The Grande General Store Investment

The Grande General Store Investment

In the suburban area of Denver, Colorado, Rocky and Anita Grande are selling their small general store that has been in the family for three generations. They are faced with this decision because they have no one to pass down the store to since their children have no interest in keeping the family business, however, it is time for the Grande's to retire so they can spend more time with their grandchildren. Mr. and Mrs. Grande are looking for a qualified buyer who is willing to pay the highest price possible. The Grande's will allow the new owner to continue with the family name and wish to see the business continue to flourish. They hope to see the store excel in the hands of the prospective new owners and continue their legacy for years to come.

The purpose of this paper is to assess the investment opportunity of the Grande General Store by evaluating the summary of financials for the past five years of operations and projected economic outlook of the area. The property and reputation of the store make it very appealing. Because the Grande's are well respected, the customers and contractors are extremely loyal despite cheaper prices and variety of other competitors. Over the years, the business has transformed from an old-fashioned general store into a traditional hardware store.

Even though this business has its original buildings from 1948, the Grande's have done several updates. Some of the upgrades include a new fleet of delivery trucks and forklifts, state-of-the-art computers, and paint processing equipment. The inside of the wooden building still has the antique charm with original display fixtures from Rocky's grandfather. Perhaps the most attractive part of the deal in the eyes of an entrepreneur is the seven acres of land that would provide a great opportunity for expansions or property for other businesses. The Grande's have not officially put the business on the market and they still need to figure an asking price. Before making any investment on an existing business, "one should inspect all financial records, accounts receivable, tax returns, and any contracts, including the franchise agreement and spend ample time with the current owners, talk with employees and some customers and survey the location" (Spors, 2006, para. 8).

Question 1: Investment Opportunity

The following report represents my decision to support the purchase of the Grande General Store. According to an article in the Wall Street Journal, buying an existing business has many advantages and is a wise choice if one lacks the creativity or time to create a new one from scratch. "You'll inherit a working infrastructure complete with resources you'd otherwise have to secure on your own, such as equipment and employees. You'll also ideally be taking over a known brand built on a positive reputation over many years' time." (Needleman, 2011, para. 4). The store has deep roots in the community dating all the way back into the 1940's. For that reason alone it brings a favorable amount of repeat business into the store by generations of families in and around the surrounding area. There is plenty of data that states a fair amount of contractor business still remains due to the loyalty of the customer. Many times in business, its about the customer service and personal relationship given to a customer that keeps them coming back again and again. If you give them a pleasant atmosphere to shop and provide them with a workforce that has tenure you, will most likely see a high retention rate of customers. One theory is when you have a happy workforce it will spill over into good morale and create an atmosphere that is pleasant and easy to deal with. This can especially affect contractor business, whereas, they are more likely to use the store on a daily or weekly basis.

After assessing the business from top to bottom, I would decide on my point of indifference. The amount of money I would be willing to invest in the business will come from some hard numbers crunching and financial decision that would support the outlay of cash. Katz and Green (2010) state that, "it can be difficult to determine what a small business is worth. The value of a small business can never be known with certainty. You must rely on analyses, comparisons, and estimations" (p.162). From 1998 to 2002 the company has seen a net income increase by an average of 41%. In the same time frame sales have increased at an average rate of 16.25%. An average higher than 10% a year would certainly peak my interest as an entrepreneur in any business. The bank is willing to loan approximately 80% of the current value of the land, equipment and the building. One must take that into consideration when placing an offer. Any smart investor never wants to compete against himself. Therefore, I would put it out there to ask the current owners how much they would be looking to get for the company. With that said, as long as the number didn't go above 20% of the current value, I think it would be a good starting point for negotiations.

There are still risks when buying an existing business. According to Katz and Green (2010), "purchasing a business has it own, unique set of risks" (p.162). Along with my negotiated price, I would have other contingencies about the terms of the sale to help reduce my risks. I would request that the current owners stay on for at least one year after the sale of the business to act as a buffer and smooth out the transition. This tool will help the continuity of the business tremendously. Getting to know certain processes and being able to iron out any details of the business, while having the previous owners serving as consultants, will certainly streamline the process. Another concern is employee performance and retention. "Employees who performed well