Looking for ways to make an easy early retirement? Perhaps buying up a business is a more feasible way to make your dreams come true? After all, starting from the very beginning and becoming an entrepreneur now may not fit in with your life plans.
With the help of the internet and online tools, business ownership is not as complicated as it once was. You can quite easily get your hands on a good business that’s already turning a tidy profit, and tune it up to make even more.
Investing in ready business equity means cutting out the expensive build phase entirely, but you will need some capital in order to get started. Doing it the smart way means spending a little now, in order to make a lot more in the future.
To ensure you’re stepping into something profitable, there will be plenty of balances and checks you’ll need to complete before running to the bank. Here are some essential considerations for anyone looking to buy a business in 2018.
Spotting a profitable business
What does a profitable business look like? Funnily enough, it might not be one that looks like it’s raking in the cash. Don’t be fooled by a busy shop-floor or a popular Facebook Page — profitability is all about number crunching.
Things like distribution networks, equity, and market demand will dictate how much money you can expect to actually take home. Depending on your investment and retirement plans, you may need to shift focus based on how much ready equity and cash there is in the business right now .Profitability is all about managing business outgoings and cash flow, and ensuring that at its heart the business is balanced.
Speaking to the business seller and their financial team should give you a good idea of how things are currently doing. Look out for any potential warning flags like employees on little or no salaries, a high commission structure, low profits, or a dwindling business on a steady decline. (If you believe in the product or service and have the right skills, you could turn an ailing business around. But don’t count on it).
Note: A lot of high turnover businesses aren’t that profitable, and you need profits in order to take assets and cash out of the business. Make sure you understand the business balance sheet well enough to be able to make a sound judgement call.
Check in with market demand
Market projections can be deeply flawed once taken out of the ‘lab’, but that doesn’t mean
that you shouldn’t at least try to gauge what’s happening out there right now. From industry reports to keyword research, even a cursory glance can help fill in some data blanks.
Google Trends offers some useful, if basic, data. Social media is a good place to find potential customer communities and influencers who will be able to tell you more about the scene on the ground. Even an internet business will benefit from having a clear understanding of the local landscape, so don’t dismiss local knowledge and developments. It all helps paint a more accurate picture of the current marketplace and landscape.
At the same time, demand can ebb and flow, and many ‘dead’ niches are still generating people a ton of profit. You will often hear people advising you to invest in evergreen, rather than seasonal businesses; but there is something to be said for jumping on a current bandwagon and riding it for all its worth. Products or services that are hitting the headlines right now can help give your business a much-needed boost.
The strongest position to be in is one where you have exclusive rights to a market, or you have a unique product or service. But that’s also a potentially vulnerable position, as others will be eyeing you up and attempting to copy what you’re doing….
Buy into a passion, or make it yours
Passion businesses can be risky, but a passionate group of customers is a surefire way to make a lot of money fast and make a profitable exit from your business.
Buying into a business that’s a passion for a large group of people is a fruitful endeavor, but with passion also comes challenges. Customers will be picky and you may have to invest time and money into community management in order to balance sales with customer experience.
From a business owner perspective, the more you like and care about what you do and what you’re selling, the better. It will keep you engaged with the business, and will ensure that you keep coming up with ideas to drive the business forwards.
Mark Cuban has gone on the record to say that following your passion into business is not a good idea, and that you should follow your effort instead. There is definitely something to be said for that attitude. A pet project won’t always easily turn into a profitable business.
Where to find businesses to buy
There are plenty of different ways to find businesses for sale — both online and offline.
Other people who are retiring are actually a good demographic to buy from. It often means the business is doing well, and they just need a new challenge or want to slow down their pace of life.
- There are sites for sale on Ebay, as well as specialist website marketplaces
- Social media groups and reddit threads are good places to go as sellers often advertise on there
- Traditional business brokers who buy and sell businesses will work on commission, but they can help you save time
- There are many offline places in the community like groups and noticeboards where people advertise businesses for sale
- Reach out and put some feelers out there — if you let people know that you are looking, you will attract sellers.
Developing a business further
If you buy a business, you should definitely be thinking of ways that you can increase and improve scope.
Whether you widen the product lines, bring down overheads, improve margins, or re-launch the brand — it’s a good idea to have a few different developmental ideas up your sleeve. After all, there is always room for improvement!
Buying an ecommerce business is probably one of the easiest ways to buy a business and make it more profitable within the space of about 3-6 months. Often all that is needed is some better marketing and targeting in order to increase sales figures. If the ecommerce business is already making sales, you know you’ve got a product that works.
It’s advisable to stay away from a business that doesn’t really have a strong product offering at its core. Otherwise, you will just be buying a domain name and a logo, and an ecommerce business should be more than that.
Bootstrap or die
The best way to grow a business is to adopt the bootstrap mentality. Don’t go and needlessly invest in all the latest tools and tech, advertising, expensive consultants etc.
Even if you are in a hurry to turn the business around, you need to make sure that the business builds up its own cash so that you aren’t having to reach into your own pockets for everything.
Here are some ways to ensure profitability:
- Hire slow, fire fast. Look at remote working and freelancers before bringing experts in-house
- Know your business figures and get financial help if you aren’t good with numbers
- Sort out your sales pipeline or customer journey — all businesses need a steady stream of prospects, and many make the mistake of trying to implement changes when it’s already too late
- Be on the constant lookout for ways to drive down business overheads.
Reinvest for growth
Whether you are looking to sell the business on, or you want to keep drawing a healthy income for the foreseeable future, make sure that company profits are reinvested in the right things. Equity, assets, product development, marketing — invest in the things that will contribute to growth.
Multiple businesses, franchising, or a multichannel sales approach may work best for you. Don’t dilute your efforts too much, but having multiple profitable projects or businesses on the go is obviously a good thing! Opening up the business to partnerships is also a great way to make the most of running the business in a short space of time.
Buy a business that you 100% believe in and that has good profit potential. As a first-time buyer, don’t pay over the odds. Starting with a more modest investment may be the way forward — it’s certainly safer from a financial perspective.
This is article was contributed to Leisure Freak by the very talented Victoria Greene.
Victoria Greene: Writer & Digital Marketing Specialist
Now that I’m freelance, I love spending my days writing, learning more about digital investments, and sharing my tips with fellow entrepreneurs. I live for digital and am always on the lookout for the next big thing.