Taking A Full-time Holiday From The Office
Sydney Morning Herald
Saturday December 11, 1999
Christmas is that time of year when people may take a few weeks off work and then conclude they really do not wish to return to the office at the end of their holiday.
The pressure of relentless hours in the corporate world and the resulting lack of control over their life may lead them to think that self-employment is a very attractive alternative.
Setting up a new business is logical if they can market their skills as a consultant, but buying an existing business may be preferable if they want to make a complete break with the corporate world and enter an area such as hospitality or retailing.
The peak periods for business sales are between February and May, and August and early November, so the New Year is a good time to start looking. However before you do, John Hibberd, a lecturer in small- to medium-enterprise management at the University of Technology, Sydney, says there are 10 questions you should ask.
1. Do you have the suitable business and personal skills to run a small business? You need energy, drive and self-confidence to make decisions, along with good people skills to motivate and lead. Personal qualities include optimism and enthusiasm, good health, family support, patience and "plain old honesty". In a new business, all these qualities can all be tested, Hibberd warns.
2. Do you understand the risks? Consider carefully the risk to your personal assets, your relationships, health and the loss of status or self-esteem if the business does not succeed.
3. Does the business idea fit your skills and experience? "Most of us minimise risk if we work with what we know from experience and personal skills," Hibberd says.
4. Does the business idea work? If so, how and why? Is it driven by the personal dynamic of the current owner? Can the drivers of the business be transferred to you as the new owner?
5. Check the current business environment. This includes general business, industry and location for the type of business you are considering buying. Is the industry changing, for example is there a shift to online buying patterns or changes in customer buying patterns? "There may also be local issues, such as the location of the business or changes in local population," Hibberd says. You should also find out what sort of competition exists, if any.
6. Check the price and basis for valuation. Investigate the price being asked, see if this represents fair value and establish exactly what the business valuation is based on (for example, this could include goodwill and a unique competitive advantage as well as cash flow).
7. What are the ongoing liabilities? Check the leases and any contracts that could be binding on you as the new owner, as these could affect future profits.
8. Get professional advice. "You should get professional advice from many sources, not just your accountant," Hibberd says. "Talk to people in the same area of business who have taken the business risk. Seek out a business consultant or mentor for those areas you are not expert in, for example, marketing. Budget to pay for good advice, as it may be the cheapest money you spend."
9. Understand the finances. You need to develop a strong personal understanding of the key financial matters that drive the business: cash flow and profit and loss. Even more important are your relationships with lenders to the business (bank and other equity owners).
10. Protect the assets of the business. "Find a professional adviser who can advise you on the protection of the assets of the business," Hibberd says. "This includes the hard assets of the premises, plant and equipment, as well as the soft assets such as staff, workers compensation, superannuation and most important the people who have taken the risk and will be the drivers of the business. You as the owner need to take advice on life insurance, disablement insurance and key person cover." Then bear in mind the three mistakes Hibberd says that prospective business purchasers most commonly make: Do not pay too much for the business. Do not let the dream that you want to be self-employed and own a small business drive you too far without taking professional advice. Do not proceed without having the necessary financial skills to run the business.
Hibberd suggests reading books on buying a business, as it will help you develop questions to put to business owners.
© 1999 Sydney Morning Herald
