Where to start?
Discussion
Apologies if this is an often asked question but it’s my first time venturing into this part of the forum and the first time I’ve considered buying a business
Question - before I go down the Google rabbit hole, any recommendations on what resources to read / people to engage with for someone looking to buy their first business
Background - I’ve always been an employee and was recently made redundant. The intention was to retire but I’ve seen a business for sale which has piqued my interest. I genuinely have no idea where to start the process though
It’s value is c£1m which includes a house - I’m not sure if that complicate things or not
I’d need to finance the purchase - I have 500k to ‘invest’
Obviously a big decision so I’d need to sell proper advice and guidance before pushing ahead.
Any suggestions welcome
Question - before I go down the Google rabbit hole, any recommendations on what resources to read / people to engage with for someone looking to buy their first business
Background - I’ve always been an employee and was recently made redundant. The intention was to retire but I’ve seen a business for sale which has piqued my interest. I genuinely have no idea where to start the process though
It’s value is c£1m which includes a house - I’m not sure if that complicate things or not
I’d need to finance the purchase - I have 500k to ‘invest’
Obviously a big decision so I’d need to sell proper advice and guidance before pushing ahead.
Any suggestions welcome
Offer to work for free in the business, for a minimum of 6 months prior to making a decision. Especially if it's something that you have never done previously. A lot of business's look "easy" from the outside, it's not until you're up close and personal, that you see the amount of graft involved.
You would then obviously need to have their books audited, and understand the valuation of the business, is it s figure the person / company just came up with, or is it based on backlog, profitability, customer base, valuation of the property? Does the business, need to be at that location, could it be moved to a cheaper property location?
You would then obviously need to have their books audited, and understand the valuation of the business, is it s figure the person / company just came up with, or is it based on backlog, profitability, customer base, valuation of the property? Does the business, need to be at that location, could it be moved to a cheaper property location?
Thanks
There is a long established manager in the business who would stay and run things. The current owner does very little business wise now and is looking to sell following her husband passing away.
I’d ideally like to try to grow the business a little as it’s only open 8 months off the year when typically other businesses of the same nature open year round. I’d also look to market it better than currently to try to expand the current loyal base it has. I have a few connections in the business and marketing space.
That said, I have no idea who to get a second opinion from on the business (financials and the model etc) - from a quick look at the books with an accountant friend things look very healthy but a lot of money to risk if I get it wrong hence the caution
There is a long established manager in the business who would stay and run things. The current owner does very little business wise now and is looking to sell following her husband passing away.
I’d ideally like to try to grow the business a little as it’s only open 8 months off the year when typically other businesses of the same nature open year round. I’d also look to market it better than currently to try to expand the current loyal base it has. I have a few connections in the business and marketing space.
That said, I have no idea who to get a second opinion from on the business (financials and the model etc) - from a quick look at the books with an accountant friend things look very healthy but a lot of money to risk if I get it wrong hence the caution
Good advice from Shake&Bake.
It’s also good that the incumbent manager is staying. You would do well to have some beer time with them to understand things from their perspective... and to establish that they will be staying.
You also need to assess how intrinsic the current owner is to the company. Are people buying from ‘her’ or from the business?
Hire an accountant to undertake due-diligence. This will highlight all liabilities and establish the true value of the business. If you don’t know any accountants, hunt around, look for recommendations... there’s plenty about so try to pick one that has experience in this.
Other than that, it boils down to the length of time it will take to get your £500k and projected returns weighed against other less risky investments.
HTH
It’s also good that the incumbent manager is staying. You would do well to have some beer time with them to understand things from their perspective... and to establish that they will be staying.
You also need to assess how intrinsic the current owner is to the company. Are people buying from ‘her’ or from the business?
Hire an accountant to undertake due-diligence. This will highlight all liabilities and establish the true value of the business. If you don’t know any accountants, hunt around, look for recommendations... there’s plenty about so try to pick one that has experience in this.
Other than that, it boils down to the length of time it will take to get your £500k and projected returns weighed against other less risky investments.
HTH
StevieBee said:
It’s also good that the incumbent manager is staying.
Not necessarily!If the current owner has been “hands off” for some time, there’s a reasonable chance that the manager, having free run of the business, sees it as their business. Could mean that a reasonable amount of the value, and the ability to change things, is dependent on this person who may/may not have been having an easy ride, could be taking the piss in some way, may be resistant to change of style or ownership, or have the potential to negatively impact the business if they leave.
You also need to be thinking about why the manager can’t/doesn’t want to buy the business.
