Questions you would ask if purchasing a photog business

[Sauk]

Ok so if you were purchasing a turnkey photog business what questions would you ask the owner of the business?

I don't care about money and what not as that will come in the form of tax docs. The one thing it will not show is where the money comes from though, ie, portraits, weddings, etc...

I am asking for advice on what you would ask?

Thanks

[LVPhotos]

My main concern would be how much of the business is built on the owner's name! If it's his name or based on him/her then the only value is the resale value of the equipment!

Does he/she have systems in place? Sales system? Billing system? Leads system? Advertising system?

is there a Business Manual that will train you on how to run this business? Is he/she staying on for a while for training?

And yeah, if he/she doesn't know what percentage of business comes from which areas, then run away.

[FlyingPhotog]

Is there a physical plant (studio) involved in this deal?

[DDCSD]

I'd ask to see the owner's tax returns for the last 5 years. Profit is the only thing that matters and is the only reason to pay more than the value of the physical assets.

That and assess the value of the equipment/property. Make sure you're not locked into any contracts or leases that you don't want.

[Sauk]

Good questions LV. Thanks those will be added to a list.

Flying,

Yes it would be a physical business

Derek,

We would have to make an offer first and it would have to be accepted in order to see those type of financial. Of course we would have a get out clause.

[FlyingPhotog]

Flying,

Yes it would be a physical business


I'd want proof of clear title to the property and insist (if it's not required) that an inspection be done to insure the place is up to code. It would suck majorly to find out later that a place so dependant on using electricity has aluminum wiring or such.

In addition to the tax issues, I'd want to see a breakdown on the utility costs in order to get a good idea of what the overhead is going to be.

[Sauk]

Some more background on this. I can not get to specific as we signed a confidentiality so I am not even sure I should be even talking about it lol

Owner owns the building.
Equipment and all negatives will be staying

All the tax and stuff would come at a much later date. Luckily my wife is a business loan officer so she knows how this stuff works :)

[DDCSD]

Derek,

We would have to make an offer first and it would have to be accepted in order to see those type of financial. Of course we would have a get out clause.

I don't see how you could possibly make an offer on a business without seeing what the owner's profit has been. The only way to know this is by seeing their tax forms. They would of course black out any personal information, but you need to see the actual numbers.

Again, the profit is the only thing that really matters. The location doesn't matter if it didn't turn into profit, the negatives don't matter if they don't turn into profit, etc...

Gross receipts and revenue don't matter if the guy only brought home $20,000 a year in profit.

When you buy a turnkey business, you are buying it because it will make you money, not because of any "potential" money you "might" make by buying it.

You buy a business as it is, not by what you think you can turn it into. You wouldn't pay $10,000 for a 5DMkII because you think be able to make money with it, you buy it at market value. ;)

Just some things to think about.

[FlyingPhotog]

I don't see how you could possibly make an offer on a business without seeing what the owner's profit has been. The only way to know this is by seeing their tax forms. They would of course black out any personal information, but you need to see the actual numbers.

Again, the profit is the only thing that really matters. The location doesn't matter if it didn't turn into profit, the negatives don't matter if they don't turn into profit, etc...

Gross receipts and revenue don't matter if the guy only brought home $20,000 a year in profit.

When you buy a turnkey business, you are buying it because it will make you money, not because of any "potential" money you "might" make by buying it.

You buy a business as it is, not by what you think you can turn it into. You wouldn't pay $10,000 for a 5DMkII because you think be able to make money with it, you buy it at market value. ;)

Just some things to think about.

Ordinarilly, wouldn't one hire an independant audit firm to perform "Due Diligence?"

[troutfisher]

1) Why is he selling it?

2) Why has someone else not bought it?

[DDCSD]

Ordinarilly, wouldn't one hire an independant audit firm to perform "Due Diligence?"

Depends on the amount of money we're talking about, for me at least.

Regardless, I'd still look at everything personally though. Its not that hard to tell if a business has been turning a profit and what that profit is. The business books can be deceiving, but the tax returns are pretty cut and dried.

Of course, this is assuming we're not talking about a million dollar deal. Then I would definitely hire someone to check the same things I would be checking.

[Sauk]

Derek,

We did get information on the business like gross, net, etc..

But we will not know the specifics before we would make an official offer and that offer is accepted. If that were to happen we would than get the tax returns and really see the net, costs, etc...

Right now it has just a general gross and net without specifics on how it got there.

That is the way it works when purchasing a business from what my wife said and she would know better than me since she does these all the time lol

[Jeff]

What about any established relationships with local schools for senior portiats, sports/event shooting, etc. Either handshake or contracted stuff. Any other consistent revenue streams?

Any bartered deals you need to be aware of....e.g. shooting for advertising.

[Sauk]

Jeff,

Solid questions. Thanks. I am going to be putting these down so I can ask .

Thanks

[DunnoWhen]

In so far as it relates to the good name of the business,

Has he or the business been involved with any law suites within the past 10 years.

[tomd]

FInd out if the business is a sole proprietorship, LLC, s-corp, etc.

If you don't know already, ask around about the reputation of the business.

