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Business

What can go Right when buying a business?

on 25 January 2021 / by Tom Beswick

It's easy to focus on the risks when buying a business. However, I think it is important also to share my thoughts on when we see things go well – and whether there were any common themes for success.

When business goes right

In my view new business owners tend to succeed when they bring new energy to the business, focus on the customers, set themselves up with the right finance and are prepared to learn.

1) New owners do well when they have the drive to reinvigorate the business.
Retirement appears to be the number one reason that causes business sales. In my experience business owners often do not sprint to the finish line as they sell their business. They jog, slow to a brisk walk, and then have a leisurely stroll over the line as they look to sell. It means that often a new owner has tidy up job at the beginning – but also that there is a lot of opportunity for the owner to bring fresh ideas and energy.

I worked with a couple who purchased a retail business. They knew nothing about the industry but were prepared to learn and get stuck in. The previous owner had let things slide with poorly performing employees and lazy stock management. After fixing these things up the new owners now have a good business on their hands.

2) New owners do well when they are focused on the customer experience.
In many cases retiring owners are not as focused on looking after customers as a new owner will be. The exiting owner is just not as hungry. They have (hopefully) made their money already and it can mean that sometimes service and quality slips. A new owner that is committed to improvement will often find ways to do things better and it leads to better results for all.

I worked with a chap who bought a gym. The previous owners were distracted and not focused on the needs of their customers. As a personal trainer himself he knew where the problems were and has worked to improve the whole experience for clients.

3) New owners do well when they have the right finance backing in place. This allows you to spend where you need and make investment decisions to improve the business, rather than fight fires. When business buyers take the time to plan for different scenarios and understand the ‘what could go wrong’ areas then they are far less likely to be surprised.

4) New owners do well when they are prepared to learn. As a retiring owner winds down they often have taken their foot off the gas in terms of education and staying current. It is understandable – technology moves so quickly now that it takes effort to keep up. My clients who buy businesses that take the time to become more financially literate tend to find ways to say save money by finding ways to do things better.

It might only be a bit of Xero training needed – but even an hour of that can generate huge savings. A few my older clients say they know how business is going in their head. That works great - until it doesn't. Being able to drive your accounting system properly pays off in many ways through identifying problems earlier, getting paid earlier and being able to plan your cash-flow properly.

While times are far from certain now, if a business buyer comes in hungry to drive the business forward, is committed to their customers, and is prepared to educate themselves then they still have every chance of success.