So it might be time for me to revisit how I got here. I was working about 60 miles north of Long Beach for an e-commerce company (we used to call these guys mail-order companies). My mother lives in Long Beach and as we moved out from Arizona we all settled into her house. We were looking for a place closer to where my work was when I called into the office and told my services were no longer needed. You never get an honest answer as to why, so I cut the owner off and just said thanks and that was it. Now I had moved from AZ and even though we were secure in my mother’s house we didn’t know what we were going to do next.
My mother had been using this store called the Postal Annex. She used them to print off her church newsletter because they had the cheapest color copies in town. She had heard that they were selling the store. She suggested I buy the store. Where else would she get her copies if I didn’t buy it. I didn’t know anything about buying a business. I actually had Kim go in and ask them about it. They told here they didn’t know anything about selling a business and that they had contracted a broker. She got the broker’s information and gave it to me. I called him just to check it out. Now this broker was in the business of selling businesses. He didn’t make any money if someone didn’t buy the business. He put me on the train and I never got off.
The first thing the broker got me to do was to give him a check for $5000. His logic was that once I made an offer (with a non-refundable deposit) then I would be in the driver’s seat. This is true. So I gave him the check and offered them their asking price of $89K. They accepted the offer. Supposedly I was now in the driver’s seat. The reality was that the broker was in the driver’s seat. Before I made the offer the only information I had was that their adjusted net was $90K per year. I now know that number is meaningless. It is true that I couldn’t get more information until they had accepted my offer.
As a side note I was not aware of BizBen.com. It is a site where business are listed for sale. In fact this business had been listed there. Here is where you can find similar listings. All of the information there is debatable. What you are getting is the price the owner is asking. Adjusted Net can mean anything from gross profit (sales – sales cost) to actual profit. Most likely it does not include the cost of employees. To assume anything other about that number is worthless. Now I would want to know the price the seller is asking, their gross sales, and their total rental expense. That is not enough information to make a solid decision, but if you know the business a little you can make guesses about the rest. Other than that you make an offer and then dig into the finances.
The first red flag should have been that the current owner did not have good finances. Simple questions like “How much did you pay for shipping last month?” were beyond his comprehension. “I pay the bill when it comes in” was his response. I found out later he paid the bills when he had the money. They were going out of business slowly.
The Postal Annex is a franchise. There is good and bad with that. I gave them $18,000 last year. Did I get that value back? I think so, but that is another discussion. The key is that the government requires certain cooling off periods for signing contracts with franchises. That is a good thing in my value system. I didn’t really understand all of that, but the effect was that the broker told me that some things needed to happen pretty quickly. He was in full control of this process. The franchise had to get me some paperwork and I had to sign that I got the paperwork by a certain date. There were two things the broker was pushing for, first he wanted me to get paperwork done in time to attend the franchise’s training. I couldn’t attend until I had the paperwork for a certain period of time. I hadn’t signed anything except that I had received their paperwork, second the broker was pushing me to get in the store for the December rush. He claimed (not without reason) that December cash flow and profitability was the greatest and that I did not want to miss that but dawdling.
I can’t remember why I agreed, but I paid for and attended the franchise training in San Diego. Now that I have had the store for 2 years I can see that the training was a good thing. In my mind I hadn’t decided to go through with buying the store. I kind of learned about the business that I was getting into, but some things they said I didn’t like and I still don’t follow. For example they recommended that every customer sign a release of liability before we shipped anything for them. I know that the franchise sees all of the bad stuff that happens. I thought it was a real bad customer experience and we probably never do that. Another thing they recommended was that we pay the employees who do notaries a bonus of $2 every time they do a notary. I questioned them why a store owner would do that. They kind of just said that it was customary. Well I have never done it and that is about $5000 in my pocket. There are other things, but that too will be another story.
In short I signed the documents and I never got off the train. We closed the deal and now I own the store. I still feel like it was a good deal, but lets look at the downsides. I lost money the first year and I just made $60k last year. I still live with my kids at my mother’s place. Is this store going to get me out of my mother’s house? Not if I don’t do something drastic. That $60K has to be north of $100k just for me to think it is possible to live here in LA. I like the work, I really do, but it is 13 hours a day 6 days a week.
Here are some intangibles. The store is across the street from the High School where 3 of our kids go to school. After school they come here and hang out in the back with their friends. Priceless. Yesterday Kim and I went and visited a store in Pasadena to see what we liked about what they were doing. In the middle of the day Kim and I were gone for about 5 hours (ok we got lunch and saw a movie too). That was nice. When I taught HS Math for two years I never thought about the fact that I could not just get up and go to the bathroom whenever I wanted to. It never occurred to me. Soon after working in a bank I got up to go to the bathroom and it dawned on me how incredible that was. I don’t appreciate that anymore, but I do remember that moment when it seemed incredible. I am trying to enjoy those moments that are special about owning this store.