Selling a business | 16 min read
Buying a business can feel like an impossible task involving navigating the logistics and answering the tough questions; Will the business succeed? Do I have what it takes? Am I willing to take the financial risk?
Throw a worldwide pandemic into the mix and it might seem like the worst possible time to think about buying or selling a business.
Or so you might think. Let us introduce you to Craig and Tom who bought and sold during the Covid pandemic.
- For Craig, the pandemic changed his focus; when others turned away from his chosen industry, he saw it as an opportunity.
- For Tom on the other hand, sold his online business at the start of the pandemic to focus on a new project and was overwhelmed with the positive response he received, and is now focused on his new business venture.
Read their business journeys and their advice to others on how to identify businesses with growth opportunities, even in a Covid world.
Thinking about Buying a Business? Meet Craig
Craig had been looking for a business since 2014 after deciding running his own property business was too big a commitment to manage with his newborn son.
In 2016 he seriously started looking for a new business. After a while, he decided a franchise system might work best for him. It took years of research, negotiations and self-education, but eventually in early 2022, Craig finally purchased a gym franchise. Although an unlikely choice given the impact Covid had on the health and fitness industry, Craig is confident he’s made the right choice for him.
Can you tell us a little about yourself?
I started my career as an engineer and then went and did a trade as an electrician. I then ran my own business in property, which was good money but I didn’t enjoy it. Over time I realised that money wasn’t going to make me happy, but doing something I enjoyed would. I realised that doing something I enjoyed where I could be meeting people, learning new skills, and being part of a franchise community was really what I was after.
What attracted you to buying a franchise?
I had been a sole trader for 20 years and whilst that has its advantages, it can also be a lonely journey as you have no one to talk to about the highs and lows. That’s why I felt that a franchise would be a good option as you have a network you can build relationships with.
As a business owner there’s so many things you have to be an expert at. With a franchise, they do national marketing for me, they come up with advertising strategy and I just have to implement so it’s much easier. It gives me the support I need so I can focus on what I enjoy – meeting members and doing sales, without all the fatigue of being a sole business owner.
What initially attracted you to this particular business?
Someone once told me that if everyone’s running one way, you run the other. Everyone was turning away from health and fitness during Covid and the banks weren’t loaning on it. I had savings however so I had alternative options to fund. There were a lot of tired vendors out there willing to do a deal and so I realised it was a good area to invest in, especially as I had looked at the 2019 pre-Covid financials and knew what the business was capable of. I felt that if I maintained the status quo until things went back to normal then there would be a lot of opportunity.
What growth opportunities did you identify in the business?
I wanted a business that complied with my modelling, which included paying it off in 2.5 years, and because the previous business owner wasn’t making great choices, I could see that there were things that I could do better. For example, I could see that the biggest expense was rent, which I verified by getting a copy of the commercial lease. By doing this I could see an opportunity to reduce the rent being paid, and that would give me an immediate uplift in profit.
How did you go about buying your business?
I made sure I did my research. I researched every similar business in that industry across Australia, collected financials for each of them and compared them. This way I was able to look at revenue, come up with the percentage for what wages should be, and if there are discrepancies across the various businesses in expenses for example, I knew there was a problem.
I lost count of how many businesses I approached via SEEK Business, but in the end a broker that knew I was looking actually approached me with the business without it being listed. I got every bit of financial paperwork I could find, and checked if the business was functioning OK.
I talked to the vendor by phone, and then met them in person. My hard work definitely paid off. The vendor later said, “when you came along you were different to the rest, it was clear you’d done your research!” They were looking for a certain type of person, and I think I gelled with them.
How did you know you were ready to buy?
The biggest advantage I had was time. Having the time to invest in learning and harnessing the art of valuing a business and negotiating with sellers was key. It was just making mistakes with vendors and not repeating it with the next one.
As time went on, I became more confident. I’d put in multiple offers on a business if I was interested, and treated every investigation as a learning opportunity. Every connection or phone call helped refine my process, so that when I did find the right opportunity I could move quickly.
Negotiating the right price and the right terms was the deciding factor in my decision to proceed with the purchase. Having invested the time to research and learn as much as I could allowed me to negotiate the sale price which was far less than what it was advertised for. I think a lot of businesses fail because they bought the business for too much, they didn’t do their due diligence, and then they try to sell and they can’t get their money back.
