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Possiblly buying into an existing gun store

Discussion in 'General Gun Discussions' started by gym, May 10, 2011.

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  1. gym

    gym member

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    I have given this some thought, "I should hope so". A new gun shop opened about 6 months ago, and I became friendlly with the owner slowlly. He is a competition shooter, ex special ops, Fbi trainer, and more. Thing is he's a not an experienced businessman. He is at the point where he doesn't have inventory, He get's a lot of calls, "I am in and out often", but must tell the client that he can get them the gun in 2 days. Maybe he has 20 handguns. Mainly he is into AR's and tactical shotguns, and modified custom stuff. He showed me his latest build, an AR, made to fire ak rounds. It was done very well. He is good with tools and is working on a new type supressor and some stuff for the AR. He makes a lot of cool things.
    What I proposed to him was, I will put money in to the business to buy inventory, "guns that sell" and we split the profits on those. I will have nothing to do with any money he owes for anything. He sold out at every show that he did, but doesen't know really how to lay out a budget and has no marketing skills, "no website, no ads in local anything", and he is on a street that you need to know he's there to find him.
    Basically, if he has guns, he sells them and needs capital to get back on his feet. I would start small with him just to see how it goes, and spend time there every day, do the shows, and marketing, That is my thing, I did all the ad work for 5 business I owned in 45 years. I know how to build websites, and also am great with people and getting a human intrest storys in local press.
    I think it has tremendous upside, all his friends are "good people" and that says a lot, They are most all ex military or current. He hangs with special ops, guys he served with and is very moral, "I am pretty good at reading people". So please tell me any downside you see as several of you have been there, done that. I believe in listening to people who I respect, there are a few of you whose opinion I value, so if you have a mind to, tell me what to look out for, thanks,
    Gym
     
  2. Sam1911

    Sam1911 Moderator

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    You probably already know this, but put every last possible detail in writing -- from what you each bring to the table, to exactly how you will someday part ways and disburse the assets at that time.

    Strong fences make good neighbors and the time to build those strong fences is before you become too close to say the tough things that might need to be said.

    You could really help him out and do well for yourself, or you could ride a circular path down the drain with him.

    Also, make sure that he is reaching out for [strike]adequate[/strike] excellent business help. Meaning accountants and other consultant types who can see what the business needs to bring in and put out to survive. Enthusiasts, tech guys, and gear nuts are almost universally horrible at that. I'm starting to think it would be better to go into a business you hate so your enthusiasm for the cool/fun/neat-o part of what you're doing doesn't trample all over your business sense. There are lots of very disappointing decisions on the road to business success -- and a lot of REALLY COOL ideas that will never be anything but a drain on finances.

    JMHO, and good luck!
     
  3. rellascout

    rellascout member

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    IMHO you are taking on a huge liablity for very little upside or potential profit. If your profit from the business is going to be from selling guns only there will not be enought profit to split. Talk to other FFLs. There is not much money in moving metal these days. The avg profit on a gun is around 15% IIRC. So once you have split that on $1,000 gun what have you got? $75?

    Unless you see the ability to turn this business into a custom shop or a high volume shop there really is not a lot to gain. IMHO Look at it this way. If he was selling "widgets" would you be interested? If the major appeal is owning a gun shop I can understand that but you have to go in eyes wide open. If you do not have a high profit sales line to increase profits I cannot see how you will make money.

    I have run some inital numbers and they were not good. I found that you were better off being an acessories company over an FFL. The margin there is better and with less hassle and regulation. The sucessful FFLs these days are high volume internet based like Buds, dealers with large custom shops like Wild West Guns or people that have a captive audience which have limited resources to shop elsewhere.

    Just my $.02. Which are most likely worth less than that. LOL
     
    Last edited: May 10, 2011
  4. Bubbles

    Bubbles Member

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    Your friend needs to figure out what he want to do with his license. Since he wants to "play" or "innovate" - that is, I'm assuming that he's got an 07 w/ SOT since he's mucking with suppressors (and yes, it really is a license to play) then I'd suggest he stop stocking new inventory completely, focus on gunsmithing, innovating, transfers, consignments and estate sales, appraisals, and taking in trades for work. That keeps his overhead low, generates decent cash flow, and gives customers a reason to come to the store.

    You make almost nothing on new guns unless it's a new release with a lot of hype (like the Kel-Tec KSG will be when it hits the market later this year, or the Colt 1911 100th Anniversary model). Most shops only mark them up 15%, which means a profit of 4-5% after deducting your overhead costs - and then customers will be PO'ed because you're still $50 higher than Bud's even including the shipping and transfer fee.
     
  5. mbt2001

    mbt2001 Member

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    Find a good lawyer and accountant before you buy into anything.
     
