Buying a business could be the most important decision a person makes. Especially if they are a first time buyer where the stakes are high, and if they are dipping into life savings.
While the obvious financial aspects of buying a business are critical, there are “softer” issues that are often overlooked which are key to success:
SKILLS – Often the first time buyer is dazzled by the life long dream of owning his or her own business and the opportunity to make money. However, if the buyer’s skills don’t match those required by the type of business then the business may be doomed. For example, the idea of owning a coffee shop may seem wonderful, however, if you have no experience or knowledge of the catering/restaurant industry you are probably in trouble. You need to know and understand how to control costs to ensure that the business remains financially viable. Key industry information learnt from many years in a similar business is also desirable.
LIFESTYLE – It is important to consider your lifestyle when considering which business to buy. If you can’t do without sleep you shouldn’t be looking to buy a nightclub. If you travel a lot you will need to assess whether the business can afford to employ a manager, and whether it could operate successfully with a manager. In the latter case certain financial and operational controls would need to be put into place to ensure that the new owner can keep their finger on the pulse on the business.
PERSONALITY – Some people do not enjoy dealing with others and thus should not buy a business where they may have to be on the frontline, dealing with the public. Others are very sociable and may be well-suited to buying and running a pub, restaurant or other tourism-related business.
PERSONAL CIRCUMSTANCES – If you have young children you may wish to avoid buying a business which involves a lot of after-hours commitment or a business which is located far from home.
INCOME REQUIRED – It is financial suicide to buy a business which is unlikely to provide you with the minimum personal income you require.
ENTREPRENEURIAL STRENGTHS – Not everyone is born to become an entrepreneur. Most aspire to become business owners without considering the risks and stresses involved and how they might cope with these. Entrepreneurs are generally risk takers and are driven, come success or failure. They are able to deal with stress in a constructive way.
MEDIUM – TO LONG -TERM OBJECTIVES – Some may look to buy a business with the intention of reselling it after a period of time, e.g someone who has taken early retirement and needs to earn a living until his policies mature. In this case, it is important for the buyer to assess whether it is the kind of business which can easily be resold and whether he is able to add value to the business during the period he owns it. Some individuals purchase a business with the intention of providing a child/children with a source of income. Once again the business needs to match that child’s level of ability and competency.
While these points are nothing more than basic common sense, it is amazing how often they are overlooked in the excitement of a new direction in life.
This article was written by Antonie van der Hoek, Managing Partner at BDO South Africa’s Cape Town office. The global BDO network provides audit, tax and advisory services in 151 countries, with over 59 000 people working out of 1200 offices worldwide.