It must be emphasised, right at the outset, that buying a business can be extremely stressful. Moving from being an employee to an employer is a big void, and becoming the boss scares many employees from taking this route. You are now in control of the business, so you must accept the risks and liabilities of the business. If you get it right (which can take up to six months) you will reap the rewards, but if you get it wrong you can end up with major problems (and end up going belly-up).
Unfortunately, at the present time the failure rate of small businesses is high (some say 70% go bust in the first two years). The good news, however, is that although many successful business owners failed in their first endeavours into business, they learnt from this experience and on the second or third time around achieved their objectives and rewards. Finally, thinking you are the boss, without acknowledging that the bank manager and clients/customers control your destiny, is the pathway to disaster.
Well-known financier Warren Buffet has stressed that going into business is akin to marriage, and his words of wisdom are “Don’t rush into marriage, take your time.”
Bearing this point in mind, the following factors must be considered when starting, buying and owning your own business. Bear in mind that many of these points form the basis of business failure if they are ignored.
- When in doubt, walk away. If you don’t understand the industry you are entering, don’t do it. You must understand the product/service of the business as well as the legal entity being used for the business.
- Watch the jargon and legalese used in legal documents – if you don’t understand, get clarification. Don’t sign documents when you do not understand the terms – let the signer beware.
- The essential requirements necessary for success centre around (but are not limited to) having at least: adequate capital, necessary business knowledge, sufficient resources and sound management skills.
- Be honest with yourself. Take the time to asses yourself, your business idea, capital, market and competition. Ensure that you have the right mental approach, aptitude and money to start your own business.
- Paying too much for the business, by not getting advice on how to value a small business. What is a business worth? What a buyer is prepared to pay for it and the seller is prepared to accept.
- Let the buyer beware. Understand that the seller will tell you the truth, the whole truth and anything but truth. He will dress up the business to hide vital flaws. Do your homework and check out the business carefully, with the help of professional advisers, if necessary.
- Do your due diligence. You must do your homework to understand what you are really buying. A seller will state that he has the best business in town, so – why sell the goose which lays the golden egg? Dig deep. Know what you are paying for.
- Always recognise that: cash is king, information is power, profit is sanity, turnover is vanity and the spoken word is cheap. The lesson? Get everything agreed put into writing and signed by both parties as soon as possible. Notes from meetings can be extremely valuable if a dispute arises.
- Ascertaining when you enter business who the competition is, and how long they have they been in existence. Preferably look for a niche market, but often there are many businesses in competition to you.
- Knowledge of security and putting in place the necessary preventions is a necessity. There have been substantial increases in crime in small businesses in recent times. You have a legal obligation to protect your staff, family and yourself.
- It is a reality that many owners of small businesses are guilty of some form of crime, such as tax/VAT evasion, using the business credit card for personal use, over charging for fees etc. Is it worth it? Sleep easier at night, be honest.
- Fine tune your negotiation skills. You can make or lose a lot of money depending on your negotiation skills, so negotiate everything! Let the seller put his price on the table first, and then negotiate. If you are not prepared to negotiate, you could get bulldozed into matters you had no intention of conceding.
- From a financial perspective it is necessary to –
ü Know how to earn money, to cost products, to prepare budgets, to control spending, to manage income, expenses and profit.
ü Keep to the business plan, understanding the difference between income and cash flow, picking up warning signals from cash flow and having adequate insurance. In simple terms, more must come in than goes out.
- If profits/dividends don’t cover loan repayments, you are in trouble!
- Don’t be shy to ask for advice. Even highly successful business owners have mentors.
There is no doubt that the rewards for running a business can be great, and far better than achieved as an employee. However, you must really know the risks you are taking. An important reward is that if you prudently build up a business, its value will grow and eventually you will be able to sell at a good price, and with more experience you can move into a bigger business. Alternatively, you will be better geared to expand your existing business.
You may think you are the boss, but as stated, so does the bank manager and your clients and customers. Who is right? Without clients you have no business.
Put On Your Wellies: It’s Time To Wade Into Risk
Entrepreneurs aren’t all leaping into the unknown like lemmings off a cliff, but they do need to consider it…
You’ve had a great idea. You’ve looked into its development. You’ve recognised that it has potential beyond just what Auntie Mabel and Mike From The Grocer think. And you’ve clearly nailed a pain point that can make money. Now it is time to take the risk of running with it.
Every big idea comes with risk. You can’t step out into the world of entrepreneurial thinking and business development without it. Your idea may fail. It will also be time consuming, demanding, hungry for money, and hard work. It is unrealistic to expect that your project will leap out into the world and be an unmitigated success.
It is also unrealistic to assume that it isn’t worth taking this risk.
There are steps that you can follow to ensure that your risk is managed so you aren’t blindly leaping off that cliff…
Step 01: Do your research
No, canvassing your neighbours, friends and family is not doing research. You need to know that your idea will appeal to a broad market and that it will have significant legs. This may sound like daft advice, but you would be surprised how many people think an idea will take off just because Susan in Accounting said so.
Step 02: Understand the costs
Projects are hungry for money and investment. Realistically work out your budgets and how much it will cost to take your project off the ground and then stick to it.
A calculated risk is a far better bet than one that shoots from the hip and hopes for the best. You can also use this as an opportunity to draw a clear line under where you will stop investing and end the project. If it keeps eating money and isn’t getting anywhere with results you need to be able to walk away.
Step 03: Know when to walk away
As mentioned before, this can be defined by a line you’ve drawn in the proverbial sand (and budget) but no matter where you draw this line, you have to stick to it. Often, when time, money and energy have been poured into a project it can be incredibly hard to walk away.
