I wouldn't buy it.
If it were just a manner of bad management that'd be one thing, easily fixed once you bought it out.
But it's a matter of location, location, location, something that would make you fight an uphill battle to make a profit.
Handicaps are something you never want in business. Long term that extra $50k you need to get a better position, more space, etc. will be better than starting earlier in a small space in a bad position.
Don't buy a ticket aboard a sinking ship. Buy stock, relocate.
STORYTIME
In my area, we have a lot of smaller, locally-owned businesses, including restaurants. I wouldn't say we're insular, but a lot of people aren't exactly open to very new or different things. That said, I think that we'd be very open to something interesting...
There was this really neat little place that opened up in a strip mall plaza down the road from my house. They specialized in pizza and chicken wings, but they did especially different kinds of stuff. The one time we got to try it, we ordered chocolate-raspberry-flavored wings, another kind that I forget but was equally odd, and a large pizza. All the food was kind of weird, different, but delicious. The place itself was also very neat--they had retro video games in there, including an N64 and a Sega Genesis, both of which were plugged into TVs and had a small library of games to go with them. Everyone was invited to play them while they waited for food. This restaurant also did sandwiches, all good and different.
However, this awesome place was crammed into a small subset of the building, roughly in the middle of the strip. It was another small business, but not run by anyone very well-known in the area, so they had neither massive funds nor renown or reputation on which to run. They were also right down the road from another local pizza joint (not part of your problem, but it quite probably contributed here).
This restaurant closed down not even a year after opening, sadly. They were replaced about a month later by a Little Caesar's.
Moral: Location and funds will DEFINITELY help you to get a store of any kind off the ground. Just taking over a small store with little inventory in a less-than-prime locale and renaming it or putting up an "Under New Management" sign without a lot of extra money for renovation or purchasing inventory is a bad plan. I'd say wait.
We had a store in our area called Red Dragon. They didn't close because of bad business. They closed because they had enough. Anyway, they were out of the way. Anyway, they got their business by going to local conventions and out of state conventions as well as putting ads in well known gaming magazines. Though people say Location is everything, it isn't the rule.
They wouldn't have had to work that hard to get what business they had with a better location, however.
I would revise my belief in this:
"You know most of the problems have to do with policy and poor business choices, and you are confident that you could do better."
Unless I had the financial statements and other such in-depth knowledge of the business, the chance of me understanding why it is struggling is negligible. As such, my confidence in my own abilities to turn things around is misplaced (even if it turns out I am successful).
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For a bunch of folks that sit around and pretend to be adventurers having all sorts of interesting times, why are we discouraging what would prove to be a rather interesting adventure?
I'd advise the person thinking about it to go for it. And then to advertise heavily in whatever free/cheap/inexpensive ways they could.
Go for it.
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Because a business isn't an "adventure" it's a significant investment that being "adventurous" with is likely to result in failure and the loss of quite a bit of money.
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So really it's about the risk for the lot of ya?
Does the "OMG! Risk! Avoid! Avoid!" crowd not contribute to 401Ks (or their local equivalents), which are also a gamble when you think about it?
I've always taken the more interesting job out two offered, not because I'm into gambling, but because *some things are more important than money*. For example, risking that one would hate the better paying job because it's bloody boring day in/day out.
Then again...I for one refuse to tiptoe through life only to arrive safely at death, but YMMV.
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Some things ARE more important than money, sure.
But not in business. Business is ABOUT money. If you don't care about money, you don't need to be running a business.
Risks taken should be calculated risks, not blind hope that YOU won't fail where others HAVE.
Risk taking is all about risk vs reward. The "risk" of buying into your 401K usually don't outweigh the reward: It is a good risk.
The risk of setting up a similar business in the same spot as one failed BECAUSE OF THE LOCATION, at least in part, outweighs the reward. It is not "more interesting" to take this risk, it is simply risky and an irresponsible use of the money you've saved up so far to be able to embark on this endeavor.
It's not about risk for me, it's about ignorance.
I've advised many people who have started or bought small businesses and can't think of any of them off hand who wouldn't say they knew next to nothing when they started. (It's different if they've moved from one business to a similar business, but that doesn't seem to be the case in this hypothetical). People always overestimate their own insights and abilities and fail to appreciate real, significant problems facing the business.
It's really hard to justify the belief quoted below, if you don't work in the industry or have intimate knowledge of the specific business at hand:
"You know most of the problems have to do with policy and poor business choices, and you are confident that you could do better."
I'm all for people trying new things (my career has included half a dozen radical shifts), but going in ignorant and overconfident is a bad way to start.
Use the funds you already have to negotiate for a killer deal on their remaining inventory, supplies, and decorations. Then stick those in a storage unit while you look for investors, loans, and a better location to start fresh.*
*Keep in mind, I have no experience with business.
Buy his inventory, cheap, and find a new location.
Agreed, but not necessarily in that order. If you buy him out before you have a store, you have inventory stored somewhere and not selling (and the gaming public has no store at all for the duration.)
If you open first, then offer to buy him out, maybe you can even get a better price on his stock, because by that point he'll have an actual business competitor rather than a theoretical one.