As droves of baby boomer business owners begin to retire, more and more and looking to sell their small business. That represents a real opportunity.
If you’re considering buying an existing small business, it may be a brilliant decision, providing you go about identifying the right business the right way and do your due diligence.
The Benefits Of Buying
It’s a tough environment for small businesses out there. Hence, buying an existing business is less risky and cheaper than starting a new business from scratch. Exiting businesses also come with an existing pool of customers and suppliers and banks prefer doing business with companies with an established track record.
However, equally, you could also find yourself stuck with a lemon. Don’t let that happen to you. Here’s how to spot a smart business acquisition opportunity.
6 Tips On Buying Your Dream Business
1. Focus On What You’re Trying To Do And Research, Research, Research
Before you even start the beauty parade process, think about what type of business you want to own. If you already have a business, does it complement what you’re already doing? How can your professional expertise and experience give your new acquisition an edge?
Before you make a decision, do your due diligence. Research your prospective target’s industry and learn as much as you can. Go to trade shows and seminars, research your competitors and talk to the people you are targeting for your future business. What are their pain points? How much disposable income do they have? How brand loyal are they?
Look for a business with a strong customer footprint, growing sales, low debt, good staff, solid procedures and compliance processes, and positive cash flow.
2. Make Connections With Business Matchmakers
Once you identify the kind of business you are looking for, you’ll need to track down owners looking or ready to sell. Yes, online business marketplaces and auctions are a sensible place to start but often the best leads come from industry contacts, particularly accountants, lawyers and advisers.
3. Check For Fit?
You have commercial experience and professional strengths and expertise. Look to acquire a business that will enable you to leverage those hard-won skills. Draft a list of what you personally bring to the table. Is it your management expertise? Or is it your negotiating or selling skills? Is your expertise in eCommerce or online marketing? Think about what do you enjoy doing and see how that fits with your potential target. Similarly, list those tasks you actively dislike?
Try to keep an open mind and make your list as comprehensive as you can. Really think about the types of businesses you believe would be a smart fit with your skills and experience.
Before you make a decision, consult successful people whose opinions you respect and trust and who know you well. Coffee is a great source of informal insights. Bounce your ideas off of them. This is a low-cost option to ensure your ideas about the business are solid.
4. Due Diligence Go Through The Books And The Business
Before you fully commit, you need to understand just what you are getting for your money. Review all business records. Check for warning signs such as customer churn, supplier issues, tax audits, insurance disputes or pending litigation.
Don’t forget to check the company constitution and its registration. Ask your trusted advisers to review the business, go through the books with a fine tooth comb and confirm the business is thoroughly vetted before you jump in feet first. Due diligence can be a tough process but it can save you a lot of tears and heartache downstream.
5. Familiarise Yourself With Your Customers And Competitors
Understanding the size of your businesses’ customer franchise, how loyal they are and how often they buy and how much they spend is fundamental to building a business. Similarly, get a good line of sight on how saturated your sector is in terms of competition.
Take a long, hard look at the customer base. Why do they regularly support the business? Do they like its products or services? Alternatively how attached are they to the original owner? Are they likely to stay on after the business changes hands?
6. Understand Where You Add Value
If you don’t plan on making changes once you buy the business and you’re buying it because you want to be your own boss, think long and hard about keeping your day job.
Draw up a 100-day plan. Map out what you’ll do the first 100 days and be ready to implement your plans from Day 1. Remember, if you’re not looking for fresh ways to grow, your competitors surely are! So the first few months in business are crucial to positioning your business for growth.
If all you are doing is keeping the lights on, you still have a boss, it just happens to be your bank! Before you buy, map out what you can do to move the business in a fresh direction, introduce new products or services or enter new markets. Innovation and growth are the only way to realise real returns from your investment.
Taking over an existing business means you don’t have to start from scratch. Buying an existing business is also usually cheaper and lower risk than starting from scratch. However, to avoid being stuck with a lemon, understand what type of business is a good fit, do your due diligence and have a 100 day play up your sleeve.