Thinking Of Buying A Business In 2014?
The great Australian dream may now include owning your own business according to a report released by The Global Entrepreneurship Monitor. It claims that more than 10% of the Australian adult population are either in business or planning to start a business. The entrepreneurial spirit is incredibly high amongst Generation Y with 83% indicating they are keen to become their own boss. These are staggering statistics but probably not surprising given Australia was recently voted the fourth easiest country in the world to start a business out of the 189 countries who were analysed.
For some, the business journey starts with a simple idea while others look to buy a franchise because it is perceived to be a safer option with the branding, support and systems all provided by the franchisor. Over the next few years, buying an existing business will grow in popularity as the baby boomer generation flood the market with businesses for sale and transition into retirement. If you are planning to buy a business there are some important things to consider before you invest thousands of dollars in someone else’s business.
Firstly, most successful entrepreneurs are passionate about their business and their industry which prompts the question - what is your passion? You must love what you are doing because as a business owner you will generally work longer hours and in the initial stages you will probably be the manager, marketer, sales person, bookkeeper, webmaster and strategist. Wearing all those ‘hats’ is more time consuming than simply being an employee. As a consequence, you need to narrow the field of opportunities into areas of personal interest. Being an area of interest you probably already have product knowledge, understand the competing brands, know the market prices and understand the consumer’s frustrations.
Evaluate Your Skills and Experience
While knowledge is power, a passion for the industry isn’t enough to guarantee success in business. You should conduct an honest evaluation of your past and present skills before you potentially invest in someone else’s business. You might require an understanding of accounting, inventory control, marketing, websites, social media, human resource management, product development and sales. There are numerous courses available for new business owners but once you take control of the business you might find time is limited because of the administrative burden.
We like to use the phrase ‘finance first’ with prospective business buyers. All the planning, knowledge and experience is worthless if you can’t get funding to buy the business. From a bank’s perspective, they are taking a risk by investing in you so you need to prove the business will work. Your business plan including a cash flow budget and marketing plan must convince them the business is a worthy investment.
Your bank or financier will generally require financial statements for the last three years to ascertain the level of profitability, value of the business and your ability to service the borrowings. The financials will also help identify any financial trends and serve as the starting point for your cash flow budget. Your challenge is to produce strategies that can improve the bottom line. What new marketing initiatives will you introduce and include as part of your marketing plan? Will you introduce social media, give the business website a makeover, re-brand or simply increase prices?
Know Your Market
You need to conduct extensive market research before you buy a business. Is the location saturated with similar businesses in the area? Are new competitors opening up in the same area or is there a major development planned that could restrict access to the business for an extended period of time? You should also search the business’ local reputation on websites including www.womo.com.au or www.yelp.com.au.
Most importantly, is there potential for growth? Is there new technology or products on the horizon that could impact on the industry? The past is no guarantee of the future and just look at what happened to Borders and Kodak as examples of why you need to adapt to technological change. Understand your competitors and their point of difference. What additional services or value could you offer customers if you proceed with the purchase?
In summary, sourcing the right business to buy at the right price can be challenging but rewarding. In the process you need to conduct an honest assessment of your skills, industry knowledge and financial resources before you head down the acquisition pathway. Research your market and the reputation of the business and have a plan on how you can grow the business. Most importantly, before you commit to any purchase please contact our office to discuss your plans.
Other articles in this edition:
- Prepare Your Business For Christmas
- Thinking Of Buying A Car Or Equipment In December?
- Labor Legislation Overturned By New Government
- Looking For A Comfortable Or Modest Retirement?
- Six Reasons Your Website Will Fail
- Business Start Up Corner - What You Really Need To Know About Your Business Name
- Is Running A Small Business Tougher Than 5 Years Ago?
- There's An App For That!
- Christmas Reading
IMPORTANT DISCLAIMER:This newsletter is issued as a guide to clients and for their private information. This newsletter does not constitute advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not convey advice per se. Also changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of these areas.