Question

What kind of compromise would you suggest that might be satisfactory to both the buyer and the seller?

The buyer and the seller. Joe Critser is interested in buying a men's clothing store. He has had nearly 25 years' experience in the men's clothing trade - first as a salesman in retail stores and more recently as a sales representative for Sentinel, a major manufacturer of men's clothing. Now 45 years old, Critser is interested in having a store of his own.

In February, Critser learns that the Regal Men's Store is for sale. James Rombaugh, owner and operator of the store, is now 67 and wants to retire, he says. He has no heirs, and no employee of the store is financially able to purchase the business. Rombaugh started the store in the late sixties and has been the sole owner since then.

The store. Critser's early investigation convinces him that the store has the kind of possibilities he is looking for. Although it has been operated conservatively, it has a good reputation in the community and a creditable standing in the clothing trade. The store has never been particularly aggressive in advertising, the owner has relied on repeat patronage and word-of-mouth advertising.

Critser suspects that part of Rombaugh's desire to sell is due to competitive pressure from more aggressive stores in the community. Sales have continued to increase about in proportion to the market in general, but gross margin and profit have been reduced because of lower overall maintained markup and increasing costs of operation. Rombaugh owns the inventory, fixtures equipment, and operating supplies and leases the building at 5 percent of net sales, with a minimum payment of $ 1,000 a month. The current lease will expire in about 4 years.

The preliminary discussion. Rombaugh has been well impressed with Critser and agrees to furnish necessary financial information. In their discussion to date, Rombaugh has stated that he feels the business is worth about $100,000 for the purchase of inventory, fixtures, equipment, and goodwill. He will retain all accounts receivable, but he is willing to allow the new owner an 8 percent fee for outstanding accounts receivable collected after the transfer of ownership has been completed.

He also wants to keep a few assets for which he has a sentimental attachment, such as a massive roll-top desk purchased when the store was first opened. Rombaugh will assume responsibility for payment of liabilities outstanding at the time of sale.

Critser, on the other hand, feels that the business is worth somewhat less than $ 100,000. It is obvious to him through casual inspection that some of the inventory is worth less than the original purchase price, and he doubts the value that Rombaugh would place on goodwill. He also notes that some of the display equipment is outmoded and needs replacement.

If Critser feels that his return on investment should be capitalized over 5 years, his offering price, based on anticipated profits for the year ahead, would be $79,500 (5 years=20 percent per year; $15,900 / 0.20=$79,500 ). If, on the other hand, the purchase was based on the appraised value of assets only, the purchase price would be $70,412 plus any provision for goodwill.

Since both of these figures are well below the suggested price of $100,000, negotiation will be necessary.

Answer 1

The first party Mr. joe critser , the buyer is an experienced salesman and having much knowledge of in selling in men's clothing he is interested to buy shop.  

the main points he explains regarding purchasing the Mr. James Rumbaugh shop.

• according to him, Mr. James feels the business is worth somewhat less $100,00
• the equipment is outdated needs replacement. he wants to purchase based on the appraised value of assets only.
• purchasing price would be $70,412 plus any provision of goodwill.

According to me, Mr. joe critser has to compromise and do the negotiation with Mr. James.

The following points talk in favor of Mr. James.

1. he has goodwill in the market about his business and

he is agreeing to pay liabilities outstanding at the time of sale.

Mr critser finds the possibilities in that store he is looking for moreover he is experienced in the field of salesmanship is well-known business he better knows the pros and cons. so he should agree to buy Mr. James on suggested price it is very old shop but he has goodwill among the people. Mr sister with his new ideas and innovations in business can set up a great business opportunity.