The 7 deadly sins of buying a small business
Are you looking at buying a small business? Perhaps you are a business owner looking to snap up an additional business or are craving an escape from the rat race. Either way, there are seven sins all potential purchasers must avoid…
It’s easy to put on rose tinted glasses and fall in love with a business. Whilst it’s important that you love what you do, when buying a small business it’s vital to separate fantasy from reality and look at the cold hard figures. The tough love comes when you have to place head over heart…and make the decision on whether or not to proceed.
We all go into things with the best of intentions, but can you see yourself in the business in six years or even six months time? It’s hard to stay passionate forever, but if there is any danger of you having a change of heart it’s a sure-fire way to kill your business stone dead. So whatever you do, be honest with yourself.
Would you employ someone to fly a plane without training? No! So would you expect someone to be able to run a business with no knowledge of the business’s industry? Believe it or not countless numbers of people buy small businesses without any experience. Ignorance is bliss anywhere but in a small business! If you want to run a book shop go and work in one first, if you want to run a restaurant learn to be a waiter. If you want to fail, walk blindly into a small business – the bliss will fade pretty soon!
"If the first thing you look for in a business is the net profit, a world of disappointment awaits you."
If the first thing you look for in a business is the net profit, a world of disappointment awaits you. You must view the business in totality – how it fits with your lifestyle, how well you are suited to it and how it will work for you in the future. Money is a drug that can make you happy, but it will only numb the pain temporarily if you aren’t doing something you enjoy.
I once knew a small business owner that bought a chain of cafes because he thought it would make him look like Jamie Oliver and help him to pull chicks. It didn’t work, and after six months neither did his chain of cafes. Everyone thinks it’s cool to run your own business, but if you’re doing it to pamper your ego, you’re doing it for the wrong reasons.
Finding a good business is hard. Finding a lemon is really easy! Sticking your head in the sand and not performing rigorous due diligence will lead you straight down Lemon Street to the best lemon in town. What will save you from buying a lemon is if you are stringent with your research. Get out and ask questions, do surveys, speak to neighbouring businesses, talk to the council. Get a tight fisted accountant and an anally retentive lawyer (that won’t be hard). You can never do too much research when buying a small business.
“Oh the vendor told me it’s one of the best businesses he’s ever seen”, “They don’t have proper accounts because they make so much money in cash”…beware! The vendor and the agent are not your friends, they are out to sell a business and this should be remembered at all times.
Family and friends, whilst appreciated for their loving support, will only say nice, encouraging things to you; so please don’t buy a business based on what your mum saw on Dragons’ Den.
What lessons or observations about buying a small business have you got to share?