Buying a job by Buying a Business
Yes, it’s ok – you can buy a job by buying a business!
We were invited to speak and exhibit at the recent Victorian Regional Living Expo (and BTW welcome to all our new subscribers).
Research commissioned by Regional Development Victoria concluded that an awful lot of Melburnians think about making a sea-change or tree-change. However a lack of suitable employment opportunities puts a handbrake on the idea for many.
The theme of our talk was simple. Consider buying yourself a business as a more effective way to secure a job in that dream location.
The idea isn’t just for potential sea/tree-changers though. Your interest in buying a job might arise because you are;
- An unsatisfied employee
- Considering returning to the workforce after a break
- Unemployed
- Considering starting a new business from scratch
The approach to finding and buying the right small business that we outlined in the seminar can help any individual in any situation.
Employment isn’t what it used to be! So we are big fans of the idea of buying yourself a business as a way to secure your own job.
Finding and buying the right small business involves considerable effort and focus. But the rewards for getting it right can be many – financial upside, flexibility and personal control.
If you have thought about it you’ll probably have asked questions such as;
- Where do I find the best businesses?
- What do I pay?
- What type of business should I buy?
Following are 6 of the major steps involved. The complete process (13 steps) will be covered in our next round of webinars – with dates to be announced shortly.
1. Re-thinking the definition of employment.
Running a small business won’t be for everybody.
But if your employment options are limited then its well worth putting some time into thinking about if and how buying a business could be the answer. Start with assessing your own skills and experience base. And then talk to as many small business owners and operators as you can. Ask them what it is really like. Ask them about the best and worst parts of being your own boss. Ask them what are the most important skills and qualities needed for success.
If you’re thinking about starting a new business from scratch then compare this with buying an existing business. We love start-ups as well but you can save a lot of time and stress by buying a business that has already started.
2. Understanding that buying a business is a major project.
If you want to buy the right business you’ll need to look at lots. So a lot of time and effort will go into identifying potential businesses, talking with owners (and their advisors), analysis and drafting offers.
Expect the process to take a lot of time and anywhere up to 2 years.
3. Knowing where to look.
Before you set out on a mission to find a business it is important to understand the following;
- A very high percentage of businesses listed for sale are food and retail related (probably 65%)
- The advertised market only represents a small percentage of the businesses that might actually be for sale
To find the right businesses you will have to go ‘’hunting’’. It is highly unlikely that your ideal business (at your ideal price) will be neatly packaged and advertised for sale just as you start the search.
As a result you need to be prepared to make direct approaches to the owners of businesses you think you’d like to buy. Many ‘’off-market” sales already happen like this because many business owners want to sell but just don’t get around to starting the sale process or know who to talk to.
4. Knowing what to pay.
There is a lot of conjecture and confusion around business valuation, even with the “experts”. Don’t let this put you off but also recognise that if you are going to buy a business you need to become proficient in some financial basics.
In simple terms your financial analysis is about determining (1) what’s left for the owner after everyone else is paid?, and (2) how sustainable is it?
You can establish the above by getting a hold of 4 or 5 years worth of financials and asking lots of questions.
Remember that in small private companies the financial statements very rarely reflect what actually happens in the business. There can be many reasons for this. As an example the owner normally has personal and discretionary expenses in the business – these will understate the real business profit and so need to be added back .
The process of adjusting or normalising business profits can involve some more complex items (eg advanced depreciation of assets) so it can be very worthwhile to get some professional advice along the way.
5. Knowing when to get professional help.
Professional assistance and expert advice will be critical at particular points of the buying process.
And getting the right advice is an investment rather than a cost.
The key is knowing who to ask and when.
In some cases your current advisors may not be the most suitable. Please don’t just assume they are.
Ask them if they have up to date experience.
Ask them when you should check in with them and what that might involve from a time and cost perspective .
And finally be clear if you are asking for advice or their opinion – there is a very big difference.
6. Understanding your financing options.
Your capacity to fund the business purchase needs to be considered very early on. From my experience it remains challenging for many to borrow for the purchase of a small business.
To increase the chances of finding funding it might come from a mix of some of the following;
- Bank debt secured by real estate (possibly some unsecured)
- Specialised financiers of plant & equipment or working capital (debtors, stock)
- Seller (Vendor) finance
- Friends & Family
In applying for any funding you will need to demonstrate a strong business case and supporting financial projections. This is mandatory for most financiers but will also really help you to validate the investment you are contemplating.
If you are interested in buying a business we can help in 3 ways.
- Check the opportunities page here – these are the current business for sale
- Contact us about upcoming webinars
- Contact us about the services we offer for prospective business buyers
Good luck, Michael
If you are weighing up the pros and cons of selling or buying small business or you just aren’t clear on where to next, please contact us:
Mobile: +61 (0) 416 213 300
E-mail: info@kerrcapital.com.au
