What if I took over an existing business?

Ever Thought of Acquiring a Business? Let's Explore!

This issue is going to be slightly longer than my usual, so let me know if you like this format or not. Hit reply if you’re cool with it or would prefer a shorter and more punchy version next time.

In the previous issue we touched on the motivations of why any aspiring entrepreneur or  business owner might want to acquire a boring business rather than build one. In this issue, we’ll delve into a realistic scenario of what should be considered in order to buy a business.

Boring businesses as a term has been popularised thanks to the likes of Codie Sanchez (at least to me). The term is used to describe a traditional business; big or small, that does not require a lot of technological and/or marketing investments to acquire customers. To put it differently, a boring business from what I understand through research and conversations is an established entity with revenue that doesn’t necessarily have the scope to scale. Businesses that would be considered as a boring include; Gyms with clientele would be an example including a Laundromat with a contract for local council or football clubs, Printing companies with contracts for local college , Optician, Dentist, Utilities company with contracts to local hotels and BnB’s, Landscaper with a contract with local schools, Car Wash company etc.. you get my drift.

Something that was bugging recently, my optician has been having delays in getting new glasses to me, I'm not getting updates and visibility to manage my expectations and it feels like delivering a great service is not near the top of his priorities. My initial thoughts were that he was going through a busy period and my timing was off, however this thought couldn't be further from the truth. I can see that Peter (let’s call him Peter) is  becoming less mobile and  as a result is slowing down his work load to accommodate his lifestyle. Whilst I see this as a positive for him, I started to wonder, what would happen to his business when he decides to retire? Questions such as where would the active customers in Peter’s book go and whether the business could go on without him.

I had the fun idea of exploring what acquiring Peter’s business would look like. I knew that at the very least, I would learn more about the process and share with you (the readers). Unsurprisingly, I don't know anything about optometry, but this deficit didn’t stop me from considering what I would need to take into account if I were to acquire a business like Peters. 

The breakdown below was constructed after consulting with Sylvester, who has helped hundreds of business owners advertise and sell their businesses online during his time at BusinessesForSale.com. We also used reference points and resources available online to back up the content that contributed to putting together this issue.

Photo Credit: Kanaiza Gallery

Establish sellers reason for selling the business 

There’s a misplaced belief that a good business is never for sale. Whilst this is true from the outside looking in, business owners can find themselves in situations where it’s time to part ways with the business. Understanding the motivation behind the sale of a business coupled with the financial  health of the business can prove useful when negotiating the terms of the acquisition. Believe it or not, a large share of businesses are put up for sale for the same reasons a homeowner may put their house up for sale. Often it’s to do with adapting to unexpected life events such as illness or the opportunity to pursue life in another city or country. In the example of my optician, the reason for selling could be retirement which offers an opportunity for a fresh face to step in and build on the existing success of the business. 

A significant point raised by Sylvester though is to be mindful of the potential pitfall of acquiring a business that is owner managed. Especially in an industry in which you have to have qualified knowledge or experience., In the case of the optician, as I have no knowledge or experience of this industry, if I were to acquire this business I would need to employ a professional in the trade or in the ideal scenario, have staff already in place to continue delivering the service. Otherwise the probability of grossly failing in this venture is very high. I’ve been advised owner managed businesses  in general should be avoided as the likelihood of customers leaving when the current owner departs is very high. 

Assessing Business Health

Another side of the coin I was told I needed to consider is that the numbers behind the business are critical. This was quite obvious to me although I didn't quite grasp how this all fit into one picture. Reviewing a historic record balance sheet, income statements and cash flow statements provide the perfect snapshot of the health of the business. However, I was advised that I needed to look beyond the numbers. 

To conserve time, I've put a bullet point below of things to consider when reviewing the general health of the business. Many of these points will I will later revisit with a series of issues dedicated to them.

1. Customer Profile -> Lifespan of the customer and their average yearly spend

2. Existing Contract -> Guaranteed revenue that the business has in place, in the case of the optician do they have contracts with the NHS or private clinics? 

3. General Data -> Is there a repository where you can access the business customers with a few clicks of the mouse?

4. Growth Opportunity -> What can be put in place with minimum cost to grow the business revenue.

Conclusion

Thinking about acquiring the optician has expanded my viewpoint in a way I didn't foresee. I hadn't anticipated the detailed thoughts that go toward acquiring a business however strangely it all seems so simple. Surely buying a business isn't as easy as I've just put it in this issue, however from the conversations I've had, I've concluded it  isn't unattainable, and it doesn’t require the academia and doesn’t require a rocket scientist to achieve this. There's so much to discover and I'm excited to explore this space and continue to share the knowledge I gather along the way. 

My immediate thought is to find somebody who has either gone through this process regardless of the scale. What do you guys think? Should the next issue be in an interview format with someone who has gone through this experience?

Upcoming Opportunities & Events

• FounderVine’s FounderFest is approaching in time for summer on Sat 8th June. Link

Thoughts & News I wanted to share with you

• Solicitors guide to buying a business. Link

• Christies & Co’s guide to buying a business. Link

• Sequoia Legal’s guide to buying a business. Link

• Documentary on The Men Who Profit When Businesses Fail: The Liquidators. Link

• Masibu Manima of Translate Culture who’s shown a trusted community of D2C brands how to authentically tell their brands story shares the key principles that guide his decisions on The Shortest Path. Link

• See how other founders sold their business — and for how much. Link

Share with anyone who buys or sells businesses or is looking to