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Only when you are completely sure what you personally want from having your own business, do you start to consider the options of whether to start a new business or buy an existing business. For the purposes of this article, I examine four often overlooked features to consider when buying a good profitable business:
Motivation
An entrepreneur’s business and personal goals are inextricably connected. You need to be very clear as to why you are entering this ‘buying’ phase, IE wanting to be in business for yourself. If you believe it is achieve independence and control your own destiny, this goal is too vague. It is a common mistake for entrepreneurs, in the early stages of deciding to go into business for themselves, to not think ‘too deeply’ about their true motivation for taking this step.
That said, when pushed, they can be specific as to the outcomes they want and need. It could range from creating an outlet for artistic talent, an opportunity to get involved with new technology, have a flexible lifestyle that connects them more to their family, or an opportunity to build something that embodies their deeply held values. It is this motivation, (perhaps it could be described as your mission for going into business) that will help to sustain you when times get tough.
Repeat customers
A critical characteristic of longevity in a smaller profitable business is not that they have a customer base that grows rapidly. It is that they have current customers that continue to purchase from them in an ongoing manner. You want to buy a business which has customers who value your company’s product or service, and ‘come back’ time after time. It is highly likely that these customers, besides liking the product, have established a close relationship with the people in the business and this is something you will need to be mindful to continue to cultivate.
As the relationship is enhanced, it is normal that sensitivity around pricing diminishes. It is this relationship that also makes it more difficult for your competitors to entice these key customers away. This allows a predictable and recurring revenue, giving first time entrepreneurs’ the confidence to get to know and understand their business, particularly in the early years.
Supplier relationships
It could be argued that suppliers are more important than customers. When you lose a good customer, you should be able to attract a new one. (You should certainly not be dependent on one good customer only.) However, good suppliers are harder to find. “Good’ is not wholly dependent on whether they can simply supply the product or service; ‘good’ is based on the quality of the relationship you have developed with your key suppliers over an extended period.
This relationship flows into issues of reliability, maintaining stock levels for your business, assisting you with credit terms when needed etc. This relationship should not simply be built on the ‘lowest cost’ model; instead, you and your suppliers should have a mutually beneficial relationship of understanding each other’s needs, and that the success of one is beneficial to the other.
Slow growth
Although there may be the tendency to want to buy a business that will grow fast, it does come with its own risk. It is likely you will be using your own money to grow the business, and low growth is normally associated with low risk. It is likely that if you grow fast, your new customers will eventually outnumber your current customers, and this can often place unexpected burdens on you and your business. New customers do not have the same loyalty to your products or services and you do not want to risk alienating your recurring customers (previous point).
Besides, it is hard to build good quality, long lasting relationships when you are focused on acquiring new customers fast.
Being the owner and leader of your own business is very different to working for someone else, particularly a large organisation. You will have the opportunity to create something for yourself (and your family) as well as have the flexibility to work in a way you have always wanted.
However, your success is predicated on the type of business you buy, hence the need to consider a slow growing and profitable business which can allow you the stability to achieve the outcomes you set out for yourself.
Download the checklist to find out the factors to consider before starting your business in Australia.
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