A learner’s guide to acquiring a business – part 2

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After reading part one of this three-part series on how to acquire and run a small business, you should have gained some good pointers on how to approach buying a small business. Now in part 2 below, Simon Hicks will take us through his thoughts on the question “How do you know if a business will suit your needs?”.

You need to…

(7) Know thyself.  When RCS bangs on about Visions and Goals, it’s about helping you realise what drives, motivates and inspires you. What is your appetite for risk and reward? Are you an introvert or an extrovert? How do you relate to other people, customers and staff? The better you know these things about yourself, the more you will understand what type of business suits you best. If you shrink every time you hear the phone ring, a business that relies on cold calling prospects is probably not for you. Myers Briggs Type Indicators were developed as a tool to fit people into jobs, but they can also be a way to fit a business around you.

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(8) The best business might be a job. Running your own business can give you more freedom, but often it is risker, more stressful and offers poorer returns than a job. If you think about giving up a job to own a business, consider all the risks and returns. If you are looking for off-farm income, is a job a better alternative? Even if it means living away periodically? Would it better fit the money/time/challenge mix you need? When we decided to give up farming for a while and work in the mines, we were willing to sacrifice time and challenge to put together enough capital to develop our property. But 12 years later, I am still working part-time as a truckie. It’s the best earning “business” of all our enterprises for the time expended, even though I know it offers no challenge. (9) Don’t be a snob about the job. Some people refuse to consider some jobs because they are sceptical about the type of work involved. But consider what the gains could be to help you achieve your goals.

That also reflects on the type of business you might want to run. (10) Consider your market. Consider something less glamorous. It’s no coincidence that rubbish collection and septic cleaning businesses make good returns. But more people would instead run a café, where margins are slimmer. When we looked at the local food scene, we found 35 places to get a coffee in a town of 4,000 people, but only one pizza shop. The market was too small for the fast-food chains to consider viable, so it was relatively uncluttered. A small market is not necessarily a bad thing, just not too small.

How about a business that involves a thing you love to do? You love to cook, so own a restaurant. You love woodwork, so open a cabinetmaking business. You love beer, so buy a pub. (11) Be careful about turning your hobby into your business. It might sour the enjoyment of your passion. Maybe owning a more pedestrian business will give you more money and time to enjoy your lifestyle and hobbies. People use to assume we must enjoy pizza to run a successful pizza shop. The truth is we rarely ate pizza before and since, but we did enjoy the money the business made and growing and developing it.

How about taking your great idea and starting a business from scratch? There can be good rewards if you are willing to accept the longer lead-time to profitability and the high risk of failure. 80% to 90% of start-ups fail. Although this is a generalised statistic and you, being intelligent and experienced, will have a better chance, I still don’t fancy the odds. I prefer to (12) Buy established businesses with a track record and potential for more. When we started our B&B business, our investment in new capital was minimal. Therefore, if it fails, we have lost nothing other than the cost of a better fitted-out house. However good the prospects, (13) You could be wrong, and if you are, what will you lose? This should be a primary consideration in any decision-making. When we looked at the candle business, we knew that we could get most of our capital back from selling off the stock if it didn’t work out. What’s the worst-case scenario? What can you afford to lose? Not just if the business fails, but also if you fail to cope with running it.

(14) Be wary of franchises. The allure of buying an “off the shelf” business operation can be strong, but franchise fees are often high. Depending on your location, the marketing heft that franchises can bring may not be worth it, and there will be restrictions on strategic changes you might want to make.

(15) Tax advantages. There can be many tax advantages for your overall situation when running a small business. A good accountant who understands your vision, goals and needs is a prime asset. Don’t be afraid to change to a better one if yours isn’t up to scratch.

Want to know what you should consider when a business after you’ve bought it? Look out for part three of ‘A learner’s guide to acquiring a small business’ from Simon next month.

Simon Hicks
Small business owner and past RCS staff member