Buy your way to success
SCRATCH A BIG RISK Buying an existing, successful business is becoming more common as the Baby Boomer generation heads into retirement. It’s also safer and can deliver immediate results. STARTING FROM
When starting a business, many people think an outof-the-box, unique idea is needed to develop and build a company. However, this notion is progressively changing as more and more entrepreneurs turn to buying an existing business. South Africa’s high startup failure rate is adding momentum to the trend. The 2016-2017 Global Entrepreneurship Monitor report says South Africa’s established business rate – the percentage of the adult population that are owners of businesses running for more than 42 months – is only 2.5%, one of the lowest in the world.
Research shows that the first 1 000 days of a new business are critical, and that many new business owners tend to fail within the first three years.
Buying an existing business instead of starting from scratch is a safer and more effective way to becoming a business owner.
While the owner of a start-up business would have to build up a brand and customer base, hire new staff and establish cash flow, an existing business offers immediate cash flow, already trained staff with implemented systems and infrastructure, as well as brand awareness.
Opting for this route also benefits the business itself. The personal flair, enthusiasm and wave of fresh ideas from a new owner could give a new lease on life.
Today, when many small and medium enterprises (SMEs) are still recovering from a tough 2016, is an optimal time to research viable businesses in the marketplace that would consider selling.
As the Baby Boomer generation – those born between 1946 and 1964 – slides into retirement, many entrepreneurial opportunities are begging as retirees look to sell.
Be warned though that there are still risks that apply and it is imperative for prospective buyers to conduct thorough research before buying. Research should include why the business is being sold, as well as how competitors are faring.
A well thought out business plan should also be in place, including plans to revamp the business or repackaging existing product lines to push growth.
By incorporating this in the sale, the seasoned existing entrepreneur can provide his/her input as they are more likely to know the tricks of the trade.
Another important step is due diligence. All records must be reviewed and look out for pending litigation, tax audits and insurance disputes, as well as the financial history and intellectual property of the business. While often a daunting and complex process, this is a necessary step to avoid any headaches post purchase. Seek the guidance from a lawyer or accountant.
Buying an established business is a great way to begin the entrepreneurial journey, but beware – the process can be lengthy, and if not done correctly, may be the downfall of a successful company.
Christo Botes is executive director at Business Partners