What should I check before buying a used phone store?

A used phone store is a trading business. It buys devices from the public and from suppliers, tests and grades them, and sells them on. That is very different from a store that sells new phones for a carrier, and from a repair shop. The risks sit in where the phones come from, what is on them and what happens when a customer brings one back.

Sourcing and grading

Ask where the phones come from: walk-in sellers, trade-ins, wholesalers or auctions. Ask how a device is tested and graded, who does it, and whether the grading is written down. Inconsistent grading leads to disputes and returns. Ask to watch a device go through the process from intake to shelf, and to see the records for several phones you choose yourself.

Stolen, locked and wiped

Ask how the store confirms a phone was not reported stolen, how it checks for locks tied to a previous owner or carrier, and what it keeps on file about each seller. Ask how customer data is erased before resale and how that is recorded. Your lawyer can tell you what the store must do when it buys second-hand goods. The Office of the Privacy Commissioner of Canada publishes guidance on handling personal information.

Returns, warranty and stock age

Look at the store’s return and warranty record. How often do devices come back, why, and who bears the cost? Then look at the stock itself. Older models may be slow to sell, so ask how long the typical phone sits on the shelf and what happens to the ones that do not move. Your accountant can help you read how that stock is carried in the books.

Suppliers and dependence

If a few suppliers provide most of the phones, ask whether they would keep supplying a new owner. Find out whether any key relationship depends on the seller personally. Ask for written supply terms, and ask whether the seller will introduce you to suppliers before closing.