If the purchase rationale depends on going from 8mths operation to 12 then that’s probably also accompanied by a significant uptick in work for the manager, in which case expect demands for increased pay that also needs to be taken into account. Even if you offer more money the ability to achieve this may depend on the current manager who could say no?
An accountant may be able to diligence the books but be wary about trying to outsource too much to them (and don’t forget to check for any activities “off the books” too!). I would suggest that when it comes to understanding business operations or the marker forces affecting a specific business they may not always be the best choice
I’d start by trying to understand why the business works, what the market is, and what it’s competition looks like. If there isn’t any then ask yourself why not. If the business you’re buying is quite different in size/structure/operations/profitability to others in the market then again try to figure out why. If you’re looking at scaling up then getting an understanding of factors such as available unused capacity within the business and the points at which you see step changes in cost (for example, going from 8-12mths operation might require more equipment or people).
When it comes to the value of the business, think about what the £500k actually buys you. If it’s “goodwill” or access to existing customer base then think carefully about what that’s actually worth, whether those customers will actually stick around, or whether they might be poached (either by someone else, or you, setting up in competition).
The other big thing to consider is what your risk exposure actually is and how you de-risk. What’s your get-out route if it doesn’t work?
Obviously that’s not an exhaustive list but hopefully gives some pointers.
Thanks all for the responses
The business I’ve been looking at is dog kennels
It’s well established and well rated. There is a lot of demand in the current location and I’d guess given the amount of dogs people now have post covid there is a growing demand. I’ve no idea why they only open for 8 months - others seem to open year round
There is the potential to expand the months opened plus the potential to push the day care more - it’s on a great commuter route so this could be an attractive proposition
The existing manager is still quite young and wants to stay on. Obviously if there was expansion they would need additional support
The business I’d be buying is the kennels plus a residential house - I’d need to look more at this to see how much the house is worth but it looks a substantial home
I’ve got a further viewing planned and now have my head round the business a bit more plus areas I need to investigate
Thanks again all
DSLiverpool - given the nature of the business is this something you still feel would be worthwhile having a conversation about?
The business I’ve been looking at is dog kennels
It’s well established and well rated. There is a lot of demand in the current location and I’d guess given the amount of dogs people now have post covid there is a growing demand. I’ve no idea why they only open for 8 months - others seem to open year round
There is the potential to expand the months opened plus the potential to push the day care more - it’s on a great commuter route so this could be an attractive proposition
The existing manager is still quite young and wants to stay on. Obviously if there was expansion they would need additional support
The business I’d be buying is the kennels plus a residential house - I’d need to look more at this to see how much the house is worth but it looks a substantial home
I’ve got a further viewing planned and now have my head round the business a bit more plus areas I need to investigate
Thanks again all
DSLiverpool - given the nature of the business is this something you still feel would be worthwhile having a conversation about?
The only help you need is to talk through the actual potential. If it’s declining - why? The most crucial metric is repeat customers, analyse this and that’ll tell you if it’s viable as is.
If low repeat customers it’s a bit crap, find out why.
How bigs the opted in client database? Send them a survey.
This is so logically linear it writes itself.
I could help you sanity check the lead generation (pun intended) and marketing and look at added value services or products you could bring in.
If low repeat customers it’s a bit crap, find out why.
How bigs the opted in client database? Send them a survey.
This is so logically linear it writes itself.
I could help you sanity check the lead generation (pun intended) and marketing and look at added value services or products you could bring in.
quote=CAH706]
The business I’d be buying is the kennels plus a residential house - I’d need to look more at this to see how much the house is worth but it looks a substantial home
[/quote]
Make sure you take into account the kennels when valuing the house - kennels are, or can perceived to be, noisy. That holds back value of nearby residential property… however if the value impairment is significant vs the same house with no kennels next door then that can help with your risk evaluation.
You may also find there are planning restrictions associated with the kennels that already apply and/or that near neighbours may object if you want to expand. As a result don’t assume you can necessarily increase capacity if you want to do anything that requires further planning permissions. Also, if it’s small today, don’t forget about business rates if you go larger (you probably don’t want to just tip over into the zone where exemptions are no longer available). This could impact how much you want to expand directly vs letting off space to other complementary businesses (for example, if you have space then think about whether letting some off to a dog groomer is better than directly adding dog grooming to the business).
You probably know already, but kennels need licenses so (in addition to all the usual stuff) it’s worth checking on status/issues as you won’t want problems at renewal time.
