Purchase of a business in a leased premises help
Hello. I have found interest in purchasing a hair salon in Ontario, Canada. The purchase price will be CAD $48 000.00, consisting of $45 000.00 of good will and $3 000.00 of assets. This is my first time purchasing a business and I need help. I have put $2 000 as a deposit and have opened up my own corporation. I do not wish to use the name of their business nor any websites and social media accounts they may have, since I wish to start new. I have made agreements with the landlord regarding the lease and the only step left is to sign the lease documents. I have also consulted a lawyer regarding the purchase of the business, and they have provided me the purchase agreement document as well as all the closing documentations that both parties will sign. Now, I have sent those documents to the seller for review and they have told me that they cannot accept these documents and are not willing to get a lawyer to check over them. They have said that all I have to do is write down in a few sentences the purchase agreement about liabilities before and after the purchase and that I agree to purchase their assets. However, the purchase agreement they have sent me is only 2 pages long, and it only has their names written on it with no identification provided. There could be thousands of people with the same name. When asked for ID they are not willing to provide and got upset when we simply put their phone number on the agreement. They have asked for my ID's when they are not willing to provide their own. Now when I ask if we could meet and get it all sorted out they seem to keeping pushing the meeting date further. I have interest accruing on my line of credit that I have taken as well as I have spent a lot of money on lawyers and other fees as well as installing the internet and POS machine. I seem to be on the losing side since they havent spent a dime as well as I have been working under the owner at the salon in order to not lose customers for when I take over, since the owner did not want to open it herself after the pandemic restrictions were lifted. I also feel like I made a mistake not signing some kind of agreement when I handed over the $2 000.00 deposit and therefore I have no legal power either. I just feel so stupid for not being more careful. Please let me know what the next steps could be since the stress is really getting to me, and I may just give up and accept all the costs that I have incurred. Thank you in advance.
[{"id": "fyhlbc5", "text": "Be thankful you only lost $2,000. Small price to pay for an education. On your next purchase (keep looking) make your deposit refundable, held in escrow by an attorney, and a 60-75 day due diligence period.", "replies": [{"id": "fyk575s", "text": "That's what I'm thinking of doing. Everything just seems too fishy and its better I lose whatever 5000 I spent on lawyers and the deposit rather than a whole 46k. At least I learnt my lesson. Thanks:)", "replies": [], "depth": 2}], "depth": 1}, {"id": "fyhn7ou", "text": "You lost the 2k. Call it education. The sellers most likely want to avoid paying taxes on the sale proceeds. They sound sketch all, walk away.", "replies": [], "depth": 1}, {"id": "fyhoi9d", "text": "If you dont want their name, brand, website or social media why are you even buying the business for so much money? You are starting a new name from scratch just go buy the equipment you want and start your own. There is no reason to pay then 45k. What are you even paying for when you plan to give them 45k?", "replies": [{"id": "fyibwc6", "text": "Seriously", "replies": [{"id": "fyiw6qi", "text": "They have the rights to a lesser premises that is set up and ready to go, those renovations are worth something, the time commitment is too.\n\nThis is a turn key business and the price point isn't that high. If OP can make a real business out of it they will make their money back quickly (within a few years)", "replies": [{"id": "fyixb5h", "text": "Hey podna - first of all, I am a commercial broker. Do you know the lessee actually has a right to sublease the space or assign the space in their original lease? Do you know what the revenue was for the original business? Margins? Overhead? We don\u2019t know OP\u2019s situation on the acquisition of the business. The benefit is a space that\u2019s already built out for the business. Given the state of the market (all over the country) those types of business are probably vacating is many shopping centers. If they are going to assume the liabilities and walk in traffic of the original business then it\u2019s arguably just ask risky as starting a new business if you are going to completely rebrand and separate from the original business and marketing.