You think ‘but I have put so much into this, just one more’ and then it gets to a point where the ‘just one more’ has taken you so far down the line that walking away feels impossible. Leave. Learn the lessons. Apply them to your next project.
Mind The Gap
The entrepreneur’s guide to finding the gaps and building the right solutions.
Innovation may very well be the key to business success but finding the gap into which your innovative thinking can fit is often a lot harder than people realise. Some may be struck by inspiration in the shower, others by that moment of blinding insight in a meeting, however, for most people finding that big idea isn’t that simple. They want to be an entrepreneur and start their own high-growth business, but they need some ideas on how to find that big idea.
Here are five…
It sounds trite but networking is actually an excellent way of picking up on patterns and trends in conversation and business problems. The trick is to note them down and pay attention. Soon, you will find patterns emerging and ideas forming.
2. Look for pain
Just as networking can reveal trends in the market, so can spending time reading. The latter will also help you find common business pain points. These are the touchpoints that frustrate people, annoy business owners, affect productivity, or impact employee engagement.
Be the Panado that fixes these pains.
This is probably the most annoying of the ideas, but it is unfortunately (or fortunately) very true. Luck does play a role in helping you capture that big idea. However, luck isn’t just standing around and random people offering you opportunities. Luck is found at networking events, it is found in research and it is found in conversations with other entrepreneurs.
4. Luck needs courage
You may have found the big idea through your network, a pain point or pure blind luck, but if you don’t have the courage to take it and run with it, you will lose it to someone else.
Being bold in business is highly underrated because most people assume that everyone is bold and prepared to take big leaps into the unknown. However, not all brilliant entrepreneurs were ready to throw their family funds to the wind and leap into an idea – they were courageous enough to figure out a way of harnessing their ideas realistically.
5. Pay attention
This is probably one of the most vital ways of finding a gap in the market. Often, people are so busy that they don’t really pay attention to that niggling issue that always bothers them on a commute, or in a mall, or at a meeting. This niggling issue could very well be the next big business opportunity. Pay attention to it and find out if that issue can be solved with your innovative thinking.
5 Things To Know About Your “Toddler” Business
As you navigate this new toddler phase of your business, here are five things to bear in mind.
Ah, toddlers. Those irresistible bundles of joy bring a huge amount of energy, curiosity and fun to any family – but there’s also frustration and worry that comes with their unpredictability, as they grow and start to become more independent. If you own a business and it’s successfully past its “infancy” of the first year or so, it’s likely it will also go through a toddler stage of its lifecycle.
Pete Hammond, founder of luxury safari company SafariScapes, agrees with this. “Our business is now three and a half years old, and we’ve found that we’re not yet big enough to justify employing a large team of people to handle the day-to-day admin tasks, yet we still need to grow the business as well,” he says. “As a result, our main challenge is finding the time to step back and see the bigger picture. Kind of like when you are raising a busy toddler and you spend most of your time running after them!”
As you navigate this new toddler phase of your business, here are five things to bear in mind:
1. This too shall pass
Everything in life is temporary – and that goes for both the good and the bad. It’s as helpful to remember this when you’re facing the might of a toddler temper tantrum, as it is when you’re facing throws of uncertainty in your business. If your new(ish) venture is going through a rough patch in its first few years, it can be easy to think about giving up – but don’t. As long as you have an overall big idea that you believe can add value to your customers, keep pushing through the rough parts until you come out the other side.
2. Appreciate what this phase brings
The toddler years mean that the initial newborn joy is officially behind you. But these small humans also bring their own kinds of joy, as you watch them learn new skills, say funny things, and give affection back to you. While your two-year-old business may not hold the same exhilaration for you as it did during those first few months, there are now different things to appreciate about it: Maybe you’re expanding your product range, or employing new people who can take the workload off you.
3. Establish boundaries
Toddlers thrive on boundary and routine – and your toddler business will too. As it grows into a new phase, try and establish limits in terms of the type of clients you want to work with and the type of work you’ll do. It’s also a good idea to make a decision about the hours you’ll work and when you’ll switch off, which will help you establish a good work-life balance.
4. Take a break
Every parent with a toddler needs a break every now and then, even if that means a walk around the block (on your own!), a dinner out with friends, or even a few days away. The same is true for a demanding small business: every so often, remember to take time out to rest properly, where you switch off your laptop and completely unplug. You’ll return much more inspired and resilient to deal with the everyday uncertainty that it brings.
5. Give it space to make mistakes
While the unpredictability of a young business can be stressful and tiring, it’s also a time for trying new things without the risk of huge consequences if they don’t quite work. After all, it’s much simpler to change your USP if you’re a small business employing a few people, rather than a big company where 50 people are relying on you for their salary, or where you’ve received a huge amount of investment capital. While you may fail in some of the things you try with your business (in fact, this is almost guaranteed), see it as a toddler that’s resilient enough to pick itself up, dust its knees and keep moving forward.
During this phase of business growth it’s also essential to have the right type of medical aid cover. There are medical schemes such as Fedhealth which has a number of medical aid options and value-added benefits to ensure that your health and wellness is taken care of too. After all, the healthier you and your staff are, the more productive your business will be – during the toddler (business) stage and beyond.
While this phase can be frustrating, it’s a sign that your business is growing and adapting, rather than remaining in its infancy, and that can only be a good thing! So embrace the difficulties, learn from them, and watch as your business strides forward confidently into the next exciting phase.