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HELP 'I have £62k for first business...'

Discussion in 'General Business Forum' started by esco, Jun 5, 2010.

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  1. esco

    esco UKBF Contributor Free Member

    81 1
    I am 25 years old and through savings have £62k to my name. I live in the west midlands and have recently been made redundant. This will be my first business venture.

    I am looking to purchase a leasehold business with a proven track record, to lower my risks. I plan on using the profits from this business to obtain another business than repeat this to hopefully form a chain of business' I own. Therefore, I am not overly concerned with the type of business this is, so long as it's a nice money earner (actually this needs to be a business I can openly admit owning to my mom, i.e it is decent in its nature of business).

    I don't drink so am put off by pubs/bars.......but don't mind selling small amounts of alcohol in a newsagents with small off license for eg, so long as the primary trade of the business isn't selling alcohol.

    I am looking for relatively easy to run businesses that don't require a relatively large amount of management (as I hope to build a chain of businesses, but the don't necessarily have to in the same industry).

    I have seen some business' on websites, for eg rightbiz, but am a little sceptical as to the figures of profits etc on show. Has anyone else used this type of site? (Before I take the plunge I will speak to citizens advise bureau and make sure accountant and solicitor checks everything is ok, is this all I need to worry about?)

    I am open to suggestions people might have, as other than the internet I don't have much else of a source for advice.
    For my investment I would settle for £25k annual profits. Is this reasonable? Any help would be appreicated. :)
     
    Posted: Jun 5, 2010 By: esco Member since: Jun 5, 2010
    #1
  2. esco

    esco UKBF Contributor Free Member

    81 1
    I have seen a few business' that have caught my eye from RightBiz site but can't post links to the page as my post count is too low :(
     
    Posted: Jun 5, 2010 By: esco Member since: Jun 5, 2010
    #2
  3. Paul Norman

    Paul Norman UKBF Ace Free Member

    2,692 822
    Over the years, I have purchased either for myself, or others, about 70 businesses.

    Don't worry, I am not going to try to sell you anything.

    Buying an existing business is not risk free, but it does, obviously, come with some momentum if you get it right. And with cash to play with, you can afford the luxury of being slightly picky. So here are some tips!

    1. You can be picky. Please do so. Be very very picky
    2. When people put businesses on the market, they obviously make them look at good as possible. Ensure you go through a rigorous process of due diligence, to satisfy yourself of the following:
    a. That you fully understand the profit that has been historically made.
    b. That you fully understand the likely future profit, and how it will be affected when the business changes hands.
    c. That you fully understand the commitments the business brings, in terms of staff, supplier contracts, contingent liabilities, outstanding customer issues, reputation.
    d. That you fully understand any debts the business has for which you will be liable.

    There is much more. The best lesson I learnt in business acquisition is not to let the excitement of the potential business overtake cruel, precise business sense. There is always another deal tomorrow, and being a certain as you can be of exactly what you are taking on is vital.
     
    Posted: Jun 5, 2010 By: Paul Norman Member since: Apr 8, 2010
    #3
  4. esco

    esco UKBF Contributor Free Member

    81 1
    Of these 70 or so businesses you speak of, how many were in the £60k region? What types of businesses were they (in this price region) and what kind of profits would you expect from this amount of investment (speaking in general).

    Also, what advice would you give for ensuring I haver covered my back as much as possible? Will hiring a good accountant and solicitor be enough?
     
    Posted: Jun 5, 2010 By: esco Member since: Jun 5, 2010
    #4
  5. QuickHomeBuyers

    QuickHomeBuyers UKBF Ace Full Member

    2,217 198
    Accountant and solicitors dont run your business.

    You will need accountant to help you day to day activities accounting/bookkeeping/payroll etc. Solicitors are not required on daily basis.

    One thing I have leant, You have to take the pain yourself, nobody else will take the pain for you.
     
    Last edited: Jun 5, 2010
    Posted: Jun 5, 2010 By: QuickHomeBuyers Member since: Jan 9, 2010
    #5
  6. esco

    esco UKBF Contributor Free Member

    81 1
    Sorry, I meant making sure the balance sheets/finances and all legal aspects were ok before I went out and bought business.......for this would an account and solicitor be enough?

    And if you don't mind me asking what businesses do you own?
     
    Last edited: Jun 5, 2010
    Posted: Jun 5, 2010 By: esco Member since: Jun 5, 2010
    #6
  7. accountancyextra

    accountancyextra UKBF Enthusiast Free Member

    873 210
    You are looking for a business making £25k profit, with little owner involvement. That means you'll also need a manager to run the business on a daily basis. So if we say, by way of example, that the manager is paid £25k to look after the business, you need a business that either makes £50k a year OR is capable of getting to £50k a year within a short time frame. That is unless the manager is already being paid within the accounts.

