The Grande General Store, Est.1948

The purpose of this paper is to discuss Case #6 in the student text regarding The Grand General Store.The Grande General Store is a family owned business that has been in the family for several generations. The current owner-operators have grown children; however, the children are not interested in following in the family footsteps. Rocky and Anita Grande are getting up in age and are getting tired of running the store. With no one in line to run the store, they have decided to sell the business. The Grande General store is located on the outer edges of Denver, Colorado. The store is well know and well respected amongst the local community. The current employees are also dedicated to the store and some have been with the company for over 10 years. Mr. and Mrs. Grande obviously care about the store and want to see it succeed in the future. They plan to allow the buyers to continue to use the Grande name. The Grande’s are known in the community for being honest and hard working. The businesses and customers they do business with have established relationships with the Grande’s. They are well trusted by their creditors; additionally, local contractors are more than willing to do business with them instead of the larger and cheaper suppliers. Their customers are loyal.

The store was established in 1948. Since then, the store has been through some slight changes. The store began as a true general store. They sold everything from food, clothing, farm supplies, penny candy, and even train tickets. In 1970, the store transitioned into a hardware store selling lawn and garden, paints, electrical and plumbing, and general hardware. The store boasts a spacious 4,200 square feet of selling floor space. Additionally, it is conveniently located next to a railroad which allows their storage area to easily accommodate large shipments of merchandise to be stored for later sale. In their storage space, they can easily house large items such as lumber, sheetrock, roofing and siding. The store is easily able to transport needed materials to local construction sites. The Grande’s have done a good job of up keeping the buildings and equipment. They have an upgraded fleet of delivery trucks and forklifts. The store has a flavor of the original 1948 building exterior; however, the inside is modern with a mix of the original fixtures. The income statement provided represents the financials for a five year reporting period – 1998 to 2002. Income (Profit and Loss) Statement Summary: 1998 – 2002 (in 000s)

19981999200020012002
Sales$1,100$1,215$1,500$1,800$2,200
Net Income$35$66$118$181$287

Net Cash Flow for Operations: 1998 – 2002 (in 000s)
Net Cash Flow$69$84$110$187$236

Balance Sheet Summary: January 1, 1998 – 2002 (in 000s)
19981999200020012002
Cash$12$19$22$23$21
Owners Equity$686$683$647$623$613

The total current Assessed value is $850,000. During this time, Denver is on a growing trend and projected to continue. In the local area, new housing, new neighborhoods, new malls, and even schools are under way or in the planning stages. The Grande property is large and there are plenty of expansion options. The Grande’s have not come up with an asking price, but the local banks have offered to provide a 15-year note for a max of $624,000. Question 1

Before deciding to purchase a business, in this case one must weigh the pros and cons of purchasing an existing business. If I were interested in hardware and construction, this would definitely be an opportunity worth looking into. Some advantages to purchasing a business that is already established are lower start up costs and easily accessible cash flow. “There are many favorable aspects to buying an existing business such as drastic reduction in startup costs. You may be able to jump start your cash flow immediately because of existing inventory and receivables.” (U.S. Small Business Adminstration, 2012, p. 1)

On the other hand, a potential buyer must be sure that the cost of the existing business doesn’t outweigh the cost of starting a new business.
“There are also some downsides to buying an existing business. Purchasing cost may be much higher than the cost of starting a new business because of the initial business concept, customer base, brand and other fundamental work that has already been done.” (U.S. Small Business Adminstration, 2012, p. 1). In this case, the community recognition, customer base and loyalty of the employee staff would be worth additional investment in the long run.

According to the income statement, the business has had increased Sales and Net Income over the five year period. Within the five year period reported, the net income has increased substantially. Reviewing the net cash flow numbers shows the cash in has also increased, but so has the cash out. Overall, the net cash flow from operations has increase over the five year period. The balance sheet shows a slight decrease in cash in 2002 which could mean a slight decrease in financial strength. (Katz & Richard, 2011, p. 405) Additionally, the net worth of the business has continuously declined over the past five years. I think this business would definitely be worth buying. If you were familiar with the hardware industry, you would have a great foot in to loyal customers used to doing business at Grande. Additionally, this business has a large store and storage area, has a lot of land, and has the advantage of being close to the railroad. The net worth has shown a decline, but the property shows a lot of potential. I would make an offer to the Grandes in the amount of $613,000. Question 2

In 2004, Denver is expecting to see an increase in the economy. The local economy has been stagnant. “While Denver has historically relied on resource production and other cyclical industries, by 2002, the metro economy had become more complex and diversified. During the 1980s and early 1990s, as dependence on agriculture, mining and manufacturing declined, Colorado became more in tune with the national business cycle.” (City and County of Denver, 2004, p. 6) The strongest growth is projected to be professional and business services, followed by educational growth. Unfortunately, a substantial loss in the manufacturing industry is forecasted and a small loss in the construction industry as well. Only a 1% increase is expected in these industries. (City and County of Denver, 2004, p. 8)

Conclusion
Overall, I would be nervous to purchase this business. The financials look ok, but the biggest concern is the drop in net worth. The business as it is looks promising. The property is in a good location and there could be a lot of opportunity to expand. The story is well established and highly regarded in the community. If the buyer could be more innovative and generating more business opportunities, as well as maintaining the high standards the Grandes have established the business could be very prosperous.

References

City and County of Denver. (2004, Septermber). Business Retention Study. Retrieved from Office of Economic Development: http://www.denvergov.org/Portals/690/documents/BusinessRetentionStudy_FullReport.pdf

Katz, J., & Richard, G. (2011). Entrepreneurial Small Business. In Entrepreneurial Small Business (pp. C-6 – C-8). New York : McGraw-Hill Irwin.

Metro Denver. (2012, December 5). Monthly Economic Summary January 2007. Retrieved from Metro Denver: http://www.metrodenver.org/metro-denver-economy/monthly-summary/2007

U.S. Small Business Adminstration. (2012). Buying Existing Businesses. Retrieved from U.S. Small Business Administration: http://www.sba.gov/content/buying-existing-business