  6. rondog

    rondog Member

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    Ooooo, DANGER Will Robinson, DANGER!
     
  7. Trebor

    Trebor Member

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    Be aware that most of the profit is in accessories and, to a lesser extent, used guns. The mark up on new guns is really quite low.
     
  8. Shadow 7D

    Shadow 7D Member

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    Hey, Wild West Guns, isn't that large of a place (physically) it's just a two story building in a mixed business/light industy area. And they only have about a 1/4 of the ground floor for the show room, and a goodly portion of that is the paneled highend display room (1K and up, interesting to see $32,000 shotguns look pretty much like browning double barrel)

    See, my point is, maybe they are really making their profit with the OTHER 2/3 of the building, the stuff with small CNC machines, cryo tanks etc.
     
  9. gym

    gym member

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    Thanks guys, we had our first meeting, he is a skilled gunsmith, he has patents pending on a 50 cal and a new design for a supressor. Also he is a licensed pilot, with the use of a twin engine plane right here in Vero, for use in Estate sales. We want to keep the store running while he finishes up the 50 that he is going to show me tomorrow, and several other things, he is very good with his hands, and has gone to school not only for gun related things but certified in 4 different motorcycle , most every armorer, and both guys, one employee are very good with machining parts etc. They do a lot of custom work, like taking an AR and converting it to fire the AK round.
    He just needs inventory in order to get people in the door, and someone who knows marketing, which I do well.
    He never owned a business and just needs direction, I have owned 5, so the fit should be good. The nut is small and he knows a lot of people in the industry and in the town. More investigation must be done on my part of course, but it was a good first meeting, and I made a sale while I was there.
    Addressing what you mentioned Sam, I did that with the Gym business, taking a hobby and trying to make a living out of it, but thanks it isn't that way now, I will be a limited partner, only splitting profits on the guns we sell and the custom work we do. I won't have much to do with the daily running other than setting it up, and fixing what is broken. I will probablly do some shows, and if we get that busy, I am down the road if he needs help. Mainlly getting people in the store will be what I do best. He's breaking even now but no one knows he is there, and he went in under financed. That prevented him form having the funds to complete his rifle and other custom work. So it's more guidence, marketing, and inventory he needs. a grand re opening with proper placement, and a few well placed articles along with great personalities and enthusiasm, and the guy really knows his stuff. But again it was just the first meeting, we willo see as time goes on.
     
    Last edited: May 10, 2011
  10. InkEd

    InkEd Member

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    I would pass on it.
     
  11. stonecutter2

    stonecutter2 Member

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    It's obviously not without it's risks.

    If you're so inclined, I say go for it.

    However, be sure things are well detailed, so that if this goes south it doesn't take you with it.

    If you become part-owner (which it sounds like you are), and this business goes down, are your possessions liable to be used to pay back the debtors?

    It's important to have details written out, and looked over by someone familiar with the legal angles of this.

    Be as informed as you can be, and if you want to take on the risk and see a potential for profit, go full on and the very best of luck to you!
     
  12. Lothar Allen

    Lothar Allen Member

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    Talk to an accountant about how to structure the business to minimize your potential tax obligations. Talk to an attorney to minimize your long term risk.

    Despite your potential partners insistence that his current debt will not become yours, that very well may not be the case should things turn south and you are part of a partnership.

    How you structure the business has HUGE impacts on your liability, both current and future, as well as your tax obligations.

    And despite how knowledgeable/ trustworthy/ ex-military he is, it won't make a difference if YOU don't make money. That is the only reason to undertake a business opportunity.

    Considering how much time you intend to devote to getting this business going, and that you are leveraging your personal assets to fund this, I don't see a very reasonable return on your investment. Not only is it quite likely you will lose money (remember, many businesses do, don't think you are exempt from this), but even if you do turn a profit, what is the likelihood it is more than you could earn just investing your money in a mutual fund and doing no work?
     
