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Buying a Supermarket Business? Avoid These 8 Pitfalls

Buying a Supermarket Business? Avoid These 8 Pitfalls

Buying a business is relatively a straightforward process. You choose a supermarket business for sale that suits your needs and communicate your intent to buy. You inspect the store and negotiate to an agreed purchase price. If all goes well, you close the deal and become the owner of your very own store. For the uninitiated buyer, however, there can be room for costly mistakes.

Here are eight errors to avoid when buying a supermarket business:

  1. Buying the wrong business. Before you begin selecting an ideal supermarket, ask yourself if you are truly ready to be a supermarket owner? Have you interviewed any supermarket owners or do you know someone who can share the good, the bad, and the ugly to help you make an informed decision? New store vs existing store: are you aware of the pros and cons of each option? Would you rather be running a different business? The moment you begin to be apprehensive about your intentions and the business itself, you might need to take a step back and carefully deliberate if venturing into the supermarket business really is for you.
  2. Assuming it will be easy. If you begin the business buying process expecting a walk in the park, you might be in for a surprise. The process may not be as complex as running the business itself yet, but it will definitely require your attention, time, and resources, among many other things.
  3. Not Conducting Sufficient Research. Due diligence is one of the most crucial steps when buying a business. It lets you determine whether or not the supermarket will be a suitable investment, or if it is even the right one for you. Some of the vital questions you need to answer are:
  • Why is the supermarket business for sale? Is it because the owners are retiring, or is it because the sales are dropping? Is the competition steep in the neighbourhood it’s located?
  • How profitable is the store? The business may have an impressive façade and profile, but what story do the numbers tell? Can you interpret financial statements? If not, you may benefit significantly by involving your Accountant to help you.
  • What is the store’s reputation?How is the business perceived by its potential customers? Does it have a good track record? Is it valued and well-loved by the community it serves?
  1. Unfavourable Contract Conditions. The purchase contract defines who is responsible for the different elements of the business: assets, liabilities, stock, lease, trademarks, repairs, and others. Make sure all the salient details of the business are clearly stipulated and the contract does not leave you exposed and liable for obligations beyond what you have planned for. You should look to engage the services of a Solicitor to help navigate this step in the process.
  2. Not Enough Money. There are a number of financial options you can access to purchase your supermarket business, but it’s critical you budget sufficiently to cover not just the purchase price. Stock is normally pretty extensive in the handover of most supermarkets and prices are normally Plus SAV (ie. Plus Stock At Value). Stock can sometimes run into the 100s of thousands of dollars. In addition, you should budget for a lease deposit and landlord surety, cash floats, and sufficient surplus working capital to cover any surprises in your first months of operation.
  3. Over Zealous Reforms and Changes. There may be aspects about the business you don’t like, but you should be mindful about the timing of modifications you implement – whether it be giving the store its much needed facelift or altering its existing organisational structure; the changes you make can either make or break your business’ performance. Think things through before you make a move and consider the timing of these changes. It can be prudent to ‘freeze’ changes for the first 3 months and just keep a ledger of ALL desired changes. At the conclusion of the 3 months, prioritise the list – it may surprise you that some of your pre-purchase ‘musts’ have fallen or even dropped right off your priority list because a shift in perspective arose from your actual operating experience.
  4. Failure to Market the Business. Just because the store is already established, doesn’t mean you should cease marketing the business. Continuous advertising and implementing applicable marketing strategies let your supermarket gain new customers and help keep retain existing ones.
  5. Attempting to be a ‘Lone Ranger’. Even if you already have prior experience in buying a business, getting the assistance of experts can make things a lot easier. A Solicitor can help you establish a favourable contract, while an Accountant can help you read and interpret the business’ financial statements and identify opportunities to save money, especially in matters like taxation. Finally, a Business Broker can assist you in finding the right business that matches your goals and finances, then support you through the entire buying process – sharing with you their wisdom and experience.

Buying a business will likely be one of the biggest investment choices of your life – hence avoiding these 8 pitfalls will help ensure you’re on the right track!

If you’re interested to enter the supermarket industry by buying an existing store, but have questions or concerns, we’d love to discuss these with you. Click here to register for a quick chat with one of our experienced, supermarket specialist staff who’d be delighted to help you on this exciting journey!