Help ! Going to buy a Frame shop . . .

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Larry.C

Grumbler in Training
Joined
Dec 18, 2007
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Loc
NY,NY
Hello Folks,

I am in the process of looking for and purchasing a framing shop. I am looking for your advice, opinions and all the help I can get. I have looked at about 4 so far and there's one in particular that I like the best.
Details: They've been in business for 25+ years and about 8 in their present location. They have 5 years (maybe more?) but at least 5 years of customer invoices (name,address & phone), they have the usual set of equipment: v-nailer, miters (dual & single blade) and a chopper, glass/plexi cutter, etc. A good inventory of moulding and mats etc. They have a good size dry mount press but no vacuum table. No CMC either. They are basically not computerized at all. No POS, No viewing sware and no website. They also have no commercial accounts either and do almost no advertising. They're claiming annual gross sales of 207K with 60/40 split of cash/other sales. What I would like to know from you folks is what questions should I be asking and what method I should use to find and find out about any other frame shops in the general area (5-15 miles?). Ie: their competition. This shop is in NYC on the Queens/Nassau county border. Rent is currently about $11/sq.ft and between the basement (work space) and the retail space there's about 3000 sq.ft. There's about 15 linear feet of window frontage on a main blvd and plenty of parking. There is currently no lease (they're on a month2month). The landlord owns the (large & upscale) diner on the corner. I will be checking to see if a loading/security door can be installed on the back wall of the shop.

It looks pretty good for a starting point. To add full computerization, CMC, 40x60 vacuum table and a large format digital printer (space is readily available for a 48" giclee and it's supplies) and of course, a website, either informational or full service/sales. A monthly advertising budget for demographically targeted direct mail and print media advertising is a must. For the window displays I was figuring on a pair of 42" plasmas driven by a computer to display art prints and messages and whatever else I can think of.

I would also like to know what I need (portfolio?) to approach owners of commercial buildings, decorators and whoever else might generate commercial accounts (of ANY size). After all, it is the CMC that really dictates what size account you can handle without outsourcing/subcontracting.

Right now I'm doing my homework: comparing CMC's and what other media they will handle (corrugated, tyvek, sign vinyl, glass?, plexi?), POS/Viewing sware (with inventory and employee modules) and deciding on which digital printer has the best selection of media types and picking the media from Oce's samples I usually have laying around somewhere.

So if all you good folks would like to weigh in with your experiences and advice, I will appreciate ALL of it! :thumbsup:
---
Larry.C
NYC
Larry.19c@LC51.com

I might be interested in a partnership if you live in the area ?
Else, I was planning on keeping the 1 full time and 1 part time employees.
 
I'd ask why their gross revenue is only $207,000 after 8-25 years in business. I'd be very concerned about that level of revenue, given annual rent of $40,000. I would also be very concerned about a month-to-month lease arrangement. Landlords can be notoriously stupid, and it isn't uncommon for the stupider ones to throw out a long-term tenant who pays rent on time, in the hopes of getting something better. I would want the landlord to commit to a written lease, but I also would want a rent reduction.

I think your priority is getting customer information into a database, and starting some marketing. It seems the current owners have been coasting for some time, rather than investing in their business -- hence the low revenue.
 
PaulSF said:
I'd ask why their gross revenue is only $207,000 after 8-25 years in business. I'd be very concerned about that level of revenue, given annual rent of $40,000. I would also be very concerned about a month-to-month lease arrangement. Landlords can be notoriously stupid, and it isn't uncommon for the stupider ones to throw out a long-term tenant who pays rent on time, in the hopes of getting something better. I would want the landlord to commit to a written lease, but I also would want a rent reduction.

I think your priority is getting customer information into a database, and starting some marketing. It seems the current owners have been coasting for some time, rather than investing in their business -- hence the low revenue.
Click to expand...

Ok, the rent is 3150/month and yes, I have told them that a 10 year lease is necessary and they told me no problem on the lease. I'm also asking for certain options to modify the store being in the lease. The back door is NOT a steel roll-down security/loading door. If I can generate commercial/wholesale accounts, I would want to install that type of door to make loading/unloading faster and easier.

What do you think their annual gross should be ?