Consider asking the seller for a non-compete clause.

[Sauk]

non compete clause is already in there for 5 years.

Great questions and thank you for the people who have responded. I plan on putting these all down and having the business answer them.

[DDCSD]

Derek,

We did get information on the business like gross, net, etc..

But we will not know the specifics before we would make an official offer and that offer is accepted. If that were to happen we would than get the tax returns and really see the net, costs, etc...

Right now it has just a general gross and net without specifics on how it got there.

That is the way it works when purchasing a business from what my wife said and she would know better than me since she does these all the time lol

Maybe that's why so many people are defaulting on loans these days, they're not able to accurately value what they are purchasing. ;)


But seriously, I don't see how you can value a business without seeing tax returns. I can make my business books look just about any way that I want to make them look at any point in time. I cannot, however, make my tax returns look like anything but what they are. Well, I could, but I don't like talking to the IRS and audits and penalties get very expensive.

I can understand the seller not wanting to hand these over to everyone that calls about the business, but if someone is as serious as you seem to be about buying the business they should hand them over. If you have already signed a confidentiality agreement, this should not be an issue. It will also tell you if there are any outstanding tax liabilities.

Also be sure to check for any liens against the business or property, or outstanding debts to wholesalers, printers, etc...


Just out of curiosity, what do you think you'll gain if you purchase the business?

Sorry to sound so pessimistic, but I've had 3 friends buy businesses and pay way too much for them because they were sure they could make more at it than the guy they bought it from and ignored the actual profit to defer to perceived potential profit. They payed too much and went broke when business slowed down a little bit (or even stayed about the same) because they were so cash strapped by high payments.

Unless there is some unbelievable head start to be gained by buying a business, I personally would just grow my own business from the ground up. Especially with a photography business. You mentioned getting all the negatives and such. I can't think of a reason I'd want to have anyone else's negatives unless they have a significant historical value. You may be just getting someone else's headaches. People are usually coming in to see the photographer, not the storefront. When they see its not the same guy they've been coming too, they may just walk back out.

And as Tom mentioned, get a rock-solid non-compete clause. I mean that the previous owner cannot do business as a photographer within so many miles and cannot do business (sell to) with former clients in any fashion.


Anyways, good luck! :lol:

[P51Mstg]

You do not ever buy something without seeing the financials..........

You sign a NONDISCLOSURE AGREEMENT and look a their tax returns.........

If they are not letting you see the books before you make an offer........ WALK AWAY (OK better yet RUN).........

Generally there isn't much to a lot of businesses, and really starting one on your own may well be better....... For example, I liked Joe the guy that sold it.... Now that he retired, I'm going to look for a new guy (and that doesn't mean I'm coming back to your studio either).......

Best wishes.

Mark H

[LVPhotos]

You guys aren't reading correctly. The gross/net, etc. has already been disclosed. The OP knows this info. Seeing the tax returns will just serve to PROVE what the seller is saying. And, if the tax returns don't match up, then he will have an "out". So he does not need to see the actual tax returns.

A good business can just go into Quickbooks or whatever and print their P/L and Balance Sheet, that's enough at this point.

As for the negatives, consider them worth ZERO unless he has proof that people just randomly come in 6 months after the sale to buy new prints. That said, he better have a CLIENT LIST... if you buy the business then call/mail the client list (3 times, no more no less) to offer a blowout on prints from the negatives. This should be presented as a "cleanout" sale and that the negatives will be destroyed on X date.

Remember, what you are buying is a building (from what I understand) so pay only what the building is worth.

You are buying a going concern business hopefully with a reputation so that IS worth something IF the business is not built on the owners name.

You should also be buying a CLIENT LIST and you better work that list! It was already mentioned but you need to find out the contracts and if they are handshake or written and if they have a clause that keeps them valid upon sale of business! And, will he help and introduce you to the clients?

And you are buying equipment but factor that at current market value minus 20% since you are buying it as a package.

Bottom line, if he has treated it as a business with set systems and plans then you can pop in and continue it with no problem. That's worth $$. If he treated it as a hobby (ie. just flew by the seat of his pants) then the value goes WAY down.

[Alex_c70]

Without knowing more of the contractual details, what about this:

- Make an offer for twice what you estimate the value of the business. I'm guessing the current owner would surely jump at the offer, thus giving you access to the financial records.

- Have the financial statements and tax returns audited by an accountant.

- If the business isn't as profitable as you'd like, use the 'get out clause' to get out.

- If the business is as profitable as you'd like, use the 'get out clause' to get out, and come back with an offer based on solid financial data.

That seems like a really difficult situation for you, and I just don't see how you can make a sound business decision without the numbers.




Good questions LV. Thanks those will be added to a list.

Flying,

Yes it would be a physical business

Derek,

We would have to make an offer first and it would have to be accepted in order to see those type of financial. Of course we would have a get out clause.

[Alex_c70]

Derek,

We did get information on the business like gross, net, etc..

Right now it has just a general gross and net without specifics on how it got there.


