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Buying an established business v starting one from stratch

Discussion in 'Starting your journey' started by CaraTee, Jul 2, 2014.

  1. CaraTee

    CaraTee Member

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    How do you work out if you are betting off buying an established business or starting your own?

    We have a few options at present and just keep going around and around in circles. (we are awaiting a section 52 on the established business anyway)
  2. NickKaro

    NickKaro Active Member

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    How long is a piece of string?

    Are you able to provide any further details about the industry, nature of the potential established business and its presence in the industry.

    This'll help us determine the factors to take into account.

    As pointed out above, like many such exercises, it'll ultimately be a question determined by weighing up the pros and cons on each side and taking into account your personal circumstances.
  3. Tony Manto

    Tony Manto Active Member

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    There is a thing called opportunity costs. How long will it take you to set up your own business to the level of the business you want to buy.

    How much lost income will you incur by the time you get there.

    Buying an existing business might seam a lot of money, but if it a sound established business with a good reputation, its would take you a long time to achieve that with your own business.

    But as already suggested, it really depends on the type of business you are talking about.
    1 person likes this.
  4. CaraTee

    CaraTee Member

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    I posted this in the review section

    I thought this section may be the best place to get some feedback regarding a few business options we have.

    1. What needs reviewing?
    Business idea - do we buy an established business or start our own

    2. What does your business do?
    Hospitality/Food service/Nursery

    3. Who is your target market?
    Depends which business option we go with

    4. What specific concerns do you have?
    Which option we should take

    Will try to keep this brief/factual but its a little longwinded (thus why I am confused)

    Background on us:
    Hubby and I are early 30s with a 6mth old and 18mth old. Live in rural vic on 8acre property. Were both working as chefs in Melbourne for about 8yrs. Hubby has been a chippy for almost 10yrs now while I have worked in admin/finance. I am now at home with the kids but looking to go back to work. I have small retail food business (spice blends with room to expand into ready made meals etc). Hubby is passionate about gardening/permaculture/landscaping/nursery/veg garden type things and combines this stuff with his chippy work - mostly doing backyard renos/veg beds etc.

    Dream business would be a store that combines nursery, foodstore and self sufficiency store. All useful plants/seedings/seeds for veggies gardens, native tube stocks for property rejuvenation, retail self sufficiency goods (home brew equipment, dehydrators and preserving equiptment, reference books etc) and a foodstore (coffee, ready made baguettes/foccacias, savoury and some sweet items), my spice blends, take home meals, other limited pantry items). We could also sell fruit and veg from our big veggie garden. We would like to run classes in basic cookings as well as cheese making/foods preservation, beer making as well as basic handyman/carpentry and also propagation/nursery side of things.

    OPTION 1:
    Set this all up at home - we already have 8acres and hubby had build a big greenhouse and is currently raising seedling/tube stock. He needs to invest more funds to build poly tunnels and we are looking at 4/5yrs to get it all up and running as a side project while he continues to work as a chippy and diverts funds as we have them. Once this has happened, he would then need to spend $50-$80k on building a retail outlet on the premise including kitchen. We live 3km out of town so people would need to know about us and travel.

    OPTION 2:
    We set this business up in the town - there is currently a fantastic site for lease (hardware store that has been for sale for quite a while that they are now looking at subleasing just to get out). It has huge retail space with ample room for everything we want to do as well as an outdoor area for the nursery retail (mostplants would still need to be raised at home and then just stored/sold through the retail store) We would need to fit the store out from scratch for the food area. (we have access to plants on consignment until hubby is propogating enough of his own to supply ourselves in a few yrs)

    OPTION 3:
    There is a small deli for sale in the town. Asking price $85k. Food is slightly different to what we would be doing if we opened our own place but we could tweak it slightly while retaining her key strengths and run it as a successful business. There would be some scope to include take home meals and the retail self sufficiency component - homebrew, preserving equiptment etc. No room for nursery side of things. We would need to spend $20-30k putting in a kitchen (its more sandwich prep now)

    CONSIDERATIONS:
    The deli is established and therefore I feel its safe bet. We could earn some money and have stablish income even though its not our dream venture. We could then use the money/experience and in 5yrs revisit nursery/cafe when we have abit more capitol. I guess we are stuck though if the nursery/cafe would be best to run from home, or in the main street. If its from home, its probably best to go with deli for now and continue to work on nursery at home. Then sell deli and focus on nursery/cafe from home. If we are better of doing the nursery/cafe from town, thenmaybe its best to focus on that right now and don't bother with deli? Are we throwing $85k away being safe and buying an established business when we could use that money to convert the hardware store? Or it is a bad idea to convert hardware store when we have all the space we need on our property to do it here and not have the overheads of a section sight.

    Another option is to buy deli and continue to run and then have the nursery from home as a seperate venture?

    Any ideas/suggestions/feedback?

    TIA
  5. affgar

    affgar Member

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    I am always in the corner of get out there & build your own proposition from the ground up. Some people are not great at this approach.

    If buying an established business always buy on the pretense of getting greater efficiency & value from your own actions.

    If you cannot see ways you can grow & expand the business then I would hardly consider it ... unless it was an undervalued gold mine.
    Fairly rare to find I would think. :)
  6. CaraTee

    CaraTee Member

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    I can see ways to improve the established business (although it is doing ok for itself already) but then I think why would I work so hard to change her business while trying retain enough of it to not lose clientele.

