Buying a small business may seem an exciting thing to do, but it is fraught with danger. Here are my Ten Top Tips to bear in mind when acquiring a small business. It goes without saying that you should use a good lawyer, and have an accountant examine all the financial records before you enter into any contract.1. Think very carefully before you proceed. For example, it may seem an exciting prospect to be running your own small hotel, but if the bookings were insufficient to employ suitable staff, you and your family will have to do all the work. Running guesthouses and small hotels are notorious for long hours. 6.30am until midnight is not unusual. Do you really want to do that? Are you fit enough? Do you have the hunger and desire? Think very clearly about it. The last thing you want is to fall out of love with your new baby within the first week of ownership.
2. Analyse clearly what you expect from your new business. Are you looking for shorter hours? Greater independence? Greater Income? Whatever it is, will the business you covet, provide these things? If not, perhaps you should be looking elsewhere. Owning your own business can be an exhilarating and rewarding experience, but the wrong business may provide many headaches, and these could lead to ill health.
3. When you find a business you like, you must conduct a thorough investigation into its financial affairs. Be most particular about all liabilities. How many of these could fall on the new owners? Check out the Tax and Vat situation too. Is the business vatable? Is the vat up to date? If not, could it be demanded from you? You cannot be too careful with regard to the financial state of any business. Keep digging, until you are fully satisfied. If the business gives off a bad smell, walk away, regardless of how far down the line you are.
4. Find out why the business is for sale. Retirement is a common reason, and that is fair enough, especially if the enterprise has been in the same hands for a long time. That shows it has generated money, and it should point to decent goodwill with a pool of satisfied customers. Avoid businesses that have only been in the current owner's hands for five minutes, unless they can show true and good reasons why they are selling. It could be that the business is much harder to run than it appears, it could be that it is not making any money, worse still, it could be making a stinking loss. Only consider buying a loss making business at a real knockdown price. If you do buy a loss making business, what exactly are you paying for? You might be better starting from scratch.
5. Look out for wafflers. People who talk the hind legs off a donkey, but don't really tell you anything, and don't make a lot of sense. The kind of people who slip red herrings into every conversation, trying to deflect you from your questioning. If you don't get any straight answers, ask yourself why? It could be time to walk away. I detest dealing with people who never answer straight questions, and you should too. It tells you something, and it isn't good.
6. Check out the business's problems. All businesses have problems and headaches. If the owners say they don't have any, they are lying. What are the suppliers like? What are the sales figures running like? What does the future hold? What is the credit worthiness of the business? Does it have a "good" name? What is the competition like? Is it threatened by modern technology? Is a new competitor likely to open across the road? This could be the true reason why the owners are selling. Keep digging for information, until you are 100% satisfied.
7. Does the business have any growth potential? If it doesn't, or worse still, if the business is shrinking, this could be the true reason it is up for sale. Who wants to buy a shrinking business? Not me thanks, and not you either, unless the price is dirt cheap, and there is an obvious turnaround plan. Try to envisage the enterprise in five years time, ten year's time. Is it a rosy picture, or does your crystal ball see lots of headaches and heartache? If you can't envisage the business being successful, walk away immediately.
8. Will the current owner provide you with any training and support? Or will they make a dash for the door the moment the ink is dry on the contract? Ideally, you want as much training and support as you can get. Try to have this training clearly written into the contract. And a telephone number too where you can obtain answers for immediate problems. If the owners are not prepared to offer any training or support, or a telephone number, ask yourself why. It could be there are serious underlying problems, they are not telling you about, it could be they are looking to run a mile, or ten thousand miles, leaving you holding the mucky stick. Try to imagine how you would solve ongoing problems if the previous owners simply disappeared without trace, because they might! Satisfy yourself that this is not the case.
9. Monitor the business for as long as you can before signing. Are the same customers coming back again and again? Will they stick with you afterwards? Would it appear those customers are generating the income the current owners say? Could it be they are over-egging the cake? People sometimes do. Not everyone is honest and straight. Don't be the fool easily parted from his or her money. Remember, it is always Caveat Emptor. Buyer beware. The onus is on you to satisfy yourself that the business is a sound proposition. There's no point in crying about it afterwards.
10. Always have an exit strategy in mind. It matters not whether you are thinking of selling in a year, or ten year's time. Always have one eye on your exit from that business. After all, you don't want to go to your grave still owning it, do you? More likely, your plan will be to build it up, expand it, improve it, and then sell it for a juicy profit, and move on to better things. Think how and when and to whom you will sell the new improved business. Ask yourself this; will it be easy, difficult or impossible to sell? If it is difficult or impossible, you could be hanging a millstone around your neck you might never be able to remove, and no one would want that. There are thousands of small business owners in precisely that situation. Make sure you don't join them. Always have a clear exit strategy in your mind. That's smart, think smart.
Buying an existing business in any field can often throw up a real bargain. Particularly from people heading for retirement, or perhaps a business that has been taken over as part of a larger deal, and the new owners simply don't want this smaller enterprise. Businesses in trouble can also be bought for real bargain prices, especially if you have the expertise and resources to put it back on an even keel, but make sure you know precisely how much trouble it is in. Buying an existing business can be like staggering through a minefield. You cannot carry out too much research beforehand.
And one last thing, offer less for it. Whatever figure you had in mind, offer less. You can always increase your offer later, you can't reduce it, so offer less, and if the owners are really keen to sell that particular business, they might surprise you, and accept your offer. All the very best with your new enterprise.
David Carter's, author of the advises above has a charming new book, "Drift and Badger and the Search for Uncle Mo". You can find out more at http://www.driftandbadger.com. Now, if all that looks way to complex, I suggest you considering taking your $10,000 and hire a company that builds businesses for other - new business development and product launch on demand. IdeaMama Group with IdeaMama Ad Network is one of your option. These guys build exactly what they can sell - web business that can be successfully marketed via the network of their affiliates worldwide. So, you will get business setup and mass marketed with minimum efforts. |
