Gift Baskets Extraordinaire!
By Bruce Freeman
Madeline Vadkerty owner of Elite Occasions, a gift basket business in Washington, D.C., never pictured herself in the gift business, but now she does it with a mixture of national and international flair. After graduation from Georgetown University, where she studied French and Russian, Madeline worked in a variety of jobs, all relating to US public affairs in some way. Her services were in high demand as she speaks 10 languages fluently and “gets by” in five or six others. During her career, she lived and worked, in Paris as a translator, several cities in Russia as a guide to an exhibition of American books, and as a business consultant to import-export businesses in Prague. While in Prague, she became an entrepreneur, and even though she had held good secure government positions, the people’s struggle to evolve from communism to capitalism was inspiring; and she knew she wanted to continue to make her own destiny.
By 1996, regime changes, marriage, and a baby on the way brought Madeline home to Washington. Then, disaster struck. One slip, a fall, and Madeline Vadkerty was in a wheel chair for two long years. After much physical therapy, Madeline learned to walk again. In 1998, Madeline finally returned to the working world as a guide for the Holocaust Museum, but she missed having her own business, so she started making gift baskets as an uplifting sideline. In the early summer of 2004, she saw an ad for a gift basket business, and she knew this was the right business opportunity for her. Madeline has loved language her whole life and she sees the gift baskets (“Welcome to Washington!” is her specialty) as a form of communication in their own special and heart-warming way.
Buying someone else’s business can be a nightmare, but Madeline Vadkerty made all the right moves. First, she hired an accountant to go over Elite Occasions with a fine tooth comb. She prepared detailed personal financial statements to help convince the seller that she had the resources to purchase and carry the business through slow times. Both parties signed confidentiality agreements in case the sale didn’t culminate because word leaking of a possible sale can destabilize a business very quickly. Ms. Vadkerty negotiated with the seller to pay a note on the principal over time. This negotiation was based on the asking price (less deposit) multiplied by the interest percentage on the debt and the length of the note. This gives the annual payment amount, which is then compared to the last two or three years of the company history to see if payments can be sustained after expenses are paid.
Madeline also negotiated a transition period with the previous owner on the premises to reduce her learning curve. During that time she learned several things that might have caused costly mistakes had she not listened closely to the seller. She learned that the cachet of her Georgetown address contributes an intangible asset, which would have been lost, if she followed her own instincts and moved to less expensive quarters. She also learned that expensive advertising in the yellow pages is crucial to the success of her business; something she had believed was due to word of mouth. Finally, she learned that her market was not as sensitive to price as it was to high quality content and couture presentation. In order to keep up with the demands of her business Madeline now maintains 5500 sq. ft of warehouse space for inventory and employs a professional designer as well as support staff. She has computerized the business and is approaching the hotel and conference industries to open new markets. Elite Occasion’s future looks bright.
Professor Bruce’s Words of Wisdom
Paying off the principal to the seller over time (vs. a bank or mortgage company) is often a good strategy because it ensures that the seller believes that the business is viable on its own and will continue to prosper in the future. Further, it helps to keep the former owner with a vested interest in your success. Nevertheless, you must be prepared, with additional personal capital, to pay rent, employees and suppliers for at least three months during slow times, especially in seasonal businesses.
Purchase a successful business and pay for it over time.
Could This Work For Me?
Due diligence is a necessity for any business purchase prospect.