I’d normally agree with DSL that repeat customers would be a good metric to use but there are a couple of realities you can expect to be associated with this sort of business, namely that small scale operations won’t have felt much need for systems (or even websites!) so you’ll most likely get “finger in the air” estimates than having a big dataset to run at.
It will probably be easier (and arguably more useful) to start by looking at historic bookings vs capacity and, especially if running near to full, try to get a bit of an understanding of how much business gets turned away. Then start trying to drill down into repeat custom, their systems, etc. I say this because with this sort of business, if you start from the position of assuming they’re data/online/marketing savvy, there is a very real risk of embarrassing and alienating the current owner/manager who probably isn’t wired that way. (Based on a few similar businesses I know, people don’t generally go into animal care because they’re techie/marketing focussed, instead the businesses often start as sidelines or small businesses and then grow to a level the owner is comfortable with or fails to grow further around the point they start to struggle with size/admin/etc - systems don’t really feature much in their thinking.)
None of that should be interpreted as suggesting that more advanced marketing can’t help if you’re looking to increase size/utilisation/margins.
COVID will almost certainly have hammered this sort of business too, but the unknown rate at which business will return could work to your advantage when agreeing a price, especially if the owner wants to get out before the world stabilises fully.
The business I’d be buying is the kennels plus a residential house - I’d need to look more at this to see how much the house is worth but it looks a substantial home
[/quote]
Make sure you take into account the kennels when valuing the house - kennels are, or can perceived to be, noisy. That holds back value of nearby residential property… however if the value impairment is significant vs the same house with no kennels next door then that can help with your risk evaluation.
You may also find there are planning restrictions associated with the kennels that already apply and/or that near neighbours may object if you want to expand. As a result don’t assume you can necessarily increase capacity if you want to do anything that requires further planning permissions. Also, if it’s small today, don’t forget about business rates if you go larger (you probably don’t want to just tip over into the zone where exemptions are no longer available). This could impact how much you want to expand directly vs letting off space to other complementary businesses (for example, if you have space then think about whether letting some off to a dog groomer is better than directly adding dog grooming to the business).
You probably know already, but kennels need licenses so (in addition to all the usual stuff) it’s worth checking on status/issues as you won’t want problems at renewal time.
I’d normally agree with DSL that repeat customers would be a good metric to use but there are a couple of realities you can expect to be associated with this sort of business, namely that small scale operations won’t have felt much need for systems (or even websites!) so you’ll most likely get “finger in the air” estimates than having a big dataset to run at.
It will probably be easier (and arguably more useful) to start by looking at historic bookings vs capacity and, especially if running near to full, try to get a bit of an understanding of how much business gets turned away. Then start trying to drill down into repeat custom, their systems, etc. I say this because with this sort of business, if you start from the position of assuming they’re data/online/marketing savvy, there is a very real risk of embarrassing and alienating the current owner/manager who probably isn’t wired that way. (Based on a few similar businesses I know, people don’t generally go into animal care because they’re techie/marketing focussed, instead the businesses often start as sidelines or small businesses and then grow to a level the owner is comfortable with or fails to grow further around the point they start to struggle with size/admin/etc - systems don’t really feature much in their thinking.)
None of that should be interpreted as suggesting that more advanced marketing can’t help if you’re looking to increase size/utilisation/margins.
COVID will almost certainly have hammered this sort of business too, but the unknown rate at which business will return could work to your advantage when agreeing a price, especially if the owner wants to get out before the world stabilises fully.
DSLiverpool said:
The only help you need is to talk through the actual potential. If it’s declining - why? The most crucial metric is repeat customers, analyse this and that’ll tell you if it’s viable as is.
If low repeat customers it’s a bit crap, find out why.
It's a good point. Maybe the current owner has lost interest so customer service or some other detail has declined.If low repeat customers it’s a bit crap, find out why.
Can you cope if the existing member of staff leaves? Can you look after/feed/walk X dogs on your own? Consider what else can go wrong.
All else being equal I might expect demand to pick up next year as more people fly overseas rather than stay in the UK.
DSLiverpool said:
and look at added value services or products you could bring in.
Grooming?Edited by Simpo Two on Sunday 3rd October 10:07
Thanks all for the comments and suggestions- some really helpful stuff in there
A few comments
Ref the house - the idea would be we would live there whilst we had the business. I’d have no idea on a valuation whilst the kennels were there though…if they were not there the house would be £500k plus (5 bed and 4 acres of land) in a rural but nice accessible location
Ref reason for sale - the lady has had (started) the business for 15 years. She is now widowed and well into her 60’s. I don’t think there are any hidden reasons for the sale. The financials look good and I know demand in the area typically exceeds capacity.