And... Getting the customer info into a database will happen within minutes after the closing unless I can get it sooner? maybe?. Gotta see the data on mapping software and on timeline graphs along with what was purchased so targeted marketing can be as effective as possible. After all, the goal is customer acquisition at the lowest cost. That's why any of the old prints that haven't sold go into a separate rack and advertising includes a coupon for a "free" print (unmounted or framed) and free frame (from the lowest cost selection) BUT not the framing and matting. That gets them into the store AND possibly to purchase a better frame or fancier matting or a second print, etc.... Also the cost of the print gets deducted again as an advertising cost.

If you were going to purchase this business or if you were the owners looking to sell it, what would you say should be a fair purchase price ?

Next, from the closing, I was thinking that the order of upgrades would be: POS & Viewing software & hardware ($5-6k), CMC ($2k: deposit & 1-2 lease payments), digital printer ($2k deposit & 1-2 lease payment) and finally (maybe?) a Vacuum table ($??k).


Lastly, After 1 year, what do you think I should be able to push the gross up to ? Assuming about $1k/month for local advertising to start and going up to about $2.5k/month over that first years time ?
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I'd be wary of a 10-year lease -- you don't want to get locked in if the neighborhood takes a turn for the worse. I would recommend 5 years, with an option for an additional term of 5 years.

As for revenue, I should think that a mature store ought to be doing twice what they are doing. Marketing is an investment, and needs to be done regularly even for mature stores. Word-of-mouth and signage just isn't enough in this competitive climate. If you do 3 mailings, you'll be surprised at the people from the neighborhood who come in after the 3rd mailing, saying they didn't know there was a frame store there.

Regarding the upgrades (POS, visualization, CMC, etc.), I would make the POS and the CMC your highest priorities. I have visualization software, but I don't use it that frequently. I bring it out when a customer just can't make up her mind, but I don't think I've used it this past fall, except once or twice. It's good to have, but not as urgent as other items. If you intend on doing a lot of onsite digital printing, then you definitely need the printer. I don't know much about that market, though, so I'll leave it to others to chime in on whether it's worthwhile.
 
Your thinking about buying a frame shop? It is obvious you need to check yourself into a mental health facility, preferably one that offers electrical shock therapy. If you can not find such a facility and the lines at the highest bridge are to long, I would say just go ahead and bite the bullet, and buy the place. Find out for yourself. Owning a frame shop is much like a marriage, it'll turn you every way but loose.

Your paying about a dollar a square foot, the existing sales are around two hundred grand a year, that is probably about average for most long time, one owner frame shops.

You can expect to lose a few of the existing customers, that's just the way it seems to happen. Putting in a CMC and generally cleaning the place up will probably show you an increased volume.

If you have a good gut feeling about the place, that alone counts for a lot more than you may think. You can also study and analyze it to death and end up not knowing much more than you already do now. While you are researching, someone else will probably buy it out from under you.

My advise, just do it, buy the place and start suffering like the rest of us. It isn't all a bed of roses, your not going to get rich. You will, if your good at your craft and understand the basics of business, earn a halfway decent living.

As far as the lease goes, I like long ones, it is a real bitch moving a framing business. I have a twenty year lease on my building and am working on extending that another ten years.

Concern yourself with hidden liabilities you may have to assume, judgments, debts, contracts, etc. That is the primary concern about taking over an existing business.

John
 
As a starting point for valuations I have always used historical discounted cash flow, with an incremental amount for the value of equipment, inventory, and the customer list.

So look at their business tax returns for their last past 5 years (or more) and see what they are generating. Project these out for the next 5 years, based on the trends, assuming you make no changes. then discount this back to present dollars, so you can estimate your discounted cash flow. If everything else looks good, this is probably a starting point for discussion.

You can do a second pass where you add all for what you think you are going to do with increased marketing, sales projections, etc. if you believe this will happen. This second one can be used for your plans, but you don't want to pay the existing owners for what you plan to do, because if you pay them, and then you pay for things you plan to do, you are paying twice.

As far as the value of the customer lists, there have been some changes in the laws about writing off these expenses, and I'm not sure what they are. I believe you used to be able to depreciate these over many years, but I don't know if you still can, so be careful about how much value you place on customer lists - especially if you don't know how current or accurate they are.

IMHO, If they don't want to show you the actual books / business tax returns I would be very suspicious, and would probably walk away. Remember you buy a business based on facts, not emotion.

Good luck.
 
With all due respect to all who have posted replies, a paragraph or two would not be enough information for me to make a life changing decision such as this. (But I will also say that they have given you some very good advice.)

