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Why run a business?
It's the dream of many people to escape the rat race and be their own boss. Running your own business can be seen as a route to freedom, financial success, and a happier life.
Running a business can be very rewarding, both financially and from the point of view of personal development. The buck stops with you and you are master of your own destiny. That can be a scary proposition for some people, especially those addicted to a regular pay cheque.
The reality is being an employee is not the safe option it once was; those little words "you're fired" can strike at any time. On the other hand, "I quit" is just as easy to say if you are prepared to make a go of it.
Are you committed?
Are you really committed to starting and running your own business? Running a business is hard and long hours are involved. Are you ready for that? Is there an alternative? How about remote working? How about working via the Internet? How about freelance consulting? How about stock market trading? How about just sticking to your job?
Seriously consider the options open to you and don't consider starting or buying a business until you are sure you are prepared to make a lot of sacrifices.
Choosing a business
So, how to chose a business? Many will say that the business chooses you. You will be attracted to a certain market segment by your own inclinations and abilities. One of the fundamental decisions you will need to make is whether to start from scratch or buy an existing business. In the rest of this article I am going to assume that you are going to buy an existing business. I am not saying that's always the best option. But for the purposes of this article I will make that assumption.
Buying a business
When you buy a business you are buying the future profits of that business. So in order to settle on a sensible price you need to have a good idea of what those likely profits are going to be. Also, you are buying the potential future profits of the business. The ideal business is one where there is the most potential; if a business is basically sound, you can look at ways of growing the business.
There are many things to look for such as leverage of the existing business model, expansion, re-negotiating with suppliers, opportunities to make the business more efficient. Discussing these is beyond the scope of this introductory article.
Settling on a price for a business should be done with the help of a business professional, preferably one who has a proven track record in valuing businesses.
Negotiation of the price of the business is very important. In a way you are making your profit on the deal when you buy, you need to get the best price possible that makes sense from a business perspective. If you have evaluated the business carefully you should have a maximum price in mind that you will be prepared to pay. Do not hesitate to walk away from the deal should negotiation down to this level turn out to be impossible. You have to have a deal that makes sense to you - not the seller!
Business = a money machine
A business is a money-making machine, pure and simple. That is the bottom line. Like any machine it needs looking after, bits will need replacing from time to time. It's your job as a business owner to make sure the machine is running as efficiently as possible. You need to oil it, service it and get specialists to work on it, but the business's job is to churn out money.
Occasionally, you might need to climb into the guts of the machine, but try to avoid being there too long - always think of yourself as working on the business rather than in the business. You are there to tend and control the machine and ensure the efficient running of it, not become a greased-up cog in it.
You always need to be looking at ways to improve your machine's ability to churn out money. You might even have several machines all working in harmony and using shared resources. A few years on and the machine might look completely different to the one you started with; it may be bigger and shinier and hopefully will be generating a lot more money too!
Delegate legal and accounting issues
If you are buying then don't try and go it alone. Be careful about choosing your advisors. Go for an established company of professionals, with a great track record of providing services to business people. Most importantly, ask for several documented references, and check them!
Trying to skimp and save on this issue is going to cost you more in the long run. You will need to get the best help available to make sure your business is legal, stays legal and that you retain complete control of it! It's tough and it's going to cost you, but this is not optional. Try to circumvent professional advice in buying a business and you could come unstuck pretty quickly.
Getting Capital
This is where many businesses fall at the first hurdle. Common problems are getting into severe debt to go into business, or selling a stake in the business for seed capital. Many people who go this route live to regret it. If you have a profitable business you wish to expand then maybe borrowing is necessary, even sensible, but starting out in debt is to be avoided if at all possible. The problem with selling a stake in the company for seed capital is that you lose a measure of control. Which brings me on to my next point.
Retain control
Your number one priority has to be retaining complete control of your business. It will be very hard to make the tough decisions that will need to be taken for the benefit of the business if you have to have a committee every time you need to change some aspect of the business.
If you are taking out a lease, such as for a shop, then the details of the lease need to be gone over, with the help of a trusted professional, in microscopic detail. There are no stupid questions when it comes to lease negotiation, so don't be afraid to ask questions until everyone is sick of you and then ask some more. You need to know one hundred per cent what you are getting into.