What was the initial process like?
Building a relationship with the seller and making a good first impression is really important. I always try to meet with the seller as it’s a good indicator that you’re serious. They’re more likely to sell to someone they like and it also makes it easier to negotiate so investing in building the relationship is key. In this case, I met with the seller even though I wasn’t convinced this was the business for me, but as it turned out I ended up buying it.
Another thing I did is make sure I talked on the phone and didn’t just rely on email. As a result I got along well with the seller so when there were hiccups – which inevitably there were – the good will had already been established so sorting out any problems was less challenging.
What questions did you ask of vendors to help you evaluate a business?
- My favourite question is to ask how did you value the business? Don’t be afraid to ask them to justify the asking price.
- Ask for all the financials: For example, P&Ls, franchise fees (verifiable in agreements), ATO integrated tax account, BAS statements
- Query the financials: For example, if you have P&Ls for similar businesses, and expenses are different, ask them why?
- Ask about the seller: If liaising with a broker, ask them to tell you about the seller. In my experience, If the seller has a bunch of other businesses, then you know that they most likely don’t work in the business. If the seller is a mum and dad business and it’s their only business – you can almost guarantee they’re working in the business.
- Negotiate your terms: If buying a franchise, ask that the sale agreement be subject to the franchise agreement. This is because when you become a new franchise your commercial terms are different to the existing one. If you do your modelling based on the existing owner’s commercial terms and then your terms are different, then your modelling is wrong and it could mean that your profit would be different and your payback period longer.
What red flags would you recommend buyers look out for?
- Look out for undeclared wages. It makes the business look more profitable if the owner isn’t paying themselves for the hours they put in. The only way to challenge this is to have a benchmark of what other businesses are doing.
- Sometimes sellers advertise a higher price tag than they want. If buyers don’t do their own research to understand the value of the business, they could end up paying too much. That’s why it’s really important to know how to understand the financial data.
What are your other top tips for prospective buyers?
- Be the gatekeeper. Ask lots of questions of the professionals and learn how to do the initial audit, and when you’ve narrowed your search down, you can hand it over to the accountant.
- Learn how to audit the financial reports. I initially met with an accountant and asked them to show me what they do so that I could copy it and do it myself. If you don’t do it yourself, you may find yourself paying thousands of dollars to an accountant to do it for you, which most people don’t have the luxury of doing. If you’re looking at multiple businesses and the sale doesn’t proceed, you’ll end up wasting a lot of money.
- Read and double check your advisor’s work. Mistakes sometimes occur, even when you’re paying a professional to do it for you. You still need to double check everything, otherwise you’re the one that could be impacted by an error in a legally binding multi-year agreement.
- Don’t be afraid to ask awkward questions. No matter how trivial, don’t be afraid to ask. And if the broker or vendor isn’t willing to answer them, trust your gut.
- Gather as much information as possible. Ask for, collate and compare financials for similar businesses and see if there are any discrepancies.
- Understand the lifecycle of the business. Just because they have been successful in the past doesn’t mean they will continue to be successful.
Selling a business privately? Meet Tom
Tom is a seasoned business owner, having owned a number of different online and e-commerce businesses over the last 12 years.
In early 2020, he decided it was time to sell his business, Breeze Mobility, an ecommerce dropshipping company that sells mobility assistance devices and equipment, which he had been running for the last 18 months. We spoke to Tom about what attracted him to this business and his experience in selling it through SEEK Business.
Can you tell us a little about yourself?
I’ve got a background in digital marketing and have bought other online businesses before too. I have experience in purchasing businesses, building it up for a couple of years and then when it get to a certain point, such as when I lose interest or feel that someone else could take it to the next level, I sell it. I’ve got a young family and that’s one of the reasons I like online businesses as it allows flexibility and the ability to travel.
I sold my last online business in 2020 at the start of the pandemic as I wanted to take time out. I had a 3 month break and then acquired an established lighting store, Discount Lighting, as my next project.
What initially attracted you to this business?
I was attracted to Breeze Mobility because it had been a very small ecommerce business for a couple of years with most of the sales online. I saw an opportunity with the business to not only work with customers but bigger clients that would order on behalf of others, such as aged care or people with disabilities.