    Then maybe I should just do my own think to begin with.
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  7. affgar

    affgar Member

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    Just be mindful that the financials & what you think are happening could be not happening as they appear. lol ... hardly makes sense.

    So what I mean in English is that if someone is trying to sell a business, they are trying to make it look as good as possible. There are a number of ways to achieve this. There are some very good genuine business sellers & straight shooting businesses for sale.

    Though once you take over a business you could see a decline in what you predicted the revenue would be based on the declared business figures.

    Hence my idea that to buy a business have a method of how you will grow it & take it to a new level. If you want to move into a business & watch the money roll in ... I think that is pretty rare. Normally you pay a hefty premium for that luxury. :)
  8. PerfectNotes-Kathy

    PerfectNotes-Kathy Active Member

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    Hi Cara,

    As you have basically said, you (and hubby!) are the only ones who can truly answer that question. But reading your comments, it sounds like the very least you want to do is to keep the nursery running at your home, with a view to expanding it in some way down the track, whichever path you take between now and then. This will give you more options in the future.

    Good luck!

    Kathy
  9. help4bis.com

    help4bis.com Active Member

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    Lot of people asking this question. I look at it from a business architecture point of view.

    When buying an established business what do you REALLY buy.....
    1. B/M if that is the case you should go into real-estate.
    2. Goodwill, sure important but how is that established is that based upon the service the people get currently or is it based upon the sale of the specific product?

    I would say... ease into it... you have already a BIG commitment in respect to a young family.

    I would setup vegie grow and stuff at home, for the simple reason it adds value to your property (be careful what you tax deduct as you get hit with capital gains if you sell. See an accountant on this)

    Markets... venture out by selling your product on markets and fairs... create awareness... see how you go...

    Get a big sign so people can find you.. ensure you have a clear boundary on what is home and what is work. You do not want every man and dog wandering into your house for obvious reasons.

    If hubby has time... create your garden as DESTINATION so folks drive around and come to visit you for a cuppa and buying some plants and veggies.
    etc etc.

    Now all this needs insurance, costs etc so do your homework, when you get people wandering on your property you are liable for all sorts of stuff.

    I think you have something there.... a nursery with the option to taste the product people buy...
    What about overnight stays for the "grey nomads" they have a self-sufficient caravan.... invite them over for a meal, some veggies etc.
  10. jabar

    jabar Member

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    I guess you would have to analyse which of the 3 would have more exposure to the public just by their location, I would prefer the site that has more people walking in front but not sure if that would make it more expensive and limiting in terms of space too. As you already have some experience in the business you can feel whats the best way to go.
  11. CaraTee

    CaraTee Member

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    Great suggestions - thanks heaps! We have done markets before and its great to feel out products and get known but it wasn't actually making much money by the time you stand around all day. It has helpt us drill down on what ppl want and what we can offer though so has been great.

    Issue with doing it from home is that it is currently 3-5yrs away and we have a gokart track next door which is super noisy (we have planted trees to block the sound - thus 3-5yrs).
  12. CaraTee

    CaraTee Member

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    BTW - what is b/m?
  13. CaraTee

    CaraTee Member

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    so our option if we do it from home is to basically hold off until things are set up better and not get a loan - just do it on the side while he keeps up his chippy work (and I look for a regular job to help out with the bills)
  14. help4bis.com

    help4bis.com Active Member

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    Brick and Mortar (I am lazy by nature hence the B/M might not be the right way of doing it :)).

    "so our option if we do it from home is to basically hold off until things are set up better and not get a loan - just do it on the side while he keeps up his chippy work (and I look for a regular job to help out with the bills)"

    NOOOOOO :)

    Yes do not loan more money.

    Ok go-cart... super noisy... well there is an opportunity...... NOT to BE missed.
    Not sure the lay of the land.... or what land.... But is there an opportunity to build a little "shack" on your property so you can sell food, coffee etc to the customers of the go-cart track.....?

    Kids want to GO-CART.... whilst they do that... Mum can wander into your place to get a cuppa... wander a bit further.... check some plants, spice etc.

    Go to the go cart owner... have a chat you might be tapping into a new market.... (note I have no idea about go cart customers or anything like or how your properties are adjoined). Go-Carts are generally focusing on go carts not so much on food etc. Having you as a neighbour might be a value add to the go cart business.

    You mentioned cooking..... See if you can your home kitchen to be commercially approved... then use it to sell "ready to GO (cart) menu)". I am thinking about.... after a big day of racing.... I do not want to prepare a meal.. but happy to cook something in the microwave, oven etc. but need to be fresh.... You get the idea.

    Package deals.... with the go-cart owner.... I don't know... something like come and race for a day and get a free takeaway meal...

    You have an established business next door.... see if you can "get" some walkin from there.... or get the word out by having an obscene sign facing the go-cart place... Free advertising... People talk about it....

    Planting trees is great.... to block the noise... joining forces might be better for $$$ and cheaper :).

    Now the NOOO bit.... if you start looking for a regular job... you will get into that rythm you want to get out of... You already have a regular job.... getting the business of the ground.

    So:
    - Check if you can "commercialise" the go-cart neighbor.
    - Check if you can start doing stuff from home even it it means you have to purchase goods from other parties (I am thinking the meals stuff).

    Hope this helps.
    CaraTee and (deleted member) like this.

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