Is this the time to buy a business?

I have just found this website and cannot congratulate you and your members enough for the interesting and helpful information that you all provide. We have owned an apartment on the Costa del Sol since 2004 have always wanted to live in Spain. Over the years we have looked at several business opportunities but the usual ties of elderly parents and now teenage children always stopped us. We have just been dreaming of “one day”

The changing economic climate in the UK (we own a small business that has struggled for the last year and now many of our customers are closing) has made us seriously examine our options again. This is where we would appreciate any thoughts.

We have been told that a well established laundry just down the road from our apartment is for sale. The commercial is leasehold and the asking price seems rather high but there is a chance that we could also purchase the freehold from its owner at what seems to be a very reasonable price. We realise that property prices have been falling and that many businesses on the Costas may be effected by the reduced number of tourists expected this year but when we started looking at commercial property websites we have been very surprised to see a selection of popular bars and cafes in the nearest large town for sale at prices far lower than we ever would have expected.

I realise that unfortunately nobody has a crystal ball but are things so bad in Spain that people selling up and we could be jumping from the frying pan into the fire?

Hi Elizabeth Jane,

My personal opinion is that it would be very unwise for you to buy a business at the moment most businesses are struggling very hard to make a living and a lot are closing down.  Also because of the economic climate lots of people are doing there own laundering of curtains chair covers rugs etc. and private residents are advertising to do laundry to make a living. We have had our apartment for five years and moved over last November for good ( and still loving it) but in the winter it was like a ghost town and lots of bars and shops closed early every day because of lack of business. Friends of my sister in law are having to go back to UK in October having tried once again and failed to make a go of a bar on a complex. If this laundry has an excellent client list from for eg small businesses cafes restaurants hotels etc. then maybe you are in with a chance, but ask yourself why do they want to sell.  Do your homework and don't be pushed into something you may regret, You only have to look at the amouont of businesses that are for sale when you read all the english free papers to get an idea of what's going on.

I wish you luck, all the best Kathy

It's true, the prices at which the leases on bars / cafes are being advertised have fallen significantly, and whilst it may be the case that prices (even for leases) became over-inflated during the "boom" years, I think that it is more a reflection of how desperate people who thought they could never lose are now to cut their losses and get out at any cost. I think it's significant that so few commercial agents bother to include the rent in their ads. To me, the monthly rental amount is as important, if not more so, than the price of the lease (which is more likely to be negotiable, after all).

A fully equipped and ready to go bar for €15,000 may seem like a cannot-lose bargain. But if the rent is €1,000 a month, you're probably going to have to sell about €2,000 worth of drinks each month just to cover the rent (that's a very rough estimate). That's €66 a day, assuming you open 7 days a week. That's 44 beers @ €1.50 each. Doesn't sound much, does it? I know some of these 15k bars around here. Believe me, some of them don't see 44 beers cross the counter in a week. And that's during the summer. The rent has to be paid all year. And on top of that, bar work sucks!

Now, if you can afford the freehold on a business without taking a mortgage, already have your home paid for, can envisage yourself in that business, personal circumstances are suitable (parents, kids etc.), then I can't see why now shouldn't be as good as any time to take the plunge. In fact, due to the property crash, you should be in a favourable position to drive a hard bargain on the freehold.

Do LOADS of research (ask away here - we're very friendly!), consider the "worst case scenario" and decide if you can accept that as a possibilty, and if after all that the hat still fits, why not wear it?

I wonder if you saw the Spain: Paradise Lost program on ITV tonight? It featured a couple who re-mortgaged their house in the UK to buy a bar in Benidorm that the previous owner had taken 3½ years to sell.

I think you can guess, without seeing the show, how it worked out?

I saw four mugs in tha cafe, two were on the table (LOL)

Malvina

Thanks for the information. I too was glued to the TV last night and am going to contact the laundry owner with some extra questions. I am fairly certain that it has not changed hands during the past 4 or 5 years and we have been assured that we can see the books for the last two years before we buy.  On the down side we would need to get a mortgage if we wanted to purchase the freehold and would need to sell our UK property as this is mortgaged anyway.  

We know the area quite well and yes the shops and bars have been very quiet the last couple of times we have visited. Unfortunately we obviously cannot go around asking too many questions from our resident neighbours so has anybody got any ideas what other research can we do?   

Some types of businesses survive economic crisis's better than others and I would have thought a laundry would be one of the survivors.

It all depends on the mix of the clients, commercial clients will still require tablecloths and bed linen to be laundered albeit at a reduced volume but domestic clients may opt to launder themselves.

I have a property on the CDS that I let to family and friends, we have dispensed with cleaning services to keep costs down and we don't eat out as much as we used to but we always use the services of our local laundry.

I suppose the million dollar question is why are they selling up?

If you can break even in this current climate you'll make hay when the sun shines!

Do you know why estate agents have stopped lookng out of the window in the mornings?

If they did, they'd have nothing to do in the afternoons.

Ok ...... I'm not sure if I should post this as a reply or as a new thread but seeing as it follows on .......

We have researched, asked questions and researched again and so far this still seems a viable business all things considered.

Before we put in an offer on the lease we thought we should check on the position of commercial lending so that we could also try to purchase the freehold and we have now been told that in the last couple of weeks all commercial lending has been withdrawn!

Back to the crystal ball ......... why has this suddenly happened and how long before we could hope to get a mortgage on the building?

 All banks are withdraiwng commercial lending as the risk factor is so high for them.

Too may bars and businesses have gone to the wall owing them...

The banks have stated that they will start lending again when confidence returns to the market.....! i would have thought that is  very much a "chicken and egg" scenario....

The problem you have in this current recession is quite simple

In Uk if you want to arrange finance to buy a business or a start up, it is very dificult

The business plan has to be very good and you will in most situations with UK banks have to put up good security

Eg...'good business plan 'and you are putting up 50% cash and want the bank to put up 50% with security, then you will get your finance on ' relative' good terms ..no security...big problems 

In Spain for the Spanish I suggest that it will be very much the same

But if you are English and wanting the same terms from a Spanish Bank.then not easy....in the same way if a Spaniard was applying to a UK Bank [ very little English] for a business loan in UK .....no chance!!!

That is just the ' economic reality' of 2009

it may improve 2011 post...but that does mean.....buying a business from an Expat in Spain...with cash ...you are in a very strong position

The recent ITV show illustrates all the problems....there is ' just now' with some exceptions ' no value to English Bars in Spain

The only suggestion I have is to do a deal based on future revenue....there will be no [ maybe some] audited accounts to know the ' real' profit.....so it is a gamble...for both the seller and the buyer.........our cash turnover is 'x' % higher than the taxable....well !!!

Most UK bar owners would be happy to get out if you take over the lease !!!....turnover and profits are only ' real' if there is evidence to back it up

As always there are exceptions !

There are also' some people ' who will buy or take over ' a bar in Spain now , and because they know what they are doing will make a lot of income.............but converting that to a capital profit will perhaps take us to a the next boom....2016 post !!

Having said all this...if you know your business and are well financed...good luck...when the world comes out of recession...you may well make a lot of money