The Times - 31 May 2003
Go It Alone
Take your pick of businesses off the shelf
Why start from scratch when going concerns are one jump ahead, asks Elizabeth Judge
The dream of starting up a company is tempered for many people by concerns about the level of risk involved. What if consumers do not greet a brilliant invention as enthusiastically as hoped? What if you give up a safe corporate job and generous salary only to fall at the first hurdle?
But starting from scratch is not the only way to build a business. A less risky and increasingly popular way is to buy an existing business that comes with a ready revenue stream and existing customers.
A growing number of business transfer agents are offering these so-called "off the shelf" companies that can offer an excellent compromise for those making the jump into self-employment. Buyers can snap up anything from a village post office in the Cotswolds to a nursery school or care home.
Five years ago BusinessesForSale.com, one of the leading business transfer agents, received 50 inquiries a month from people wanting to buy a business. Today that number has surged to 1,500.
The website lists more than 1,200 businesses, ranging from sandwich shops to more exotic foreign companies – a tropical beach resort in Thailand and a whale-watching firm in San Diego, California, are among the current offerings.
Leigh Nissim, the company's chief executive, explains: "An increasing number of people, whether through choice or through being made redundant, are deciding it is time to become their own boss. But they know about the high failure rate of start-up companies and are not sure that they can afford to take that risk, particularly during this touch economic climate."
Many feel that it is safer to buy into something that already exists, and they know that banks are often more willing to lend money to people who buy into going concerns, Mr Nissim adds.
But buying an existing business has its own risks and pitfalls, which buyers must consider. The biggest problem is a failure to recognise the reality of what is involved in being an owner-manager. "Many people imagine their life will be come easier once they become their own boss, but in many ways it will be come harder," Mr Nissim says.
"Anyone running a business must be prepared to work very long hours for little reward, and to ensure far more emotional upheaval than they would as an employee in a big company."
Underestimating the costs involved in buying a company is another common trap that buyers fall into. "Anyone buying a business has to take into account fees for lawyers, accountants and valuers, just as they would if they were buying a house," he points out.
Someone buying a business valued at £250,000 should expect to spend between £7,000 and £10,000 on fees, he says, and to spend about six months completing the deal.
Nigel Hubble, a regional director of Redwoods, a business transfer agent that sells businesses valued at up to £3 million, says that buyers must be prepared to do some careful financial planning if they want to buy a company. He says: "People buying into business need to draw up a business plan, just as they would if they were starting from scratch.
"How much money is the business making and how could profits be increased? Are these areas of the business that the current owner has not exploited? Could the buyer increase the customer base, and if so, how would he do that? Will he cut staff or reduce operating costs in other ways?"
Buyers can scrutinise the company's accounts and VAT returns, but they can also get a feel for the business's potential by talking to other people in the area and to specialists in that particular trade or industry sector. Buyers of very small companies should be wary of customers who are customers of the owner, rather than of the business.
A good way to overcome that problem is to persuade the old owner to stay on for a period once the business has changed hands, even if only in a consultancy role, so that his name is still associated with the business and the customers will continue to flock in.
Careful buyers should also examine the customer base to see how many are locked into the business through existing contracts.
Finally, Mr Hubble says, always be wary of the reason for sale. "Even during tough economic climates people retire, fall ill or have a change in family circumstances which forces them to sell up. But it is important to check the motivation for sale. Ask the agent and ask the vendor."
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