want to run a business look like a businessman – dry clean the suit and polish the shoes!

It's a good idea to look closely at the volume of some of the more obvious purchases (eg Milk, bread) to see if they conform to the turnover they are claiming.

This is where an accountant with experience handling similar businesses will be worth his/her weight in gold because they should spot any anomalies.

I work for a Independent broker, who help sell small SME's.

Its very tough at the moment out there MrSparkle, if you can get funding to buy, you are in the minority.

Most here, are trying to buy on deferred payments plans, good for the buyer, no so, for the seller 😉

Do you know the real reason the seller is selling?

Good luck btw