Well 2010 is here. Hopefully long sunny days in holiday destinations have boosted creativity and energy levels. What is in store for this year? Are you happy with the status quo, or does a new business opportunity await?
Now it is understandable that most purchasers we talk to have no real clue of what business they would want. There is a big wide world of opportunity out there so my recommendation is to initially focus on what you don’t want. I don’t mean here only what business category you wouldn’t want, I am thinking more about what aspects of any business you wouldn’t want? This might sound a little back to front, but this can not only make your selection process a little easier but will also ensure an ongoing enjoyment of the business once you are sitting in the big seat.
What do I mean by this I hear you ask? Well it is better to know up front what you are willing to ‘do’ in a business and what you can offer a business before you buy it!
Classic areas to consider:
1. Employees - Do you have the people skills to run a business that requires more than one or two staff? Do you have the patience or empathy? It is getting harder and harder for SME businesses to comply with our country’s employment laws. If you don’t have the skill set to operate a business with significant staffing requirements then cross businesses that have that requirement off your list, because you will hate it.
2. Owner’s input - Are you looking for a business that requires you to work in the day to day operations of the business or are you looking for a business that allows you to predominately work on the business? If what you can offer a business is your day to day management and directional skills then look for an owner/operator business. These are normally positioned by brokers with an EBPITD (Earnings Before Proprietors’ Salary, Interest, Taxation & Depreciation) return on investment number quoted. If you feel that you can offer more strategic direction for a business then you are looking for a business that will have an existing management structure and this in most cases will have an EBIT (Earnings Before Interest & Taxation) number quoted. Getting this wrong will lead to real frustration.
3. Service or product - Again a service business by nature is going to suit someone that has both the people skills and motivation to work with people. If you are not a people person then you should steer away from a company that serves the public and maybe look more towards a B2B (Business to Business) type service company. If not then you should focus more on the product type businesses. These can include agency import distribution type businesses and manufacturing.
4. Sales function - There are no more grossly overstated attributes by purchasers I have dealt with than in the area of SALES. If the business you are looking at requires you as the owner to offer the sales function to the business, then you have to be brutally honest with yourself on whether you have the attributes to do it. All businesses need a sales function but if that is not you, put a cross through any opportunities that would require that from you, or it will wither and die.
5. Technical knowledge - This is often an area of great confusion for purchasers. A technical business does not always require a technical owner. Often technical owners hold their businesses back because they are always drawn to the technical side of the business rather than getting out of their comfort zones and building their businesses through market development. If a business requires a technical owner and you don’t have those skills then it is a no brainer. But ask the question because often you are able to hire the technical skill and the business would be better off with an owner who worked on the business rather than one that gets on the tools at every opportunity.
6. Manufacturing - Manufacturing businesses are coming to the market less and less now because there are so few of them in NZ now. There are still small opportunities available but they often require long hours to make a buck. The Asian countries generally can do it cheaper if the product is not a specialised or short run type product. Again this type of business often requires long hours from its owner and a skill set that ensures continual improvements to the efficiencies of the business to keep afloat.
7. Hospitality, Franchising or Retail - All three of these categories generally illicit an immediate response from people we speak to. You either like them or hate them. In most cases we have seen, you should listen to your gut reaction. It can be perilous to be convinced otherwise.
The coming of a New Year always offers the feeling of new hope and a fresh start. If the fresh start you are thinking of involves buying a business instead of asking of yourself what you want to purchase you are probably better off asking what you don’t want.
David Newport is a principal of business sales and acquisitions firm Switch Business Ltd.
