Business

Start-Up a Business by Buying a Business – ‘Real Life’ Practical Advice Shared

This is a quote from Ray Thomas who started his own business by buying an existing one. He chose to buy a franchise resale for reasons you are about to learn. These are his first wise words of advice and ones that are valuable to anyone thinking of buying a business as a way to start their own business, whether in the UK, North America or anywhere in the world.

“When buying a business, check and recheck your ‘due diligence’ there’s always something that you miss, something that’s not obviously apparent when you first start negotiations – don’t rush -take your time to understand the business you’re buying into”

Ray was very careful in his choice of business. He took the buying process step by step over a number of months. He would like to share this experience, captured in these key points with you.

• Choose a business that relates to your commercial experience and your own business skills
• Buying a franchise resale has a number of benefits. Two of these are the training and support you’ll receive from the franchisor; another is acquiring a going concern with an existing customer base
• Get the latest trading figures to see how the business is performing and whether any circumstances have changed since the business was valued for sale.
• Check the customer base to check the number of active and dormant accounts
• Examine the customer profile to see how the business is spread between accounts – if the business is reliant on one or two accounts, the loss of these accounts could dramatically damage your future income.
• If possible, agree a hand-over period in which the previous owner introduces you to the client base and explains the ‘back-office’ systems and day-to-day running of the business.
• Make a generous provision for working capital to cover running costs – and keep an extra financial contingency for the unexpected.

To understand Ray’s story here’s some interesting background. Ray trained as a mechanical engineer. This gave him a career long ability to discipline his thinking and develop his analytical and organisational abilities. His outgoing personality and communication skills came into play as he moved into sales. Over time, he became a regional manager with a multinational company, firstly looking after the South West then extended his territory responsibility across to Wales and up as far as Birmingham.

As demands increased without a commensurate increase in his salary package, Ray started to explore opportunities where he and his family would receive a greater return for his efforts by becoming his own boss. He investigated a number of different business avenues and narrowed the options down to franchising. The question was whether to start from scratch with a ‘virgin’ franchise territory or to buy an existing operation. The other question was which franchise to select

As Ray had experience of the motor trade, at one time being the sales manager of a chain of car dealerships, he examined a franchise involved with supplying garage workshops with tools and another specialising in bodywork repairs. He also explored franchises that were related to his more recent experience in the Health & Safety and Personal Protection Equipment (PPE) sector. Finally he chose a business-to-business (B2B) franchise that specialises in the supply and servicing of cleaning and hygiene products.

The franchise head office volunteered two start-up territories within reach of his Swindon base, and one resale franchise in Swindon his home town. Buying a resale franchise meant a higher investment but gave him a fully functioning business with an established clientele and an established reputation.

The Purchase Negotiation

Ray contacted the existing franchisee and spent a day with him to find out more about his territory and customers. The franchisee wanted the business to be transferred to someone who would manage the business well and look after his existing customer base. He’d decided to emigrate to France as part of his own life plan.

On closer inspection Ray saw the business had been losing sales and turnover had slumped in the last year. Another worrying aspect came to light. One customer was responsible for 50% of sales. If that customer withdrew his business the whole financial picture would change dramatically. These important factors demanded a revaluation and price renegotiation.

A revised price was agreed and on 26th April 2010 at the age of 60, Ray Thomas became a business owner. A new, exciting but challenging chapter in his life had begun.

Looking back, Ray would like to share these thoughts with you:

• Put away those rose-tinted glasses when buying a business. They’re always things that are not immediately evident when first learning about a business, not because they’ve been deliberately hidden but more to do with your unfamiliarity with the business operation.

• Try to identify the pitfalls – get expert help to review the company’s trading record and customer base.

• Examine in fine detail the basis of any ‘goodwill’ attributed to the company. Remember that ‘people buy people’. It’s potentially dangerous to buy a business that has been built mainly on the ‘personality’ of the incumbent owner. When the business changes hands, customers may not want to keep their business with you.

• Never rest on your laurels. Look for new business every day. It is inevitable that for one reason or other you’ll lose customers. You need to bring in fresh business to compensate for business lost.

• Make sure you ‘over-deliver’ on the quality of service you provide. You may not be able to compete on price these days – but an attentive, professional service not only wins business but builds customer loyalty. You’ve heard the saying that some people ‘know the price of everything but the value of nothing’. Due to cost pressures customers do switch to get a better financial deal but often return when they realise they’ve forfeited quality, reliability and product performance.

• Create a financial buffer to fund unexpected costs. For us, the rise in diesel prices has hit our van delivery costs. Unexpected events are another reason why you should grow your sales from existing customers and put time aside to contact and win new customers.

‘Success before Start-Up’ is a book everyone should read before starting their own business. It contains valuable advice from 18 different small business covering many of the most popular business options, from franchising to opening a retail shop, to offering trade or professional services or buying an existing business. The helpful advice is designed to stop you making the mistakes that cripple a new business given by people who want to share their experiences. The advice is relevant to any business wherever you are in the world as the principles are the same. The book is written in an easy to understand style. Importantly, the author has experience of setting up and running his own small business and speaks from experience – rather than just academic theory. Success before Start-Up is available from Amazon in paperback and Kindle.

Teresa G. Diggs Administrator
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