Veechi Curtis - Small Business for Dummies

You may be feeling a little muddled as to how the concepts of strategic advantage, competitor analysis and competitive strategy interrelate.

But interrelate they do, with each concept triggering off one another. As shown in Figure 2-1, the process of identifying your strategic advantage, comparing yourself against competitors and choosing a competitive strategy is a continuous cycle of honing your business idea.

The trick for you is to pick a competitive strategy (focusing on cost, differentiation or a particular niche) that complements both your strategic advantage and any opportunities you’ve identified in the competitive landscape.

FIGURE 2-1:Using your strategic advantage, competitor analysis and competitive strategy to continually improve your business idea.

Understanding what your business can do better or differently (including defining your strategic advantage, analysing your competitors and selecting a competitive strategy) is key to business success.

Are you ready to take the challenge? Imagine you’re stuck in an elevator and someone has just asked you what your business is all about. You reckon you have about 30 seconds to convey what your business concept is, what you do, and what makes you so damned special.

Click the Record button on your computer or smartphone, have a quick look at the clock, and record your reply in 30 seconds or less. Tick, tick, tick … stop. How did you go? Listen back and rate yourself out of 10.

Did you remember to include your name, your business name, what you do that helps others, and what makes your business different from others?

This 30-second ‘elevator pitch’ is surprisingly demanding. In this first stage of getting your business off the ground, keep in mind that practice makes perfect. Say your speech aloud when you get in the shower, turn the ignition of your car, or make yourself a cup of tea. Your family may think you’re a little bit potty, but that’s a small price to pay.

Chapter 3

IN THIS CHAPTER

Buying your own business — the good, the bad and the ugly

Doing your research and asking the right questions

Determining how much a business is worth

Working through a business purchase checklist

Understanding the pros and cons of joining a franchise

Doing your homework before signing the dotted line

Iam often torn when people ask me whether I recommend they buy a business or start one from scratch — or perhaps consider a franchise.

One of the trickiest questions, if considering whether to buy a business, is figuring out how much a business is worth. Occasionally, business owners are prepared to sell their business for a song, especially if they’re seeking a quick sale. More often, owners overvalue their businesses, and the unwary buyer can end up paying far too much.

Another challenge is weighing up the risks involved. On the one hand, buying a business involves a greater financial risk in the short term because you have to pay for goodwill. On the other hand, the long-term risk is probably less, because (hopefully!) you’re buying a business with a winning formula and long-term security.

One of the alternatives to buying an established business is to join a franchise. When you join a franchise, you’re not just buying a business; rather, you’re becoming part of a proven system that works. Along with this system, you’re also buying a recognised brand name and established reputation. This option is generally the most expensive up-front, but arguably carries the lowest risks.

In this chapter, I provide a summary of the pros and cons of buying a business versus starting from scratch versus joining a franchise. I also help you figure out how much to pay for a business, and provide checklists of the questions you should ask before buying a business or a franchise.

Just like marriage, having children and getting old, buying a business (as opposed to starting a business from scratch) has its advantages and disadvantages. However, by going into negotiations with your eyes open, you can often minimise the disadvantages and seal a winning deal.

Don’t get tempted to buy a business just because something is selling for a bargain price. Instead, match your own needs, skills and experience against what’s on offer.

So, what’s the lowdown on buying a business that’s already up and running? The best things are

You can look at the financial records for this business and know roughly what to expect: Although the financial records of the past are never a cast-iron prediction for the future, they’re usually a good indication.

Existing businesses come with established customer and supplier relationships: Customers are the gold nuggets of any business and so, by buying an existing business, you get your very own pot of gold. Existing supplier relationships are also a valuable resource that allow you to conduct your business in the most efficient and reliable way.

You’re (hopefully) buying something that works: If the business you’re thinking of buying is profitable, chances are the owners have arrived at a formula that works. This formula probably has several ingredients such as good staff, solid management, established premises and (if relevant to the business) stock lines that sell.

You can make money from day one: If you want instant sales and instant profit, buying a business — as opposed to starting a business from scratch — is the way to go.

You can sometimes score a bargain: It’s true! If a businessperson has had enough of running the business and wants to sell up, occasionally the asking price is very reasonable. You may find a business owner so desperate to get out that they ask for nothing for goodwill and, instead, ask only for the value of the business assets.

So, what are the possible pitfalls of buying an existing business? Consider the following:

You have to pay for goodwill: Not only does paying for goodwill chew up precious capital but many business owners also overestimate the worth of their business, meaning that you risk paying too much. (Don’t worry, I talk about business valuation methods in the section ‘ Valuing an Existing Business’, later in this chapter.)