RULE ONE: MAKE SURE THIS IS THE RIGHT BUSINESS FOR YOU
Possibly the most important rule to take on board is to make sure that you marry your own skills and talents with the right business. Even if you choose not to follow some of the other rules, by not following this cardinal rule, your business will fail.
In particular, pay attention to these factors:
* The skills that you excel in must be in alignment with the driving factor of the sales and profits of the business that you choose.
* A good, successful business will be one that blossoms from your strengths and not one that fails on account of your weaknesses.
* Don’t be something that you’re not. While it’s possible to bluff your way through a job interview, don’t kid yourself when buying a business.
* Work with what skills you have got. Learning about a new product or industry is easier than learning a new skill from scratch.
Consider where your greatest strengths lie. It may be that you are good at sales. Or marketing. Managing employees. Customer handling. You need to spot that one key skill, which you believe will, above all others, be the driving force to make you a success. After you have identified what sort of business will thrive from your strengths, the process will be easier for you.
Therefore, using your own skills and talents and applying these to the right industry will see your business go far. Applying for a business that may yield great profits but doesn’t tally with what you know, will in the end, fail.
Buying a business may be different than buying a home, but there is still one common denominator. After making notes and touring a shortlist of houses, they will then find that they have found “The One”. This was because they were building their “Golden Rules”. They noted what they liked, which may have been in separate houses, but in one property, it all came together.
Which is exactly the same as a business. The right business will have everything in place, such as the amount of employees; growth potential and the skills that you have to put into practice.
So determine your strengths and weaknesses and apply these to your search. That way, you stand a good chance of getting a business that is right for you and will prove to be a great success.
RULE TWO: SELLER FINANCING LOWERS THE RISK
What if you were to buy something that didn’t have a guarantee? For example, a car. You’re driving along – the wing mirror falls off, followed by the doors and then the engine blows. That’s why practically all goods have a guarantee.
In business, strictly speaking, there isn’t such a thing as a guarantee, but the near equivalent is seller finance. A seller cannot guarantee your success – technically, if they have enjoyed success with their business, it will be down to you to make sure that you doing well. So why would a seller want to help finance a stranger’s purchase of their business which they have nurtured?
There are three key reasons:
* Finance increases the number of potential buyers
* Finance is common in small business purchases
* Sellers can normally get a higher purchase price if they provide part of the financing.
So therefore, the seller may have presented a pretty picture of the company business to a possible buyer, but the buyer can’t validate these claims. So therefore, what better way of absorbing the “risk” as it were by offering to help finance the purchase (which can then be paid back over time). As a result, seller financing adds credibility to the business and boosts the buyer’s confidence.
RULE THREE: BUY, DON’T LOOK
There are many businesses to be found online, and while some of these may be too pricey or too flawed, there are still many good ones to be had.
The problem is that it’s easy to get sucked into the habit of searching rather than buying. All that choice, but sometimes, people never complete the actual buying process.
In order to make a successful buy and to not let the process drag on for too long, a good rule of thumb is to set yourself a fixed timeline to complete the project. A serious sale will take no more than six months, so long as you handle the procedure correctly. So that means that you should not waste time on businesses that you can’t afford or businesses that aren’t the right fit for you. Focus on what business IS right for you and then search accordingly. The end game should be to get in contact with a shortlist of potential business vendors, and by doing so, you will considerably accelerate the buying process.
RULE FOUR: RESEARCH THE SECRETS
This is true, so what you must do is to uncover any potential issues or problems before you buy. The Due Diligence period as it is sometimes known is not a financial review period, but rather a thorough investigation of important aspects including Financials; Assets; Sales; Marketing; Employees; Systems; Competitions; Customers; Contracts; Suppliers and Legal Issues.
Begin to investigate a business as soon as you spot one that you like, since there may not be time to conduct a detailed review further down the line. So, use the internet, visit the library, ring around competitors and get every scrap of detail that you can find on the potential company. Everything that you wish to know can be discovered, so get cracking and find out. A lax attitude will prove costly in the long run. And never allow for a Due Diligence stage of less than 20 working days.
