Buying a Business vs. starting up
First of all, buying a company is usually much better than just starting up from scratch. It’s easier, more predictable and can increase your chances of success, for the simple reason that there’s already an existing track record that you can draw insights from.
More than that, the time is right for buying businesses. The Baby-Boomer generation (people born between the early 1940s to 1960s) are reaching retirement age. After the 2nd World War, a lot of new owner-managed businesses have been established. In many of these cases, the owner’s children have chosen to pursue another path rather than managing their parents’ business, which is why at this time many of these owners are looking to sell.
There are a few types of businesses that are very sought after, due to these very qualities:
High Asset Value Businesses
A high asset value business will have a lot of value in terms of stock and equipment. You can generally purchase a bigger business with less money if you were to take a loan against the assets of the business. Think around 75% of the NET asset value. Also, if the business is not going as well as you would have hoped, this is usually a more secure investment due to the fact that you can sell the assets and get a big portion of your money back. We’re strong supporters of businesses in sectors like Manufacturing & Engineering and have helped many clients acquire these types of businesses in the past.
Recurring Revenue Businesses
Businesses like IT Support, Accountancy Practices, Legal Firms and others have the benefit of having long-term contracted clients. This will guarantee a steady stream of predictable income over the course of several months up to a few years – depending on the nature of the contracts. The easiest way to grow a recurring revenue business is by purchasing the client list from another business in the same sector.
One-off Contract Businesses
Some companies work on a contract by contract basis. This is usually due to the fact that there’s no relevant recurring revenue model for that sector. Examples of this would be web design companies or let’s say, B2C furniture manufacturers. The client usually buys the product once and then probably doesn’t need anything else for a few years. This is a great type of business to acquire if you are very well connected in the sector you’re looking at, but you should be careful to put systems in place to attract new business once your network’s buying potential has been exhausted.
Buying a franchise can save you a lot of the usual headaches when starting up. You’ll have the brand, the marketing materials, the suppliers, the processes and systems already in place. All that is required is the implementation. Your clients are there somewhere, and they are, most likely, ready to buy. It has been proven to work before, so it has a higher chance of success than other types of companies. On average, 80% of new businesses usually fail before reaching the 4th year, 90% of franchises succeed. If you don’t have a lot of money and prefer not to risk it all, this may be a great option for you.
Businesses in Need of a Turn-around
A failing business is not good for anyone. It’s not good for the owner, for its clients, for the employees or for the economy in general. If you have the necessary expertise, you can use it to turn around a failing business. You’ll probably be able to get it for cheap, although there’s a greater level of risk involved. This investment will require a lot more time on your part, but if you have enough experience in the sector and a good understanding of how the business works, this may be where the added risk is fruitful.
Disruptive New Businesses
Once in a while, a new business pops up that shows a lot of potential, either because it uses a new technology or a better process that begins to disrupt the already established market. Many of these businesses are in the tech sector, and popular examples would be companies like Uber, Snap, AirBnB, businesses in AI, the new cryptocurrency trend, etc. There’s a big risk in investing in these, particularly at the start – but this is a risk that has the potential to either pay off exponentially or end up failing miserably.
Retiring Owner-managed Businesses
The market is full of businesses for sale. Many owners are now reaching retirement age and are planning their exit in order to spend the rest of their days peacefully – preferably on a remote beach somewhere! The businesses are good, they are performing well and even the owners would probably keep them if they weren’t in a fight against time. As long as you make sure the financials of the business are good and that once the owner leaves the place won’t come crumbling down like a sand castle, these opportunities are usually an excellent acquisition and very sought-after.
How we fit into all of this
Our professional team of business brokers work exclusively for you, the business buyer. Throughout the years, we have successfully completed hundreds of deals by helping business owners, organizations or serial entrepreneurs find and acquire the right businesses for them.
Chelsea Corporate has been on the market for over 7 years, during which we have been constantly growing our business network, expanding our expertise and refining our processes in order to find you the company that you want to buy.