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}, {"id": "fyk4zc3", "text": "It's all of their clientele basically. They are not going to be opening another salon ina  10km radius of this one so theres no way they can steal. I want to change the name since many clients complained that they didnt like that the owner wasnt licensed to cut hair and therefore had to hire shitty hairstylists.", "replies": [{"id": "fykk45l", "text": "Ah I see.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fyhto9y", "text": "If you're buying a business it's expected to see 3 years of their tax returns so not providing an ID is a red flag.\n\nHow did you even come to the purchase price? For a small business it's 3-5x EBITA. Was this business only netting to the owner $15k annually? Did it require the owner to work full time so effectively buying a low paying job? Are you sure there's any value here? Better to lose $2k and little time than $48k and years of time.", "replies": [{"id": "fyk5n2g", "text": "The owner actually isnt licensed to cut hair so she had to hire others. Shes selling since she wants to help her husband in their multi million dollar load shipping business. The salon was basically her pass time. In term of the purchase price, I have looked everywhere for over a year and most hair salons charge north of 100k and even 200k just for goodwill. Also I've worked there for almost a month and the sales averages 200 a month. However I'm prob going to book it since they are too fishy to begin with.", "replies": [{"id": "fyk7w26", "text": "Business types don't just have a sales price. It may be what owners are listing at however 3-5 EBITA is the standard. Businesses always sell based on what they make plus assets, and businesses that are exploding in size sell based on future earnings.\n\nDon't just buy a business because you've seen other's selling for the same price or more.", "replies": [{"id": "fyk8znu", "text": "I agree. From what I can see the sales have hovered around 200/day for the time I've been working there. Which brings it to around 72 000 a year. So the valuation does seem to be under market for a salon like this. However these r the revenues after the lockdown where everyone looked like hippies. I should definitely look into their books and see what their true revenues were. However I'm prob going to walk away anyways since the way they are selling just seems too fishy. Thank you for the advice!", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fyhxozo", "text": "Not a lawyer.  If I bought a business selling me by Kim Nguyen , Tiffany Marcos, or  Jean Johnson, I will be interested in get more info. Driver license # or tax id.  In our area lawyer charges $250-$450 an hour for consultation and nothing will not take 4-8 hours. My impression is walk away if they do not want to move forward is the smartest move. It is likely they are not paying tax or have something to cover up. 2K is your tuition cheaper than a $5K lawyer fee.", "replies": [], "depth": 1}, {"id": "fyi7j6m", "text": "You got schooled for $2K.\n\nSuck it up or throw rocks through their store front window every week until they pay it back.", "replies": [], "depth": 1}, {"id": "fyi9z5g", "text": "You can probably sue them in small claims and get your deposit and costs back.  The whole process you described is so fishy they would probably settle before court. Even if it goes to court you'd probably win something. \n\nI'd recommend trying to get them to acknowledge the deposit in writing somehow.  Perhaps an email stating the amount, when paid, what it was for, etc.  Do it in a non suspicious way.  For example \"just want to check the 2k deposit paid 8n blah blah will go towards the purchase price.\".\n\nHow they respond will be interesting.  \n\nFor the emotional side, running the business is 10x harder than buying it, so if you're feeling this much anxiety already then you will have a better time putting your money into SPY and work on earning more salary.  Also, go for a run 3x a week.\n\n/r/leanfire is fun.", "replies": [{"id": "fyk61nw", "text": "Thanks for the advice. I dont think I have any legal power in court due to no proof of the 2000. Plus I dont want to spend more on legal fees than the 2000. Also I'm just going to leave the deal as I dont want to deal with them anymore. It's not like they are actively picking up my calls anyways. Also I found that I'm mentally stressed due to it being my first purchase and I'm not knowledgable in terms of buying and selling. But in terms of running a business I have worked in the salon industry for nearly 5 years now and have seen all the ins and outs of it. That actually excites me. Also I go on bicycle rides 5 times a week......", "replies": [], "depth": 2}], "depth": 1}, {"id": "fyj0nz7", "text": "Hey, I used to work in M&amp;A (sold and purchased businesses for a living). Unsolicited advice here I come. I\u2019ve seen too many people taken advantage of like this. \n\nI don\u2019t want to be a downer, but I would fucking RUN the other way. \n\nConsumer discretionary business + a pandemic is the worst situation you could ask for. It\u2019s bad for any business, especially that one. \n\nHonestly, because rent is essentially a liability, they should be paying you to take the business. You don\u2019t want to get stuck with a business where you can\u2019t pay rent because there\u2019s no customers and your landlord is an asshole (lies about what you agreed on) and you\u2019re on the hook for tons of cash. Furthermore, you should look at their books. 