RULE FIVE: NOBODY’S PERFECT
In theory there is a perfect business – one that comes without problems, risks or challenge. In practice, this business doesn’t exist. In any business there will always be an element of risk.
What you have to do is to assess how much of an obstacle these problems are to you. Are the problems large or small? Once you have identified whether the problems are minor incidents or full-scale calamities in the making, you have to recognise that you need to take an open-minded (but not reckless) approach to this process.
You need to analyse the consequences that these potential issues may have on the successful building of your business. If there are any problems, meet the seller to discuss these, and how these can be best resolved.
But above all, don’t keep looking for the “Perfect Business” as this is something that doesn’t actually exist. Go for the one that’s right for you – warts and all.
RULE SIX: PAYING TOP PRICE MAY NOT BE SO COSTLY
In theory this may sound crazy, but supposing that the seller will not budge on the asking price and other potential buyers with enough money to seal the deal are threatening your business purchase of a lifetime?
But more to the point, supposing that you feel that you can make a real go of the business? Just imagine that after you buy the business, you make a big profit. That’s why in some cases, it’s OK to pay as much as you can afford.
So long as the asking price isn’t too outrageous. And also make sure that you can build your profits to a strong level. A good valuation method, in fact, is to see what the business has generated for the vendor in the past. Look at profits, salaries and perks, and then re-assess how fair the vendor is being with the asking price.
At the end of the day though, it is better to buy a good business at a slightly higher price than to buy a bad business at a bargain price.
RULE SEVEN: A BAD OWNER OR A BAD BUSINESS?
A point to take on board when researching businesses is to assess the growth potential of each one.
Suppose that a business you like has been doing moderately well – nothing spectacular, breaking even perhaps, but that’s it. Well in fact, this could be down to the owner rather than how good the business is.
This means that you should not be put off by this, since it’s possibly the owner’s fault for whatever reason. You now have a big opportunity to turn things around and revitalise the business to the point where you can really make a difference in huge profits. Look at the Big Picture here – investigate how can you get the most potential out of the business and you will be on the way to making a very worthwhile investment.
RULE EIGHT: DON’T GET TOO EMOTIONAL
On the road to owning a business, it’s necessary to keep your enthusiasm and excitement apart from the logical approach that must be taken. You will find that you will be confronted with many decisions and new situations to take. So you will need to keep a clear head in order to navigate your way through.
There are problems with getting too emotional about buying a business.
* You lose focus on the task. You want to buy a business that has solid foundations for future success and room to grow. That means you need to undertake level-headed research and not let your enthusiasm for a business get in the way of rational thinking.
* You criticise or dismiss a business without knowing the full facts. Dangerous, since an initial dismissive view of a potentially rewarding business means that you lose out. Don’t make any drastic judgments without learning the full facts.
* You get excited about the product and forget what pays the bills. The end game of this is to make a good, decent profit. So don’t concentrate on the flashy, exciting product or service that you could sell, since this is only secondary to the most important goal of all.
RULE NINE: DON’T BE BULLIED INTO MAKING A DECISION
Never be bullied or forced into a decision. You may find that the seller is being extremely friendly and optimistic when you meet. Fair enough, they may well be like that naturally, but on this occasion, it’s best to be cautious.
At the end of the day, the vendor wants to make a sale, and there’s a chance that their niceties are a subtle way of getting you to buy. Likewise, the experts such as accountants or lawyers will be as nice as pie, but then they would, since they’re earning their wages from you.
Only you can make the final decision, so don’t let anyone else sway this.
RULE TEN: MAKE SURE THIS IS WHAT YOU WANT
If you are going to survive in the business game, you really need to have a genuine passion for it. Simply making ends meet to pay the bills will not stand you in good stead for this.
So that means that you have to look at every aspect of your future working life? What will be your daily tasks? Will you be able to familiarise yourself with the operation? Will you enjoy working with these employees, suppliers and customers every day?
For one moment, forget about the money. Focus on whether you will enjoy running the business. You need to get tremendous satisfaction from what you do, otherwise you will have wasted all that time and money. That passion, that fire in your belly needs to be there in order to achieve the results and profits that you want.