    Last edited: May 11, 2011
  13. gym

    gym member

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    Honestlly I was a full time day trade for 12 years working out of the house on 2 machines and a laptop with 6 screens. I could tell you what s most likelly to happen, but even I get fooled sometimes. I want nothing to do with stocks right now. Shorting the indexes is probablly the best thing you could do intraday.
    As far as businesses go, I started 5, from scratch, and all of them were considered to be "not great ideas" the first one turned into a 200 man operation with 5 salons. It was the largest independentlly owned chain in NY. So I don't mind taking risks, and do have excellent legal and financial advisors. I just don't know the gun business as some of you guys do, Business itself I know. My experience is most times people will tell you not to do something regaurdless what it is.
    I do know that here are a few guys in here who know a heck of a lot about the gun business. My friend ron also in his 60's taught constitutional law, amoung other things he did 4 tours in Nam, and owned a gun store had a class 3 and was given 4 months to live. They were obviouslly wrong as 3 years later he is cancer free. But he also gave me some advice "which I value greatlly. He said I wouldn't do it for the gun sales, but if he can do the gunsmithing work the way we have seen so far, and finish up his class 3 license, we would be one of the few class 3 dealers in the area. That's more what I am looking to do. The guy is great with gunsmithing. I have watched him work and I worked in a plant with my dad when I was a kid and grew up in a defense plant full of machinists and engineers. I see a talented kid with some good ideas. Once he gets someone in the door, chances are they are going to leave with something or want one of "those" on their AR or AK. I still am pondering different scenarios, but my eyes are open, and in any business you have to start someplace, and he is the kid that could take this place and turn it into a thriving business. That's just my gut. He's smart, eager to learn, relentless, and even has a pilots license at 30 years old. He opened a year ago with no press no advertising in a section that you wouldn't see unless you knew he was there.
    If I can get him some exposure, a little guidence, adna little capital, I think he can really turn this into something.I appreciate any and all responses, the custom end of the business is more what I am looking at, but you need guns to get people in the store. This was meeting 2.
     
  14. TriTone

    TriTone Member

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    Not to be rude, but I hope you're business sense is better than your grammatical ability.
    I would pass and start your own place in a better location that is there primarily for your business purposes. Then offer to stock some of his custom products.
     
  15. gym

    gym member

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    If I were writing a formal letter I would use "word" and format it correctlly this is just a forum not a spelling bee. I would put my business sense up against your any day.I don't want or need to do what you suggest, a limited patner is all I choose to be. I don't want to stand behind a counter. Nor am I a gunsmith or have a running business with all of the things already in place, there are three gun stores that offer nothing and have done quite well, in worse locations, in the past year. And they just sell guns.
     
  16. premier1

    premier1 Member

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    Former sporting goods store owner

    I am a former owner of a sporting goods store. First if you make a profit on the sale of a gun you have to report it. Next you may have to set up a business name a get a FFL for yourself. Every one else is right you'll make more money on selling a good fly rod than you will a gun. This guy special ops or not(which I doubt) and pending patents or not is in a game which volume buying is necessary to make money and that goes for you too. Buy a pizza shop there is more money to be made with less liabilty and investment.
     
  17. gym

    gym member

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    Pizza huh, if you knew me you wouldn't be such a wise ass. I owned a lot more than pizza. Your lack of posts is no excuse for being a wise guy.
     
  18. geekWithA.45

    geekWithA.45 Moderator Emeritus

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    I dislike this deal.

    To be more accurate, I like the overall thing, but I do not believe the risks, benefits, and values traded are balanced, and therefore dislike the *deal*.

    I think that you have to recognize that by operationally ensuring that the gunshop delivers on its basic promise of selling guns, that you are providing more value to the operation overall than the profit on the discrete pieces you sell.

    You are adding value to an indivisible entity, that will someday be sold, and for which you won't benefit. You are also accepting the entire risk of inventory, while taking 1/2 value only from that aspect of the business. Your "partner", on the other hand, is taking a different set of risks, full value from them, and half of the value of what you risk.

    Irregularly and malformed deals like this rarely work out. I would seek a different approach: spreadsheet out actual value contributed, and divide ownership of the whole proportionally.


    Doing biz is one thing. Doing biz with co-owners brings a whole new dimension of pain to the thing.
     
  19. gym

    gym member

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    Geek we did try that already, it's only our 2nd meeting. He said actually what you said, we have to have inventory to get the people in the door. I can do this several ways, one of which is just to be a money man, and stock him with 10 or 20, thousand in guns, just to move him to the next level and he can work on his projects with a contingency for me to own a piece of that also included in the agreement.
    I really don't want to buy his inventory, as that accomplishes nothing for me. He ends up with 20 or 30 pistols more or less and I get 30-50 dollars on each one. That isn't viable either. I need to see a possibility for growth and expansion into cyberspace and also brick and mortar.
    Risk wise, I can take as little or as much as I want as far as he cares. It's up to me to congure up a deal that benifits us both, or let it go as I have many times before.
    We had a 40,000 sq ft health club, salons, atm business etc, but this was more of a work of love than anything else. But if it doesn't jive after all is said and done, then I still will be friends with this youn man.
    The patnership thing can be as I once had it with another partner. Two seperate corporations doing business as World Gym. This way the individuals kept a safe distance from each others liabilitys or possible problems My corp paid me and the biz paid my corp. So there are ways to go about that end of it and isolate yourself, and so far I don't see any debt on his end, Everything there is paid for "of course i will have my guys check". He just has no operating cash. His landlord is someone I know also, and he's up to date on everything, with a low nut. The store is 10 times nicer than 2 stores "I won't mention", that run ADS in several forums, and grew from a "bay" in a strip mall,to a decent sized operation in a year. One, doesn't even have a working on site, owner. It's by appt. So there are many ways to do this. I remember a year ago when said shop started out with 6 Glocks. Now they carry everything. Both are growing very nicelly, and really don't have the size or potential that this one does.
     
