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Tips on buying - and selling - a business
12 June 2015
Business pundits are tipping there’s a revolution coming. Not in a political sense but in changes to ownership in the small medium enterprise market. On one side of the coin is talk of 100s – even 1000s - of self-employed Baby Boomers winding down to retirement and looking to sell those enterprises. On the other is the growing interest from all sorts of people to own their own business.
Victorian based business broker Denise Hall doesn’t believe there is a tsunami in the making but she does predict great opportunities exist for people looking to buy a business over the next five to 10 years. She also says that the age and stage buyers and sellers are at in life will make a difference to how they access the opportunities.
Generally speaking, there are two categories of business buyers: those people who already have a business and want quick growth, and those who want to buy a job. The latter group of people are often looking to begin the next chapter in their lives and that might be as a business owner of a one-off business or maybe as a franchisee.
“In the case of those who already have a business, the quickest way to grow a business is to buy one and bolt the profits - and losses - on to what exists,” says Denise, pointing out that while it may be faster than organic growth it still requires work.
As a business broker Denise also sees a steady stream of people who are looking for income replacement.
This is a buyer who, she explains, doesn’t want to fulfil some entrepreneurial-want-to-take-the-world-by-storm dream. Many of them consider buying into a franchise.
“Whatever form the business takes,” says Denise, “it’s the quality of the buy and being prepared that count. Business ownership is very different to being an employee. Firstly, you have to understand, if you’ve been an employee all your working life the ‘cloak of institution’ that kept you safe is gone. Secondly, stuff doesn’t get done unless you do it. Thirdly, the revenue you generate, assuming you generate enough, is why you will be paid.
“My advice is buy small, buy one and practise. It may not be your perfect, dream business, but you can learn what you need to know at a pace you can handle, especially when it comes to financial commitment.”
Denise, who specialises in online business ownership, believes this is where buying online businesses is interesting: “You can pick up something very viable at a reasonable price, especially when you compare it to a bricks and mortar opportunity.”
However, and she notes this does depend on your appetite for risk, if losing $10,000 or $50,000 is going to break the bank and mean selling the family home – then you probably shouldn’t be buying a business.
Another very important piece of the puzzle to consider is where are you going to get the loan to buy the business in the first place?
“If like most of us you’ve dumped all your monies into super and putting the family home up as collateral is not on the cards, then you need to have begun preparation early.”
Perhaps, as Denise has experienced, people buy the business while they are still in fulltime employment and work the business after hours.
Or, if the thought has always been in your mind to own and run your own business, you might also want to talk to a financial planner and build the idea into your plan earlier.
According to Denise, on your “A-team”, along with the accountant and lawyer, is your banker or finance broker: “It’s no good getting to the terms and conditions, ready to put pen to paper, to find the bank won’t or can’t lend you the money.”
Top five things for buyers:
You need to be clear about what you are buying and to do that you need to know how much you have to spend and from where that will come.
You need to understand your financial limitations and be able to pass the sleep test at night.
Don’t procrastinate and be prepared. You need to understand the detail and the process and get everything in place because if you don’t you will miss opportunities.
Be flexible - you won’t get the perfect deal. It’s a bit like, says Denise, “a birth plan – no matter how prepared you are things change. Be prepared but don’t let that preparation preclude you from making decisions.”
And, what if you’re selling a business:
Verification is the key when you are the seller. From procedures and financials to your metrics it needs to be clean, easy to follow and robust. The moment there’s any complexity then it’s harder to get a handle on it and that constitutes a negative experience for the buyer.
Keep a look out on Ruby for our ‘learning how to buy a business’ seminars, rolling out in Melbourne first.