What to Look for When Buying a Floral Business

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In some ways, purchasing a floral business is similar to buying any type of existing business. There are certain questions that should be asked of an existing business owner no matter the industry involved. However, there are also questions to ask that pertain specifically to the floral industry itself. Failing to get complete and accurate answers answers in could prove to be costly for a potential buyer.

Things to Look for in Any Business

  • Determine the asking price. Ask for a detailed description of how the price was set. A business is valued based on several factors. Some have a “hard” value like the building, equipment, tools, inventory, supplies and materials. Others have a “soft” value like the business’s reputation, customer list, vendor list and current employees. In order to determine what the business is worth, the buyer must determine if the asking price is in line with its reasonable value.

  • Find out the real estate value if that is part of the purchase. A commercial real estate agent can be helpful in this respect.

  • Determine if the property can be rented if it is not included as part of the sale. If the leasing terms are not acceptable, the buyer may need to search for other property. Be sure to establish who is responsible for upgrades, maintenance, and repairs since those items must be included in any future budget.

  • Ask for a list of the equipment and tools. The information provided must indicate the equipment’s age and condition as well as its current market value. Current market value refers to replacing like for like. It does not include information about equipment or tool upgrades or any change in equipment or tool type.

  • Request a detailed list of supplies, materials and inventory included in the sale. The information, once again, must be detailed and highly specific. Outdated supplies, materials and inventory may actually become more of a liability than an asset, especially if the items have not been properly maintained. Determine how much additional inventory or replacement materials and supplies will be required.

  • Determine if the business owes any back taxes or has an outstanding worker compensation claims or pending lawsuits.

  • Negotiate the transition. In some instances the previous owner is willing to remain on board until the new owner is comfortable with the transition. Determine if this might be advisable and negotiate accordingly.

Things to Specifically Look for in a Floral Business

  • Obtain a list of floral vendors. Ascertain if existing lines of credit, discounts, or special deals will continue once the business changes hands. Research to see if other vendors might provide better or more economical options. Be cognizant of any potential problems in the areas of shipping and handling, turnaround time or inventory quality control.

  • Pay close attention to floral coolers. This equipment is critical to the success of a floral business. Examine to determine repair or replacement requirements and analyze that against starting the business from scratch to determine which is ultimately a better route to take.

  • Be cautious of outdated inventory. Such items may never turn over or may turn over too slowly, requiring the new owner to make major purchases upfront to counteract the problem.

  • Obtain a current customer list. Analyze the list to see how many customers are private and how many are business. See if the floral shop has been offering in-store credit. If so, take a look at the turnaround time that has been typical for accounts receivable. Examine the ratio of debt uncollected. Try to figure out how much a change in company policy with regard to credit might impact on the current customer list.

  • Review accounts payable to see how well the floral shop has been able to keep up with its bills. Look for slow periods where the business might have struggled. Determine if it maintained sufficient cash flow to get through those periods or if it was dependent on short-term credit lines. Think in terms of other products or services that the new business might offer to improve the business’s overall cash flow.

  • Examine the shop’s employment needs. Look for the positives and negatives of current employees, if they must be retained as part of the sale and determine how this helps or hinders the business. Determine any additional employment needs, if any, and figure out how those needs can be filled.

  • Negotiate the transition. In some instances the previous owner is willing to remain on board until the new owner is comfortable with the transition. Determine if this might be advisable and negotiate accordingly.

Tips & Warnings

  • Property can be an asset or a liability. Explore the option of leasing the space rather than purchasing it in order to leave the door open for relocation or future expansion of the business.
  • A new floral shop owner may need several inspections performed before a realistic property value can be established. These would typically include a termite inspection, electrical, plumbing, and heating/air conditioning inspections, as well as a safety inspection.
  • Make certain, as the new owner, that credit lines are possible for those times of the year when the floral business experiences down time.
  • Typical down times for floral shops include January; after Valentine’s Day through April; July; and October until Thanksgiving. That period may be severely expanded if the business does not handle weddings and/or funerals.
  • If the new floral shop owner isn’t a strong designer, he or she may need that skill immediately. If the shop already has someone with that talent on hand, that is a distinct positive. On the other hand, a shop full of salespeople may be of little or no value.
  • Outdated or poorly maintained tools and equipment (like flower coolers) could end up costing the new owner more money than starting a business from scratch.
  • Floral vendors can be key to the success or failure of a floral business. Vendor flowers must be timely, fresh and in excellent condition when received or the business’s whole schedule and reputation could be destroyed.
  • Purchasing a business without making sure it is debt free is foolhardy. Once the business changes hands, so do those outstanding debts.
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