When you want to strike out on your own and start a business, there are two options. One is fast, the other painstakingly slow.
The fastest route to running a successful independent business is to buy an already successful company.
The advantage to buying a business is not just the profits, but the business framework. The employees, the premises and the most valuable asset, the customer base.
Buying a business requires a lot of research, and due diligence should be done, but it only gets done far into the research stage once buyer intent is established. Before reaching the negotiation stages, questions need to be asked.
Questions that establish if a business is potentially worth buying
- Why are you selling?
There are many legitimate reasons for business owners to sell up. It could be part of retirement planning or a lifestyle change. It is not always the case that the owner is selling because profits are flat-lining. Even if it is, your experience in turning businesses around may be perfect to revive a struggling business.
- Who are your customers and how loyal are they?
Buying a business should hopefully buy their customer base, and you should be confident you can maintain customer loyalty. This requires you to know the people you will be serving. As an example, it would not make sense to buy a garage that services motorhomes if you only have experience servicing common car models. It is a different client base that would require knowing the types of work customers would need doing.
Likewise, for local businesses, often small local independent businesses have loyalty from the local community. These can be friends, relatives and acquaintances. If a competitor is already established in a community, they may be better primed to take on new customers after the sale. You would need to know about local competitors and if there is any USP that could help maintain customer loyalty. Lose the customer base, the profitability will diminish fast.
- What is the financial viability of the business?
This may seem brazen to ask but it’s one that needs to be answered with confidence. With prices hiking across Britain, many businesses are seeing profits dwindle. At the most basic level, you want to know that the costs can continue to be met. Once the operational costs exceed the revenue, the business is no longer viable until substantial changes are made.
There are far more investigative questions in the pre-negotiation stage of buying a business, such as establishing the length and cost of commercial leaseholds attached to a business, employees, due diligence and accounts analysis, most of which is beneficial to consult with an accountant to have done professionally. That is best done after preliminary checks have been completed to be sure the business is a good fit for you.
Once you’re comfortable with proceeding, an accountant can then assist with due diligence, business valuations and capital raising to fund the purchase if required.
The slow and less financial risk method is to self-start your own business
Starting a business from the ground up will take a lot of energy. It still requires capital, but certainly not as much as would be needed to buy an established business.
The real hard work is not providing the service or sourcing products to fill the shelves and rails of a clothing store, as an example, it is the marketing that needs to be done to raise awareness, win customers, then retain a customer base while continually advertising and marketing to build the customer base.
It is not an easy feat, but it is one that can be more emotionally fulfilling.
The vast majority of self-start businesses take years to become successful. Not months. Typically, two to three years is needed to bring a start-up to a successful, profitable stage. In those early few years, it is technically still a start-up. It takes upwards of 7-years for a business to become established.
The first few years are generally spent establishing the business framework. The back-end processes that help it run efficiently. With experience, business processes become refined, branding is more prominent, hopefully employees are hired to help push momentum, and strategic partnerships with suppliers and contractors help the business operate efficiently. Those are the moving parts that business start-ups need to pivot through in the early years. That’s what takes the most energy for the owners.
When you buy a business, those nuts and bolts have already been tightened, the business processes are already established and fine-tuned to retain profit margins. Stepping in as a new owner would require knowledge and expertise in the industry or sector to continually grow the business. There are advantages to both methods and different levels of risk. Your risk appetite will factor into which method works best for you.