How to Kick Start your Business Dream. If your stated passion in life is really to run a viable business of your very own, there are a number of options which you need to weigh up as to which is the correct, and hopefully easiest route to follow:
1. You could develop, and expand on a fantastic winning business idea or invention of your own making.
2. Buy an existing business, which looks OK, or you may able to MAKE it OK!
3. Purchase a Franchise – there so many – try to find one which suits you
Following options 2 and 3 above allows you to bypass what can be a painful start-up phase, which can be very demanding, both testing your business skills and financial acumen to the hilt. The first option allows you to carefully, and soberly evaluate what you may be getting into before you engage in any potential financial roller-coaster.
There is a major caveat (let the buyer be aware) when buying someone’s established business: Previously, under the doctrine of “caveat emptor”, the buyer could not recover from the seller for defects on the property that rendered the property unfit for ordinary purposes. The only exception is normally if the seller actively conceals latent defects or otherwise makes material misrepresentations amounting to fraud. The person selling the business could be indulging in elaborate window dressing to make the business better looking than it is in fact.
When assessing the true worth of a business to be purchased, the one which seems to meet your requirements and look as though it is a winning deal, one should look at the following:
• Take a survey and then gauge how the relevant markets are operating in that field are faring.
• Find out who the major players are in that field, and then assess their measure of success.
• Try to actually work for a while in that field, and even in that specific business to get a hands-on feel for it up front.
Why should you consider buying an operating business?
• The risk profile is much more transparent and is closer to “what you see is what you get”
• The existing stock and fittings have in all likelihood been marked down, or purchased when the prices were lower.
• There is probably an existing, and loyal customer base.
• Not only are existing lines of credit already likely to be in place, but current suppliers are more than likely to be willing to extend credit. This aspect is particularly important because having to establish your credentials does not have to be factored in.
• Trading licenses, permits and other legal documents are probably already in place, perhaps just requiring name changes, which saves considerable time and expense.
• If there are existing staff, this could be a short-cut because their skills and knowledge can be productively used.
What is a sensible way to assess YOUR prospects?
Because you have what is effectively a powerful head-start with a going business under your arm, this gives you more time to plan comprehensively and then strategize your moves like a game of chess.
A comprehensive business plan is the most efficient and effective way of ensuring that the prospective business survives the takeover. Then, you need to really keep your ear to the ground regarding:
• Existing staff morale
• Pending operational changes
• What is happening in the location in which the business operates – there may be MAJOR traffic changes, especially in outlying areas, where a highway is to be built, and the passing trade completely bypasses the town – OR a new shopping complex may be built nearby, which means MAJOR competition where none existed before. The current owner may actually be aware that serious competition is posing a threat in some way.
• You may find, if you scratch around, that you either have a bargain or a bummer. So you MUST BE absolutely clear which options to take
If you have applied due diligence to this process, this will give your case a LOT of credibility when and if you opt to apply for financial backing in whatever form.
Should you buy an existing Franchise or Franchise your own idea or invention?
Even if you have a brilliant idea, it is important to know that Franchising IS NOT A QUICK FIX! The sensible view that should be adopted in the field of Franchising, is to gauge, very carefully how much it is going to COST you for the first few years, rather than what you perceive as lovely $lolly$ coming in to fill your pockets.
If your “really original idea” is, say, to apply a unique method of fixing potholes in the municipal roads, then bear in mind, as much as you may have fallen in love with you product, and also your idea, your franchise will actually be that of selling the concept to others, and then making them successful. NOT YOU repairing potholes!
If you are contemplating going down the Franchise route, then it is a good idea to do some research. Essentially, franchising is a marketing and distribution system. It has its roots in the United States, where it has been around since the early 1950’s and now commands a market share approaching 50% of all retail sales. Although other parts of the world lag somewhat behind, franchising is well established in every free market economy across the globe. The main reason for this is that your chances of success as a franchise are much higher than as a business that is operated by a lone entrepreneur in isolation.
Some invaluable information can be gleaned about franchising here: http://www.seda.org.za or here: http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1073791408
What do you take into account when buying an existing business?
• The current owner has probably chewed some hard bones building up that business, so don’t necessarily expect a bargain-basement deal. It is sensible to be balanced and reasonable because this tips the odds in favour of a good deal being struck
• Ask the owner why they want to sell – typical reasons you can expect are:
o Fall out with a partner
o Relocating to another town or country for personal family reasons, including health where the climate is extreme
o Simply the need for a change of focus
• Arriving at a fair price
o The current owner will probably have factored in all the hard work and money that has been invested in the business.
o The Goodwill factor. This needs the expertise of a lawyer or accountant
o True worth. This again needs to be carefully analysed by an experienced professional, and the work involved should include going through the financial statements and many other variables.
What do you need to ask yourself?
• What are your goals, and will your proposed new venture help you attain them
• Do YOU have all the skills, or can you hire them. You may lose a lot of the current staff due to loyalty to the current owner
• Who will help you with running the business? The current staff may be the type of person YOU would like to work with on a daily basis.
• Should you employ the services of a lawyer.
• If there HAVE been misrepresentations by the current owner, make sure that you will be able to sue them as a last resort.
• Be very careful if the owner is about to emigrate.
• Ascertain if the business assets are tied up in trusts or other companies.
It is better, far better to be a skeptic in this field, rather than having a
Pollyanna attitude. Running your own business is not for sissies!