Be wary
Whenever you buy a business you should be extremely wary. You are especially vulnerable if you are thinking with your heart rather than with your head.
Sometimes businesses use "creative accounting" to make things look better than they really are. Sometimes they just plain hide problems - the accounts might be showing a healthy profit, but the reality may be that certain money that is outstanding to creditors have not been taken into account. As the business is a legal entity in its own right those debts stay with the business even if the director changes.
So be warned, be as sure as you can that the company is above board. Get professional advice, there are things that you can do such as a staged takeover of the business, with various contractual obligations on both sides.
Build your brand
You should always look to build the brand of your new business. This might mean anything from your staff wearing company t-shirts, to the look of your website, to how you deal with customers or even the style of your menu.
Brand is important and one of the best ways you can add value to your business is by building up its brand.
Brand is important for all businesses, from the smallest beer bar to the national carrier. When you are buying a business also look for a solid business model where there is potential to build the brand further, it's an area many owners neglect to their great cost.
Invest in your people
It is vital to invest in your staff. Many don't because they believe the staff will go elsewhere and the investment will be lost. The opposite is true. If you fail to invest in your staff, even the person who cleans the floor, they will go. They won't want to leave if they are progressing, taking on new opportunities and feel well looked after.
It is really important to train your staff to perform their tasks, as you, their business manager, want them to. If you buy a business and the staff carry on with their bad old habits, when you want them to deliver a superior service, then you are doomed. Sometimes it means a clean slate is required, as some people just can't, or won't, adapt to the new order.
The difference that some simple training can make is remarkable. Take restaurants as an example. Next time you eat out look around you with a business owner's eyes. How is your waitress dressed; is she smart, clean and readily identifiable as a member of staff? How does she greet you? How does she present the menus? Does she suggest a special of the day, or perhaps recommend particular side orders that genuinely enhance the main course? Does she up-sell or side-sell? Does she serve you promptly and attentively, or does she appear in a dream world? We are not talking rocket science here - just fundamental good service (something that is notoriously lacking here in the UK).
These are many business problems that can be solved by adequate training and incentive. Performance related bonus does work, but you need to do it right. It needs to be targeted. There will be a fixed bonus for meeting certain targets, such as correct greeting of the customers.
I could go on, suffice to say training makes a huge difference, many a failing business can be picked up for a song and turned around simply by giving the staff adequate training.
Lead by example
As the business owner you are the leader. You shouldn't expect to sit back while people around you do all the hard work. You need to roll your sleeves up, get your hands dirty and lead from the front. It's really important to demonstrate by example how you want things done. Your employees are not stakeholders in the business, so they do need some other level of motivation. That is best achieved by setting an example of what is required and rewarding those who perform well.
Guerrilla marketing
In a way marketing is the most important part of your business. Many assume if they create a great product, or set up a fantastic restaurant they are done. The work hasn't even started. You need to grab people's attention and sell them on your product or service. You need to make them feel compelled to buy from you. Marketing is not the same as advertising - an advert to the wrong market is a waste of money. Advertising is just a way of delivering one part of your marketing message.
Always look at novel ways to market your business. Freebies are good and needn't eat into the profit margin. Just let your imagination wander a bit. Point is some things you try will work and others will not. You just need to be prepared to try new things.
Always get feedback from customers too. Treat any complaints you get as if they were gold dust. They clue you in to how you can make your business better.
You also need to spot opportunities for joint marketing ventures - "you scratch my back I'll scratch yours". What businesses provide a compliment your own? Contact them, work with them on joint marketing.
It is important to figure out new, low cost ways to make sure people spend money in your business.
Conclusion
In this article I have touched on a few points that should be considered when buying a business. They should also be of use of you are thinking of starting a new business from scratch. Do your homework, study and always put your entrepreneurial glasses on when out and about. Find an experienced business mentor if you can. Start small and build from there.
Good luck!
Tony Bedford first started blogging in March 2000. Tony currently maintains a free guide to more profitable blogging at http://the-business-of-blogging.blogspot.com
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