    Last edited: May 11, 2011
  20. Toforo

    Toforo Member

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    Open 6months to a year and without the capital for either his custom work or further inventory....

    He needs a "buy-out" not a limited-partner....

    ....as stated, there's currently not enough money to get the work (either sellable goods or services) for HIM to make money, much less adding debt (investment) for an additional person to make money

    The only people making money from this so far is the landlord he rents from, and the insurance company he insures with

    Retail is retail is retail is retail

    There's an old expression about retail (and restaurants) -

    "Want to know how to make a million dollars in this business?


    Start with 2 million..... "

    If you have the kind of capital it takes to make all the corrections you say are needed (bad location, bad "first start" and opening, no inventory, not enough time for service-work, etc) then you'd be better off to get your own FFL.
    After you get your own FFL - then go into business with him as a "management company" with all the specifics you have mentioned as the responsibility of the management company you own.

    That - or buy the property his NEW business is on and collect rent from him and if/when he goes under - then you have the property to rent out to the next LGS guy....
     
  21. gym

    gym member

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    You aren't wrong, I just don't have the time or inclanation to sit in a store all day. And you would need a store in Vero as they would never allow you to work out of the house where I live.
    this was a situation where I could have my cake and eat it, even starting from zero, all of the work and licensing is done, the store is built and the rent is low. Plus I don't need to be there unless I want to. Bottom line is it has potential.
    To start out and do this from scratch myself is just not feasable for me. I have too many other things that take president over this. It is the kind of thing that you take a shot on if you believe that it can work. That's it really, it's more like backing a business than working it. I have done both, I see the glass half full. The downside to me is little, it would cost 50 grand to build out what he has including the size space and room for expansion. Location is important, but neither of the stores that have done well near here had a "better" location. Just better promotion, he just never was in business before. Great at what he does but I can cut his learning curve to zero.
    I did every major publication when in the my other businesses, I even did HBO when it first started on local tv. My ex parther is on QVC, and was on HSN, so I have a lot I can show him. I know how to get in local press, who to call and how it's done. I commonlly had articles even the center of the Ny Post, when we were in the salons, 3 or 4 times a year.
    But none of this is important unless I decide to go forward, which I am in the process of now
    I take your input seriouslly, but ultimatelly I have a feel for something or not. This still interests me, so we will continue to talk, and see what happens.
     
  22. kingpin008

    kingpin008 Member

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    Where was he cracking wise? The point he was trying to make is a valid one.

    And FWIW, I'm no business maven, but this sounds like a potential nightmare to me. I can understand your interest, and the guy sounds like a stand-up fella, but as a few others have mentioned, all the FBI/spec ops experience and great ideas for new products in the world ain't gonna help when your business acumen is absent. Best not to get yourself too deeply tied up in it, IMHO.
     
  23. nazshooter

    nazshooter Member

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    So does he have the time/inclination to deal with volume retail sales?

    Sent from my Droid using Tapatalk
     
  24. Cosmoline

    Cosmoline Member

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    Absolutely get a lawyer on this one. We are much cheaper at the FRONT end believe me. It sounds like you should set up the store as a partnership, and if so you should be real clear at the outset what your cut of profits will be, and of course find out what the business owns and what it doesn't own. Everything needs to be in writing and clearly understood. Handshake understandings are a recipe for trouble. Also have an exit plan mapped out if things don't work out. If you're running the storefront side you'll want control over it, so you can turn the place into a proper store instead of a place for friends to hang out and talk.

    Folks are right that value added accessories are where the profit lies. Esp. in this age when you're competing against gunbroker. Packaging is something most gun stores fail miserably at. Customer service in general tends to be weak. But man it's an uphill fight. The physical location of the place and the local market's spending money is also a factor. Though of course you would want to market specialty services on the national level. WWG in our town makes most of its money doing just that. The actual gun store there is kind of an afterthought.

    Good luck if you decide to do it!
     
  25. rellascout

    rellascout member

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    That is why I mentioned them Ken and the boys will make more $$ from the custom work he does on my BHPs and Colts than he makes selling me guns and I have bought quiet a few guns from him. :evil:
     
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