The owner before hadn’t done much with the business, so I saw it as an opportunity to expand, especially being an interesting industry with the availability of the National Disability Insurance Scheme, so I felt it was a good industry for growth but also one where you can help people.
How did you grow the business?
I grew the business by improving online sales, website, and by working with suppliers. I also ended up working directly with suppliers in China to import smaller high selling products. I set up distribution networks through channels like Amazon where they would hold and fulfil the orders for you.
Why do you think this business was so attractive to buyers?
I think this kind of business is attractive to buyers as it’s very unique. Because around 90% of the products were dropshipped directly to the customer and most issues were dealt with by the suppliers, it was very hands off. You don’t have to deal with inventory, don’t have to have fund inventory, and it’s very hands off in terms of providing customer assistance and the like.
The business also came with one customer service person who stayed on so they were already familiar with how things worked, which makes it easier for the new buyer.
What made you realise you were ready to sell your business?
I was really busy with another project, and didn’t have enough time or energy to put into Breeze Mobility. I could see the growth potential of the business, and rather than let it sit there I thought someone could put some fresh energy into it.
How did you go about selling your business?
I gathered up my documentation. I usually enjoy selling myself as I get to know the buyer, understand the ins and out of the business, and have control over the process. Plus I don’t have to pay any commissions! So when I was ready, I listed it on SEEK Business.”
What was the initial process like?
I was blown away with how much interest and demand there was for it. I received dozens of enquiries within the first week. Because the first person was so keen, I didn’t really follow up with other people.
What impressed you about the buyer you sold the business to?
Really it was because he was so keen. He flew interstate to meet me, which I was quite impressed by considering it was right at the start of Covid. We only met in the airport before he flew home again. This really impressed me and showed me that he was serious. He was also willing to pay the asking price, so that always helps.
What information did you share with prospective buyers up front?
In terms of what I was willing to share upfront, I didn’t want to make the business name available until potential buyers had signed a confidentiality agreement. However, I wanted to provide them with information that would help them understand if this could potentially be a good fit for their budget and skills.
What I shared up front:
So I included things such as asking price, average monthly profits, industry and types of products being sold, how long it takes to manage, and opportunities for growth.
What I shared later:
After the interested parties signed the confidentiality agreement, I was happy to share sensitive business information (including profit and loss). We met in person and discussed the business, and they confirmed they were still keen to purchase it.
What I shared once offer accepted:
After I accepted the offer, I was happy to share full financial documents to verify claimed revenue / expenses as part of the buyer’s due diligence. After he’d completed his due diligence, the deal was done.”
What red flags would you recommend buyers look out for?
I always like to talk to the owner, even if it’s being sold through a broker, because it’s easier to be clever with the truth when dealing with a broker. For example, the broker might say that the owner spends 5 hours in the business but when you dig a bit deeper you realise it’s actually much more than that. This is really important as it helps me calculate how much time I will need to invest in the business.
What are your other top tips for potential buyers?
Assess what online marketing the business is undertaking:
Before I buy I use different tools from an online perspective to understand what marketing the business is undertaking, if any. Things like the volume of traffic to their website, different keywords and their rankings, and therefore what opportunities there are to improve.
Build a relationship with the seller:
It can take a while to get to the final settlement, and inevitably things will come up that you need to resolve together. If you start from a place of liking, respecting and trusting each other, you’ll be able to work through any issues and make sure the deal goes through.
Ask seller questions directly:
For me, it’s important to ask the seller questions directly – either by phone or in person. Brokers might not like it, but you get a much better insight into the business. You can work out pretty quickly if you trust the vendor, and you understand more about their motivations. Often, you’ll also pick up some insights which will help in your decision making.
I also lack patience and like things to move quickly (as my partner will agree with!) and inevitably the purchase will take longer than you expect. It’s important to allow for this and let the process take its course!
Still having doubts?
If you’re thinking of buying a business, I’d say go for it. It saves you time, risk and probably money in the long run. You can focus your time and energy on growing a business which is already making money.
And it can change your life – I love the flexibility of being my own boss. I genuinely don’t think I could work for anyone else now!”
Keen to follow in the successful footsteps of Craig and Tom? Take a look at the opportunities out there right now and search for businesses today.
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