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Buying a Bakery


lackadaisi
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I have a good friend who is seriously considering buying a bakery in a small beach town in the next few weeks. She is currently looking at the books to determine the viability of the business. If anyone has any tips as to what she should be looking at specifically or potential pitfalls, I would greatly appreciate if you would send me a message.

Thanks!

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There are lots of things to do... look at cash flow, taxes for the past couple of years, salary taken, profitability, mark ups, see what is on the books verses off the books transactions, lawsuits, insurance. I suggest hiring a CPA or Business analysis to go over everything to make sure it is legit (due diligence)

I have a good friend who is seriously considering buying a bakery in a small beach town in the next few weeks. She is currently looking at the books to determine the viability of the business. If anyone has any tips as to what she should be looking at specifically or potential pitfalls, I would greatly appreciate if you would send me a message.

Thanks!

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I have a good friend who is seriously considering buying a bakery in a small beach town in the next few weeks. She is currently looking at the books to determine the viability of the business. If anyone has any tips as to what she should be looking at specifically or potential pitfalls, I would greatly appreciate if you would send me a message.

Thanks!

The first thing that I would want to know, after going through the numbers, is the year-round resident population.
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I would look at the tax returns, both income and employement. They are likely to be more "accurate" than the books they are showing you. If there are differences between the books and the returns, ask for an explanation.
You may almost want to do a mini "audit" to see if things make sense. How much supplies they are using to make product. If they are using little supplies but have high sales, that is a question mark.
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the above points are all very good, esp the year round population observation

Is your friend a baker already? The lifestyle can be pretty tough for the uninitiated, particularly in a small business setting (my cousin owns a bakery in a small town and while she loves it she also works an ungodly amount of hours)

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Is your friend a baker already? The lifestyle can be pretty tough for the uninitiated, particularly in a small business setting (my cousin owns a bakery in a small town and while she loves it she also works an ungodly amount of hours)
No, my friend does not bake at all, and she does not intend to start. There is already a baker there, and I believe that they would like to keep the current staff (and, the current staff would like to stay). Both my friend and her husband have full-time jobs that neither intends to quit. So they will need to keep a good staff to run the place. However, they have enough flexibility that they will be able do much of their work at an office next door so that they can pop-in periodically. Neither will be there all of the time, however.
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the above points are all very good, esp the year round population observation

Is your friend a baker already? The lifestyle can be pretty tough for the uninitiated, particularly in a small business setting (my cousin owns a bakery in a small town and while she loves it she also works an ungodly amount of hours)

Going to work at 3AM can't be fun.

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the above points are all very good, esp the year round population observation
Also agree with understanding existing customer base. Important to know if customers are mainly walk-ins or corporate accounts to boutique gift shops/grocers and if their numbers hopefully are growing.

I had a distant memory of a Food Network "Recipe for Success" episode. Two cookie entrepreneurs shared a commercial kitchen in the DC area and were making decisions about growing/continuing their businesses. One made the addictive Salty Oat Cookies sold at Teaism and currently lives/bakes on Cape Cod - she may be a good contact...

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A little different perspective:

Of course consider the financials and the tax returns, but investing in an on-going business is not like investing in a stock or an investment vehicle - you are purchasing, the assets, goodwill and frankly the headaches of running a going concern. So what causes most of the headaches? Take a serious look at the equipment and the physical plant - does it need fixing or will it need to be replaced soon? That should be discounted from the value/price. What about the baker - any "personal" issues that might take him/her away from this wonderful "investment" - don't purchase until you have an emergency plan to replace the baker if need be, maybe do a little looking into the job itself and skill level - how long would it take to find and train a baker replacement if this one is no longer working there?? Why is the bakery being sold - that usually suggests a problem - not to be paranoid, but most businesses are usually sold when there's a problem. What is the upside of this business? It takes about 2 years of running a business before you can really understand all the ups and downs - maybe the owner will stay on board for awhile and train you how to handle things?

Finally why? Why invest in a relatively risky business unless there is high expectation of high returns? I give this as an entrepreneur's rule of thumb - first estimate how long it will take for the bakery to make the profit "you expect" and how much is that annual profit? Double the time estimate for your estimated profit and cut the profit in half - NOW would you still invest in this business? IF the answer is "yes", this investment may make sense, if not, be aware of the "dream/manure syndrome" - we always dream about greener pastures, but we often fail to see the manure we're about to step in!

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Another thing that I like to think about when I'm buying something from someone (as opposed to a company who's sole purpose is to sell me things) is "Why are they selling this to me?" Is it something benign (owner moved away, owner retiring, (god forbid) owner death, etc.) or something malign (owner knows that the largest account just cancelled, owner knows that a panera (or some other competitor) is coming in which will eat into profits, etc.)? Knowing their motivation in selling the business can give alot of information about whether or not the price is fair (or whether any price at all would be fair). If a reason can't be determined, that could be a red flag.

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No, my friend does not bake at all, and she does not intend to start. There is already a baker there, and I believe that they would like to keep the current staff (and, the current staff would like to stay). Both my friend and her husband have full-time jobs that neither intends to quit. So they will need to keep a good staff to run the place. However, they have enough flexibility that they will be able do much of their work at an office next door so that they can pop-in periodically. Neither will be there all of the time, however.

Not to take a shot at your friends, but I cannot imagine anyone running an establishment as potentially glorious or reprehensible as a bakery and not throwing themselves into it. It will never be excellent unless it is the first priority of someone passionate. They may turn a profit, but it will never rise above mediocre. Maybe they should explore a way to bring the baker into part ownership. Otherwise, it's just another Bread and Chocolate and if -- for a moment -- the baker lifts it above that level, (s)he will leave as soon as their talents attract a real backer for their own place.

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