If it's a small town, everyone knows everyone else's business.
So, if you don't already know, do some digging to learn why your competitor
wants to take action.
I'd also ask myself a lot of questions about my own goals.
Is he getting tired of running the business and wants to retire?
Or as Hon, below, says, is it impossible to meet his goals if you're
both in the market?
Does he just not like the way you advertise and attract his clients?
Or does he know something about your goals?
Is his lease about to expire, being renewed with very unfavorable terms?
OR...does he know about a Home Depot or other big store planning to move in?
So, let's look at your goals.
Do you want to stay in business, running your small-town hardware store?
(If you LOVE this life, why change?)
Would you be happy if you bought out his store and ran a bigger operation?
Or is the chance you've been waiting for - to get cashed out and do
Look at the decision carefully. What would you do if he bought you out?
The money won't last all that long. What would you do next?
If you bought him out, would he let you structure a deal that you could
afford? One that would let you pay him over time, from the profits of
the combined businesses?
Or would you be able to get a loan from the bank?
What would you do with his business location?
Would you consolidate the inventory of the two stores?
Or would you leave both open and just save money by
including both locations in your advertising?
Look at your time. Right now, do you have enough free time to
do the things you want to do, with family and friends, and
on your own? If you take on the new obligation how will that
affect your time? Crunch the time numbers. They are important.
Once you have the qualitative decisions made (i.e. do you want to
buy or sell?), sit down with your accountant and work the numbers
to see how the finances will work out.
Do NOT provide any numbers about your business operation to your
competitor until you are sure you want to go forward with the transaction.
That's the kind of thinking and research I would do.
If I give you any more guidance, please feel free to expand on your question.
P.S. Incidentally, there is one more option - do nothing.
Don't buy or sell.