3k in assets is SHIT. Goodwill? Are they a tech business? Do they have some kind of IP? Get out that\u2019s stupid amount of goodwill. \n\nMAYBE buy their business on a NAV valuation.. and it would be worth 3k. \n\nI\u2019ve also heard that the business all depends on the book you have, so if you don\u2019t have one you\u2019re probably not taking their customers. Also, their customers will probably go with them, I would. \n\nFuck it, lemme add this too. My family member owns commercial real estate in a large city in the US. His hair salon is telling him they\u2019re prob going under and out case count is very low here. \n\nIt\u2019s not too late to pull out. It\u2019s only when you sign. \n\nDisclaimer: this is not financial advice only fictional. I don\u2019t want to be fucking sued.", "replies": [{"id": "fyk4no2", "text": "Thank you for you reply. Where I live 45 000 for goodwill is a bargain compared to the other businesses I looked at. Some were charging north of 200 000 for a building smaller and worse in condition than this one, and it was also on lease. The rent is also 2000 a month which is decent for the GTA. Also, due to the pandemic business has boomed for the time being since we were on lockdown for over 4 months and now everyone, men and women, are coming down looking like hippies (not that I have anything against hippies). I have also checked what they have charged for in terms of inventory and everything from hair colours to fucking toilet paper has been accounted for (kinda pisses me off). \nThe owner also isnt a licensed hairstylist so she actually had to hire others to do it it for her. Plus now her husband is in the load switching business and theyve basically become multi millionaires and so she wants to sell and focus on that. Plus her staff wernt the greatest anyways so I can assume no clients would go with them. I've also worked under the owner for almost a month in order to open my own business account and other paperwork and the average sales per day were around $200. Even if sales drop to 150 in a  month or 2 I should still be able to pay the rent and other bills. \nNow what I do not appreciate is their method of selling the salon and I am very hesitant to sign anything. I've read through the purchase agreement they have sent me and it seems quite simple for one. The one my lawyer gave me had more \"fancy words\" tho essentially the same, however I know enough that the wording matters greatly in legal matters. Also they are refraining from signing any closing documents since they dont want to hire a lawyer to read them over. Even the PA they had their accountant make...... from what I can see it seems a bit fishy so I may just take whatever money I lost and look somewhere else. I dont want to \"buy\" the salon and then a week later they deposit the check and come back to claim that they never sold it in the first place. \nAgain thanks for replying!", "replies": [{"id": "fyk8wjr", "text": "Hey of course, happy to help and sorry if it was grim. \n\nWhat does her husband do exactly?\n\nFurthermore, some APA\u2019s (asset purchase agreements) will keep them on as employees for a bit - it\u2019s really not a bad idea. \n\nOne really great thing I\u2019ve seen people do is to trail the full payment out. Let\u2019s say, you buy the business, then pay them 4 installments every 3 months on the contingency revenue says above 75% of what their claiming it is, if it does not, you can flip the business back to them and get your money out, or say payments get cut to 50% of what they were meant to be. Just some food for thought. If you have any questions or would like help will anything feel free to DM me.", "replies": [{"id": "fyk9xxr", "text": "Haha no worries. Business is always grim. \n\nHe has a company that does load switching. Basically trucks come from all across the USA and Canada and they take off their loads and put a different load in...... something like that. So basically long distance haulers come in, they take their load off, put on another long haul load, and put their previous load on local haulers. Interesting business. They were the first in the GTA to do this back in like 1990 something so they made big bucks. They recently bought a warehouse worth $13M so I'm assuming business is doing well. Plus they do a lot of business with China. They r always ordering containers full of China made goods.\n\nThat's a great way to buy however it prob wont work in my city since most people just want to sell and get it over with. Otherwise there is a line of other buyers willing to buy on the spot.", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}]