If I were you I would spend whatever it takes to fly to Las Vegas for the WCAF Show and spend Sunday January 27th with Marc Bluestone, then add whatever else you can fit in on other days with Jay Goltz and Bob Carter. It will be the best $3,000 (if at that) you could have spent. Plus, if you come to the Chinese Dinner, you will meet many of the people who have given you advice on this board (and meet many others who can also help you.)

I would also SERIOUSLY consider extending my stay for the PPFA Convention as the Keynote breakfast and luncheons as well as other classes are worthy of your time. This is the first time the shows are back to back and I would arm myself with as much information and contacts within the industry as I could find....before I made any decision(s).
 
(QUOTE)They also have no commercial accounts either and do almost no advertising. They're claiming annual gross sales of 207K with 60/40 split of cash/other sales.(QUOTE)

What do you mean by 60/40 split of cash/other sales?

At 207K you will very close to just breaking even. IMHO

Why are they selling?

I agree with Grey Owl, if they won't open their books for full inspection, I would walk away.

Be careful, and remember, the best way to make a small fortune in retail, is to start with a large fortune. ;)
 
Having owned a business brokerage, I'd like to add my .02 to what's been written already and much of which I agree with.

Business purchasing decisions are made based on "Provable Sales" not "Stated sales. Provable sales are those shown on the Sales Tax returns.

Along this line, I would be very skeptical of any framing business owner that claims 60% CASH sales. Why? Because custom framing is a relatively big ticket item; not a cash heavy business. In my experience, and I'm sure others here will confirm this, most purchases are paid with credit cards or checks.

I'd bet money that the seller is next going to tell you that he didn't report that 60% of his sales. Ask for the sales tax returns. Since the Seller has already told you gross sales, allowing you to see the Sales Tax returns does not reveal any additonal, or proprietary, information. Therefore, he should have no objection to this request. Then, as a contingency of your Offer to Purchase, you insist on an inspection of the books and it will be given.
 
Their equipment seems a bit out dated. You say you need to add POS software, computers, CMC, press, printer. If you have to do that much updating you might be as well off to open your own shop. Compare the price they are asking to the cost of opening a new shop.
 
jframe said:
Their equipment seems a bit out dated. You say you need to add POS software, computers, CMC, press, printer. If you have to do that much updating you might be as well off to open your own shop. Compare the price they are asking to the cost of opening a new shop.
Click to expand...



You could start a whole nice new framing business with the most up to date framing equipment with less then $50,000.
I have less then $35,000 total in mine and I have a POS, CMC, IF and all the necessities that a frame shop needs. The mailing list is what you will mainly pay for in this situation, so make sure it is a good one.

What are they asking? That would make all the difference in my decision.

If it is over $100,000. you will be paying too much, given the rent and out dated equipment. Plus the questionable 60/40 thing. Think long and hard!

I agree that almost all of my business is check or CC. We very rarely take cash. I love it when they pay cash, it buys my lunch that day! ha I never keep money in the cash draw!
 
Paul Cascio said:
Along this line, I would be very skeptical of any framing business owner that claims 60% CASH sales. Why? Because custom framing is a relatively big ticket item; not a cash heavy business. In my experience, and I'm sure others here will confirm this, most purchases are paid with credit cards or checks.
Click to expand...

Being somewhat familiar with the area of the store it is not inconceivable that cash sales could be 60%. The local population may have a culture of cash purchases.
 
I once was considering going in to business and had a lot of equipment purchased. I agree with the others who recommend opening your own shop. You should be able to find lots of good used equipment and fixtures at a good price. Without the cost of the CMC, you shouldn't have to spend any more than $20K

After rent, COGs, utilities, taxes, employees, insurance, etc. how much $$ do you think you'll take home? The independent framing businesses have been in decline since the 90's, so tread very carefully when opening or buying some other business.

For me, I canned the idea. There were shops already in the areas I researched and the areas without shops were never able to sustain the business when someone tried. The local economy is off and some established frame shops were closing. I didn't want to go into a failing market.
 
It could also indicate other issues, like why the gross sales are so low. There may be some skimming going on.
 
I agree that the 60/40 cash/other sales claim is suspicious. If it is real, as Fake Zorro suggests it could be, then it should be verifiable by other numbers, such as COG, labor hours, and tax returns. As Paul Cascio said, any sales that are not verifiable do not exist. If the owner has been pocketing money illegally, without proper records and tax payments, that would be enough reason for me to question his integrity on all matters.