One other thought, FWIW. I think what you said above (how it got there) is very important. The gross and net may look GREAT, but without knowing volume...



gross revenue = 250,000
net income = 50,000
volume = 1
I think this looks pretty good.:D

gross revenue = 250,000
net income = 50,000
volume = 50,000
I'd like to see my family more than this.:lol:



Not the best analogy, but the best I can do at 9:20 on Sunday...:lol:

[Box Brownie]

Just my 2p's worth for your consideration :)

All businesses are ultimately about selling and for a photographic studio this means face to face deals being done. Now I know that is stating the blindingly obvious but the reason I do so and sorry if in reading the thread others have already covered it is because:-

People buy from people ~ that is a mantra for all salespeople. In other words, when you really get to the nitty gritty and see/decide that "he" has had a good profitable business remember it was "he" that made the profit i.e. when you come along there is absolutely no guarantee you will be able to achieve the same level of profit for possibly as much as 2 years.

Now because this is a people based business and I see that there will be a "non-compete" clause to stop him opening another such studio perhaps you should also consider (assuming he is well known & respected ???) including a clause/arrangement that he acts as sales/promotional 'guy' for an agreed period.

Why do I suggest that? Well if he is telling prior customers/folk that this great photographer Matthew has now bought his business and look what a great photographer he is etc. I am sure you get the idea. IMO it is not too uncommon for such arrangements especially where the need to ensure continuity of a business is paramount. Afterall when "buying goodwill" is spoken of it can mean different things to different folk but to me it means the old owner can be key to making sure the business continues to be viable.

Lastly, did he operate with an assistant/receptionist? If so again what I say above also applies because such a 'front of house' initial contact can be so very important in gaining/maintaining/generating business.

I wish you the best of luck with your new venture but as others have more eloquently covered ~ make sure it is a good viable business and keep those rose tinted glasses in their case :D

[flickserve]

Derek,

We did get information on the business like gross, net, etc..

But we will not know the specifics before we would make an official offer and that offer is accepted. If that were to happen we would than get the tax returns and really see the net, costs, etc...

Right now it has just a general gross and net without specifics on how it got there.

That is the way it works when purchasing a business from what my wife said and she would know better than me since she does these all the time lolIt just would not be good enough for me. I'd be walking away.

[Sauk]

That is just how it is done around here. Again I will add that my wife works for a bank that does business loans and she is very good at it. She understands the process and what is involved. If she tells me this is how it is done, I can't imagine her lying to me lol

You are not able to see the tax returns till you actually make a bid and of course with the bid you always have outs put into the language. That is a given.

Anyways I went and viewed the studio. Wonderful setup but in the end I do not believe it is worth it. But man I loved how well it was setup!

[breal101]

That is just how it is done around here. Again I will add that my wife works for a bank that does business loans and she is very good at it. She understands the process and what is involved. If she tells me this is how it is done, I can't imagine her lying to me lol

You are not able to see the tax returns till you actually make a bid and of course with the bid you always have outs put into the language. That is a given.

Anyways I went and viewed the studio. Wonderful setup but in the end I do not believe it is worth it. But man I loved how well it was setup!

Are you considering a start up of your own? Just duplicate his studio.:lol:

I do know a couple of photographers who bought an established commercial photography studio. In each case they had been employees there for several years before buying . In both cases they succeeded and did very well, but they were already familiar with the clients and vice versa. Absent that sort of relationship I would question the value much beyond the physical plant. It seems you already made a decision, just adding my 2 cents.

[Sauk]

yeah I am also considering a start up as well. It would take less capital to start a business up than to purchase an established one.

I am exploring all ideas right now. I have to begin to write a business plan as well, do research in the area for leases, equipment cots, etc...

Like I said luckily I have a wife that deals with this stuff and is going to keep me on my toes to get these important steps done. Especially the business plan

[flyinbrian]

Is he opening another or going to just freelance, if so he could take some clients with him

[Sauk]

flyinbrian,

He/she would have a no compete clause which would be whatever we set. I can't really say what he/she would do :)

[LVPhotos]

If it's "not worth it" then make an offer that IS worth it. You never know, he may accept.

I've bought and sold a few businesses so if you wanted to PM me with details I can at least give my private thoughts...

[sfaust]

It's not uncommon not to see the books before making an offer. The seller can provide all the details up front to the buyer in order for them to make an offer. Then once the offer is accepted, an audit of the books can be done to verify the details provided.

Its not unlike buying a house where you make an offer based on the presentation you've been given. Once you make an offer, then you bring in home inspectors, lawyers, etc, for due diligence, and re-negotiate or back out if things don't match up. Think of the sellers position if everyone that visited the open house wanted a home inspection, check the deeds, title, current mortgage info, etc.

As a seller, I wouldn't open my books to any and all tire kickers either, which could include his competition which might pose as a possible buyer to see the innards of his business. I'd want to pre-qualify the buyer before spending the time and effort for an audit, turning over tax returns, etc.

[Karl Johnston]

I'm not too clear on this but ..are you talking about buying their business or the physical location of where the business would be and starting up your own thing under your own name?

Personally i'd rather set up my own thing, it'd be cheaper too in the long run (generally, i don't know about your case)