Can Financing Contingency And Due Diligence End At Same Time Start-Up a Business by Buying a Business – ‘Real Life’ Practical Advice Shared

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Start-Up a Business by Buying a Business – ‘Real Life’ Practical Advice Shared

This is a quote from Ray Thomas who started his own business by buying an existing one. You chose to buy a resale franchise for reasons you are about to learn. These are his first wise and valuable tips for anyone thinking of buying a business as a way to start their own business, whether in the UK, North America or anywhere in the world.

“When buying a business, check and double check your ‘due diligence’, there is always something to lose, something that is not obvious when you first start negotiations – don’t rush – take your time to understand the business you are in to buy.”

Ray was very careful in his choice of business. He took the buying process step by step over several months. He would like to share this experience with you, embodied in these key points.

• Choose a business related to your business experience and your own business skills

• Buying a resale franchise has a number of advantages. Two of them are the training and support you will receive from the franchisor; another is to acquire a going concern with an existing customer base

• Get the latest business figures to see how the business is performing and whether circumstances have changed since the business was assessed for sale.

• Check the customer base to check the number of active and inactive accounts

• Examine the customer profile to see how the business is spread across the accounts: If the business is dependent on one or two accounts, the loss of these accounts can dramatically damage your future revenue.

• If possible, agree on a lead-in period where the previous owner introduces you to the customer base and explains the back-office systems and day-to-day running of the business.

• Make a generous provision of working capital to cover operating costs and maintain an additional financial contingency for the unexpected.

To understand Ray’s story here is some interesting background. Ray trained as a mechanical engineer. This gave him a long career to discipline his thinking and develop his analytical and organizational skills. Her outgoing personality and communication skills came into play when she moved into sales. Over time, he became a regional manager for a multinational company, first looking after the South West, then extending his territory responsibility to Wales and Birmingham.

As the demands increased without a commensurate increase in his pay packet, Ray began to explore opportunities where he and his family would receive a greater return for their efforts by becoming their own boss. He researched several different business avenues and narrowed the options down to franchising. The question was whether to start from scratch with “virgin” franchise territory or buy an existing operation. The other question was which franchise to select

As Ray had experience in the car trade, having once been a sales manager for a chain of car dealerships, he looked into a franchise that supplied tools to garage shops and another that specialized in auto body repair. He also explored franchises related to his more recent experience in the Health & Safety Equipment and Personal Protection (PPE) sector. Finally he chose a business-to-business (B2B) franchise specializing in the supply and maintenance of cleaning and hygiene products.

The franchise’s headquarters have volunteered two start-up territories within easy reach of their Swindon base and a resale franchise in their home town of Swindon. Buying a resale franchise was a bigger investment, but it gave him a fully functioning business with an established clientele and an established reputation.

The negotiation of purchases

Ray contacted the existing franchisee and spent a day with him to learn more about his territory and customers. The franchisee wanted the business to be transferred to someone who would manage the business well and take care of their existing customer base. He decided to emigrate to France as part of his own life plan.

On closer inspection, Ray saw that the business was losing sales and turnover had fallen in the past year. Another worrying aspect came to light. One customer was responsible for 50% of sales. If that customer were to withdraw their business, the entire financial picture would change dramatically. These important factors demanded a revaluation and a renegotiation of prices.

A revised price was agreed and on April 26, 2010, at the age of 60, Ray Thomas became an entrepreneur. He had begun an exciting yet challenging new chapter in his life.

Looking back, Ray wants to share these thoughts with you:

• Put away those rose-colored glasses when buying a business. These are always things that aren’t immediately apparent when you first learn about a company, not because they were deliberately hidden, but more to do with your ignorance of the business operation.

• Try to identify the pitfalls: Get expert help to review the company’s business record and customer base.

• Examine in detail the basis of any “goodwill” attributed to the company. Remember “people buy people”. It is potentially dangerous to buy a business that has been built primarily on the “personality” of the owner. When business changes hands, customers may not want to keep their business with you.

• Never rest on your laurels. Find new deals every day. It is inevitable that for one reason or another you will lose customers. You must bring in new business to make up for lost business.

• Make sure you “go above and beyond” in the quality of service you provide. You may not be able to compete on price these days, but attentive and professional service not only wins business, it builds customer loyalty. You’ve heard the saying that some people “know the price of everything but the value of nothing.” Due to cost pressure, customers switch to get a better financial deal, but often return when they realize they have lost the quality, reliability and performance of the product.

• Create a financial cushion to finance unexpected costs. For us, the increase in diesel prices has affected our van delivery costs. Unexpected events are another reason why you should increase sales from existing customers and spend time contacting and acquiring new customers.

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