If I were you, I would have a trusted accountant and attorney review all of the particulars of the transaction before making any kind of commitment. Get valid answers to all of your questions. If the owner can't satisfy your thirst for knowledge about his business, then let him keep it.

Take Rob Markoff's advice: Get thee to Las Vegas for both of the back-to-back trade shows, WCAF and PPFA. That investment could save you thousands now, and tens of thousands later, in terms of making informed decisions about this buyng oportunity, and planning the future of your business.
 
JohnR said:
...I agree with the others who recommend opening your own shop. You should be able to find lots of good used equipment and fixtures at a good price. Without the cost of the CMC, you shouldn't have to spend any more than $20K...
Click to expand...

When I started my business from scratch in 1988, I had spent a long time looking at existing frame shops with intentions of buyng one. My conclusion at the time was pretty much the same as this advice from JohnR, and starting from scratch was the right decision for me at that time. Starting the business and making it go was easy in 1988. The hard part was being a "good framer", which required training and manual skills I did not have at first.

But this is not 1988. Being a "good framer" is easy today, given the right tools, and high quality educational opportunities are numerous.

Today, the hard part is making the business go. In order to succeed with a new startup, you would need a very good marketing & advertsing background. You would need to know how to structure the business -- retail or commercial? High end or low end? Framing only, or framing in conjunction with gifts/printing/signs/scrapbooking/photography? These were not life-and-death questions in 1988, but in 2008 they are essential. More to the point, you need to have the right answers to those questions, and others.

All of these issues exist in buying an existing business, too. But if the business is viable and profitable, it's a matter of revising established practices, rather than developing a complete strategy without the benefit of historical performance data.
 
I don't see anywhere in your post about whether or not there are employees or additional family members working the shop. What is the HR situation? The gross is marginal with a single owner operator, and the square footage is much more than needed if that is the case. With employees the space looks better, but the numbers sure don't.
 
And another thing...

The money slips away really fast in a business startup....

Setting up a complete shop mostly with used equipment in good condition would cost at least $25,000, including tables, fixtures, handtools, and general supplies, in addition to cutting and joining tools, a wall cutter, and a straight matcutter.

Computer hardware and software would represent another $5,000 at least. QBP, POS, and Visualization could take half of that.

Signage, add $5,000. Build out the frame design gallery, with fixtures, furniture, lighting, carpeting, and prepared models, add another $10,000.

Legal matters, such as incorporation, LLC, or proprietorship paperwork, business licensing, fees, add another $2,000. Accounting set up of the QuickBooksPro program is mostly your own work plus an accountant or bookkeeper, but it is still paid labor; add $3,000.

Initial inventory of glass, matboards, mounting boards, adhesives, fitting and hanging hardware, miscellaneous supplies, $10,000. That inventory figure might double or triple in the first year or two, before it settles out.

Pizza and beer for the legions of friends and relatives that spend a week helping you assemble all of the above, plus cleaning supplies & toilet paper, $5,000.

Yes, $65,000 should get you past the first couple of weeks. And in that two week period you'll have at least $8,000 in sales from new customers to sustain your momentum, right? If not, maybe you should plan to set aside another $20,000 to pay for rent, wages (your own), and utilities for a few months.

If you want to start out with a CMC, which I would suggest, you probably should plan to have $100,000 in your pocket when you start up your business.

Word to the wise:
About 80% of new business startups fail within three years, and 50% of the remainder fail within five years. The reason most often given is a lack of working capital.
 
Jim is understating the amount you would need to open a shop from scratch. I think there are definite advantages to buying an existing business -- namely, it is known in the community and it already has a certain baseline level of monthly sales (in a startup, that baseline is zero). With an existing business, you are building on something, whereas with a startup you are building on nothing. It will take you a lot longer with a startup to get to the point where you can start paying yourself.

That being said, don't ignore the issues that have been raised.
 
For New York or anywhere else on our east coast 11.00/foot is way low. Be cautious.

