Evaluating A Retail Store For Sale: What To Check Before Buying

Acquiring an established, promising and high growth retail store in Australia is one of the best ways to capitalise on your investment. The Australian retail industry is a booming sector, employing a significant workforce and contributing a whopping amount of revenue to the economy. In 2024, the retail sector generated approximately AUD $436.76 billion in revenue. It is a thriving industry to tap into and kick start your successful entrepreneurial journey. It will be a win-win situation, as online shopping is on the rise and expanding your acquisition to digital platforms can further boost your revenue.

However, owning a physical retail store is beyond purchasing inventory, stock and equipment. It is also about taking over the business's market reputation, goodwill, customer base, financial health, hidden liabilities and operational systems. This means bad decisions can put your investment at risk. That's where business evaluation or due diligence plays a crucial role. A thorough research about the business helps you choose the most reliable retail business for sale in Australia, saving you hard earned money, prospects and enthusiasm towards achieving your entrepreneurial goals.

Here is a comprehensive guide to the essential aspects to consider before buying a retail store. From financial health to lease agreement, store's location to existing customer base, consider everything before making the final buying decision for consistent growth as a driven entrepreneur.

1. Thoroughly Check the Financial Health

It is always good to own a retail store that has already generated profits. To gauge the financial performance of any business, you need a few financial documents. Once you've reached an agreement, you will be allowed to access the store's profit and loss statements, balance sheets, cash flow statements and tax returns for the last three to five years.

For instance, cash flow statements help you assess whether the business is struggling with weekly cash flow despite decent annual profit margins. This happens due to slow moving stock or high fixed costs. When you thorough evaluate the financial health, you can easily make the right acquisition decision.

Ensure you also verify earnings, such as cross check POS reports, supplier invoices, payroll records and bank statements. Matching data helps you confirm that the revenue and costs provided by the seller are genuine.

2. Assess the Stock and Inventory of a Retail Store

Whether it's a food and beverage store, clothing business or toy store, stock is the largest asset to check for before buying a retail business for sale in Canberra. Here are a few things to check:

• Inspect a Physical Stocktake: Since you are pouring money into a business, you must inspect products yourself. Ensure you check for outdated, expired or damaged items in the store. Beware of items that haven’t been sold in the past few months.
• Check Supplier Contracts: In the retail sector, supply chain reliability is essential. Disruptions can be expensive, especially during business transitions. So, ensure the business already has long term supplier contracts in place. The agreement should clearly outline the wholesale pricing of stock, payment terms, delivery schedules and exclusivity, etc. Businesses with strong supplier relationships ensure consistent growth and operational stability.
• Gauge Stock Turnover: Choose a retail business with high stock turnover. This ensures that the products sell quickly.

3. Prime Location and Customer Foot Traffic Drive High Sales

Location is another critical factor that determines a retail store's success in a highly competitive market. It is always good to buy a retail store that is strategically located near a shopping prescient, business hub, or residential area. This ensures a steady flow of customers throughout the day. So, visit the store on weekends and weekdays to observe the walkby traffic. Remember that not all busy locations drive sales. So, know how many visitors actually turn into customers.

4. Understand the Local Demographics and Online Presence

These are also key factors to look for before making the final buying decision. You can hire a professional marketing strategist to understand a business's target customers. They will check the age, shopping habits, income and lifestyle of people in that particular area. A smooth running retail store thrives with the surrounding community.

Also, check whether the business is an online store. Check social media pages, Google reviews and customer feedback. A poor online reputation is a big red flag during the acquisition of a retail store.

5. Carefully Review the Retail Lease Agreement

When buying a retail business for sale in Canberra, make sure you review the existing lease agreement carefully. It is as important as the company's brand value, assets and customer lists. It is a bidding document that determines the relationship between the landlord and the business.

The agreement may include terms negotiated years prior. So, the key areas to check include the remaining lease term, renewal options, and any restrictions on transferability. Also, consider the clauses on annual increases, outgoings, tenant’s responsibilities, etc.

Choose a retail store with a long term lease to gain stability in the future. A leased store with a high monthly rent indicates one of the biggest red flags when buying a business. It could reduce your profits in the long run.

6. Know an Existing Customer Base

Whether you are retailing online or offline, customers will remain your key source of stable revenue after acquisition. You must request the seller to provide you with complete details of the existing customer base. You should measure the percentage of revenue they contribute, their importance and the customer retention rate. This will give you peace of mind and confidence to acquire a retail store without a second thought.

7. Operational Assessment is Critical

A retail business with consistent daily operations ensures seamless customer service and high operational efficiency. It is imperative to review the store’s opening and closing activities, pricing strategies, security processes and stock management and rotation system. A stable and consistent system indicates a profit making business. Also, check for new age POS systems for accounting and customer data management.

Maintaining existing staff is also the simplest way to ensure the company's seamless operation. On average, it takes companies 28 days to fill a vacant position, leading to productivity losses, delayed onboarding, and a slower recruitment process. So, ensure you are getting an existing staff member in the sale. For that, you may need to check the employee contract, payroll processes, roster systems, staff turnover rates, etc.

8. Conduct a Legal and Compliance Due Diligence

This is critical! A retail business in Australia must meet strict legal requirements for smooth operations, including:

- A retail store must have an active ABN and GST registration

- It also requires council permits for the product categories.

- Check safety signs, incident logs, equipment servicing records, etc, to prevent lawsuits.

- Ensure the existing staff members are being paid accordingly to the set laws, including overtime, leave entitlements and superannuation.

These are essential legal must haves that will help you grab the right business opportunity in Canberra with high growth prospects.

Wrapping up

Retail stores are the lifeline of the Australian economy. If you want to embark on your entrepreneurial journey as a retail owner, evaluate these crucial factors, including the financial health, market reputation, customer lists, existing staff, sales, etc, to make the most of your buying decision for a rewarding career.