Entrepreneurial Small Business 2nd Edition by Jerome Katz , Richard Green

Exercise 20

THE GRANDE GENERAL STORE, EST. 1948-IT'S TIME TO SELL
Three generations of Grandes have dedicated their lives and careers to a small general store located on the outskirts of Denver, Colorado. Rocky and Anita Grande, the current owner-operators, have decided to sell the family business. They have declared themselves "tired, burned out, and ready to get out." Their two adult children have no interest in the business, and Rocky and Anita want to spend more time with their three young grandchildren.
They need help with setting a fair price for the business, with finding a qualified buyer, and with preparing a formal prospectus for use by investors, bankers, and others. The Grandes want the highest price possible and at the same time sincerely wish to see the business survive and prosper. It has been in the family for a long time, is a well-established part of the community, and has a dedicated workforce. Most of the employees have been with the company for more than 10 years. The Grandes will allow a buyer to continue to use the family/business name if desired.
What began as an old-fashioned general store (1940s-1960s) carrying everything from food and clothing, to tools, farm supplies, penny candy, and train tickets evolved into a traditional hardware store (1970s-present). The current 4,200 square feet of floor space is divided into four major departments: lawn and garden, paints, electrical and plumbing, and general hardware.
Sales and profits are divided equally between consumers and contractors. The store is located adjacent to a railroad siding with a storage building that allows for large shipments of merchandise to be received, stored, and sold. Building materials of all types (lumber, roofing, siding, Sheetrock, and so on) are picked up and delivered to local construction sites, which represent the mainstay of the contractor business.
The Grande family is well respected by all. Their honesty, loyalty, hard work, and community involvement have come back to bless them on many occasions. During tough economic times, suppliers often extend credit terms far beyond the norm. Customers and contractors are fiercely loyal to the Grande's business even with the presence of modern-day giant warehouse outlets that offer a wider variety of the same products for less money.
While the main buildings date back to 1948, the Grandes have upgraded their fleet of delivery trucks and forklifts. The inside of the store is a mix of the old and the new. State-of-the-art computers, paint processing equipment, and landscape machinery rentals are scattered around the old wooden building that still sports some original display fixtures and the wormy chestnut paneling that Rocky's grandfather Jeb installed during construction of the original building.
The principals have compiled the following summary financials for the past five years of operation:
Income (Profit and Loss) Statement Summary: 1998-2002 (in 000s)



Suburban Denver is considered a moderate- to high-growth region of the state and is projected to stay that way for years to come. New housing, new neighborhoods, new schools, new malls, and the like are under construction and in the planning stages throughout the area.
The Grande business sits on seven acres of land and includes room for growth, in terms of new buildings, increased parking, and other business options. The business was recently appraised by certified professionals. The assessed values are as follows:

The Grandes have compiled all their data into a prospectus and are about to formally put the business on the market. They have yet to settle on an asking price.
Two local area banks have indicated a willingness to offer a 15-year note to a qualified buyer for a maximum of $624,000 (which represents 80 percent of the assessed value of the land, buildings and equipment).
Use your entrepreneurial skills to evaluate this investment opportunity. Is this a business worth buying If so, why How much would you be willing to invest Why