Bob
 
this is my first post, i just discovered the board. but i feel i'm in a unique position to offer some advice to this guy...

i opened my own store in the bay area one year ago this month. i had worked at a gallery in san francisco for ten years and when the owner bought a new building with no room for a shop, i bought his equipment and opened a place of my own across the street from his new location. a lot of people told me i was crazy to open a business in such a difficult economic time.

my store is located on a busy 'locals only' street in a very rich suburb(recession resistant, but not recession proof) with two other frame shops within a block of me on either side. one of them is great, always pleasant and friendly. the other is a little less so...i actually tried to buy both of them out before opening this place; the nice guy said 'but then what would i do?' and the not so nice guy said 'get the **** out of my store.'

anyway, i've found my niche, higher end framing with over the top customer service. i pretty much have to bend over backwards to keep my clients happy here. they are willing to pay full retail, but if they need it in two days, it is expected to be done in two days. i do a lot of free deliveries, but it seems to be paying off, they keep coming back and telling their friends about the store. i also do a lot of corporate stuff and have quite a few interior designer clients. and it helps that my former employer is my biggest customer.

so, the nuts and bolts...between the used and new equipment, fixtures and other start up costs, i went through $30k pretty quickly. i haven't dipped back into that credit line again, but i also haven't paid any of it back yet. if you remove the start up costs from the equation, my business is very profitable. we're in the range of the gross of the place he mentioned in the original post, not bad for a one person operation in a town of 7000. there were two slow months in the last year, but otherwise we have exceeded my monthly goal in the other ten.

it's been a very rewarding year, but a tremendous amount of work. being a single person shop with a LOT to do is a little overwhelming, especially with a new baby at home. we haven't become rich, but my i can afford for my wife to not work and still live a mile from work.

would i do it again? absolutely.

would i consider buying an existing business? highly doubtful.

bob

ps--i worked for rob markoff a few years ago and found him to be an excellent business man, he rarely spoke about anything he didn't know well. so if you want some advice, i think his is really good...
 
couple of other things...

in the last year of business, i have had 2(yes, two!) cash transactions. i would be highly suspicious of the existing owner's claim of 60%. cash is so unimportant here that i don't even have a cash drawer!

and we do not have any visualization system or overblown computer system for tracking sales. i guess being a small indy shop makes it easy to get away with using paper and pencil for orders. i have heard from a few clients that at one particular shop in a neighboring town, the framers spend more time staring at the computer than they do looking at samples with their clients.

the other thing i forgot to mention is that the shop you're considering buying may have a bad or mediocre reputation in the community. i hear from clients all the time that my competition are less than friendly, slow and really don't care about maintaining their clients.

do you have any experience as a customer with this shop? do you know anyone who has used them in the past?
 
I started my framing business in 1976 with a total of $250.00. Granted, I suffered through those early years, I also had a lot of fun.

Anyway, my business grew, I did well, I decided to sell the original store. It consisted of two garages, signage space, parking, a customer base, moulding, all the tools needed, etc. All I wanted was to just get rid of it, after my employees ripped me off royally.

My asking price? A walloping $3,500.00... you read it right, three thousand five hundred dollars. Then the business "experts" came in, they wanted all my books, they did their surveys, it went on and on. I would not sell them my name or show them any books, since all I was selling was the location, tools, and equipment only. What was there was worth much more than the price I was asking. I just wanted to get rid of the location as quickly as possible.

This one fellow wanted to examine every detail, he wanted a better price, he lectured me on business practices, it had no end.

This is what I did, I just closed it up, gave up the lease on the front garage, and moved everything into the back garage. I used it as a storage area for years and just absorbed the stuff into my present business. I sold what was left for $150.00.

The business "expert" was mighty upset when I told him on his bazillion negotiating call that it was no longer for sale. He actually threatened to sue me for the time he had lost. I told him to go for it.

This fellow had learned in business school or wherever, the proper way of purchasing a business, so he proceeded like he was purchasing a million dollar enterprise. Sometimes you have to get past what the teachers have taught you and just use common sense.

John
 
John, it depends on what you are buying. If it's just an asset purchase, where someone is buying the equipment and inventory, then nobody really needs to see your financials. They just need to inspect the equipment and inventory. On the other hand, if they are buying the ongoing business, a more extensive scrutiny is required.

And then, if the asking price is only $3500, there's so little risk it isn't worth calling a lawyer.
 
Yes, I knew that Paul, that is why the price was so low. Trying to explain that to those people, especially that one character was next to imposable. The business was up and running, so in their mind, it was not an asset purchase, it was a business purchase. I don't know how many times and ways I tried to explain my name was not part of the deal, nor were my books. I finally just got sick of what I thought would be a quick sale and I would be done with it. Closing it would have been the right thing to do in the first place. That back garage did come in handy for a few years.

John
 
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