Ref the current manager - my main concern is that she left. I could become more hands on but I ideally don’t want to do this. It’s the main reason holding me back as a replacement would be hard to sort.
Ref potential - opening up more would help as would possibly offering grooming. There is the potential to offer more day care - this would be pretty easy as it’s on (close) to a great commuter route
The business is council approved and covers as many dogs and cats as I’d like to have - expansion wouldn’t be in size , more utilisation of time and selected services
Online reviews are good and I know people who use the kennel
Outside the concern over staffing , I guess I’m nervous at putting cash into a business when financially I’m ok.
Thanks again to everyone who has taken the time to reply with some great thoughts/considerations etc
A few comments
Ref the house - the idea would be we would live there whilst we had the business. I’d have no idea on a valuation whilst the kennels were there though…if they were not there the house would be £500k plus (5 bed and 4 acres of land) in a rural but nice accessible location
Ref reason for sale - the lady has had (started) the business for 15 years. She is now widowed and well into her 60’s. I don’t think there are any hidden reasons for the sale. The financials look good and I know demand in the area typically exceeds capacity.
Ref the current manager - my main concern is that she left. I could become more hands on but I ideally don’t want to do this. It’s the main reason holding me back as a replacement would be hard to sort.
Ref potential - opening up more would help as would possibly offering grooming. There is the potential to offer more day care - this would be pretty easy as it’s on (close) to a great commuter route
The business is council approved and covers as many dogs and cats as I’d like to have - expansion wouldn’t be in size , more utilisation of time and selected services
Online reviews are good and I know people who use the kennel
Outside the concern over staffing , I guess I’m nervous at putting cash into a business when financially I’m ok.
Thanks again to everyone who has taken the time to reply with some great thoughts/considerations etc
CAH706 said:
Outside the concern over staffing , I guess I’m nervous at putting cash into a business when financially I’m ok.
Well don't then!Normally, I would say to have the owner carry the loan. Give her 10-20% down. Agree that you'll take a minimum salary and then pay off the rest out of the profit. Note not revenue but profit.
I'm more concerned about the numbers you're talking about however and even if you can get the owner to carry the loan on the above arrangements, What is the property valued at (get it professionally valued)? If your £500k number is accurate, I would think that for a kennels business to be worth £500k it would have to be an extremely large operation. I can't imagine the multiplier for a kennels business would be that high?
Are the kennels constructed and kept to a satisfactory condition to be approved by DEFRA (apparently at least 30% of the kennels in the UK are not). Maybe see if you could get DEFRA to inspect for you?
What age are the kennel structures and how much will they cost to replace when they become dilapidated and does the business income support that investment over time?
What is the net profit each year after paying all wages and putting aside money for capital expenses?
What's your contingency plan if the main employee decides he doesn't like your management style and doesn't like the new additional pressure you're putting on him? Is there an opportunity for him to buy in to a small %age and keep him invested that way?
Finally, if you have a full time manager to run the business, why do you want to live on site with kennels?
No particular order to the above, just a stream of thoughts.
Thanks again all
I’m not sure of the house value. I would guess at £500k plus. It’s 5 bed and 4 acres of land in a nice but isolated rural location. At the right price I’d be interested in the house! Knowing the area it would be unlikely to under £500k but could be anything upwards from that. I’ll find out more as I dig into the business.
I’m not looking to be fully hands on in any business I potentially take on - I left my last job to take things easier
I think the last post nails it really as why take the risk when I don’t have to
It has piqued my interest though so I’ll look into it more before I rule it out altogether
I’m not sure of the house value. I would guess at £500k plus. It’s 5 bed and 4 acres of land in a nice but isolated rural location. At the right price I’d be interested in the house! Knowing the area it would be unlikely to under £500k but could be anything upwards from that. I’ll find out more as I dig into the business.
I’m not looking to be fully hands on in any business I potentially take on - I left my last job to take things easier
I think the last post nails it really as why take the risk when I don’t have to
It has piqued my interest though so I’ll look into it more before I rule it out altogether
I was talking with someone selling a cattery (house and business combined) , but those that have been interested in purchasing are are having problems with regards to how the business is set up and getting an approved mortgage.
Would be worth looking at how you this business is set up and how easy it will be to finance the remaining money.
Not much help and maybe something you have looked in to or doesn't even affect you based on your personal finances.
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