    When you first buy the business you'll also need some of your capital left for:

    1) Any improvements to the premises/ business
    2) Marketing
    3) Your won cash living requirements for a period of time

    Do you have this in addition to the budget you mentioned in the OP?

    Once you've found a business you're interested in and have heeded the great advice in the posts above, make sure you do your own cashflow projections before buying. Lack of cash is the number one "killer" of small businesses!

    Good luck in your quest.....and take your time!!
     
    Posted: Jun 5, 2010 By: accountancyextra Member since: Dec 14, 2007
    #7
  8. esco

    esco UKBF Contributor Free Member

    81 1
    I'm not sure if I want to go down the hiring a manager road. That's why I'm looking for businesses that are relatively easy to run, like a newsagents for example. As I'm currently not employed I can work in there for 30-40 hours a week no problem, and would a newsagents really need a manager in the traditional sense, i.e. a £25k annual wage style manager.

    Of the £62k I have, most will go into attaining the business. I will than need to take out a loan if things go really bad, as otherwise I will use money from the profits as my contingency plan.......one of the reasons i want to lease an established business is to lower these risks.

    I have seen a newsagents but it's quite expensive at £92k for the lease and annual rent of £6k......the property is council owned and the lease expires in 2 years which isn't good. The net profits are aprox £50k annually. I am going to enquire to see how low the owner will go in his price for the business, but I am very tentative at the mo. Will just make enquiries.
     
    Posted: Jun 5, 2010 By: esco Member since: Jun 5, 2010
    #8
  9. Scott-Copywriter

    Scott-Copywriter UKBF Legend Full Member - Verified Business

    9,761 2,681
    Finding a business which is simple to run and turns over a nice amount is very difficult. If it was easy we would all be doing it, so you're asking an awful lot already.

    If those businesses are out there then they won't be cheap, so £62k isn't a lot of money for that.

    Also bear in mind that these businesses may not be as easy as you think. Running a Newsagents isn't as simple as sitting behind a till and giving people change. A huge amount of effort and research should be put into choosing the right premises with good footfall for a start.
     
    Last edited: Jun 5, 2010
    Posted: Jun 5, 2010 By: Scott-Copywriter Member since: May 10, 2006
    #9
  10. esco

    esco UKBF Contributor Free Member

    81 1
    I accept it won't be easy, but relatively speaking it is a fairly easily run set up which is what I'm after, I understand where you are coming from though and yes it definitely won't be a cake walk. If you can recommend an alternative business that better fits my 'business plan' than I am all ears ;)

    And one of the reasons I want to lease a business with a proven track record (averaging approx £25k annual net profits) is this allows me not to do much of the research required if this was a new venture eg worry about location, footfall etc, or in other words much of the risk is accounted for.
     
    Posted: Jun 5, 2010 By: esco Member since: Jun 5, 2010
    #10
  11. QuickHomeBuyers

    QuickHomeBuyers UKBF Ace Full Member

    2,217 198
    I have a loss making shop. I can sell that to you for only £35k

    It also has an A3, premices license to seel alchol. Basement is empty and could be let subject to L`s permission.

    It was a SPAR before. Contact for more details.
     
    Posted: Jun 5, 2010 By: QuickHomeBuyers Member since: Jan 9, 2010
    #11
  12. esco

    esco UKBF Contributor Free Member

    81 1
    As this will be my first business venture I don't feel confident I have the exp to turn the business round and make a profit, so this is not the type of business I am looking for, at this stage of my business career.
     
    Posted: Jun 5, 2010 By: esco Member since: Jun 5, 2010
    #12
  13. downsouth

    downsouth UKBF Ace Free Member

    1,067 122
    What sort of business are you looking for?

    This might help flush out some advice from the guys on here
     
    Posted: Jun 5, 2010 By: downsouth Member since: May 16, 2008
    #13
  14. esco

    esco UKBF Contributor Free Member

    81 1
    I am open minded when it comes to the type of business I'm looking for, as I tried to explain in previous posts. I am here for advise really........:)
     
    Posted: Jun 5, 2010 By: esco Member since: Jun 5, 2010
    #14
  15. Peter Bowen

    Peter Bowen UKBF Enthusiast Free Member

    853 230
    I'm reminded of a saying I've heard in similar circumstances: "When a man with money meets a man with experience the man with the experience gets the money and the many with the money gets some experience".

    Hopefully this doesn't happen.

    So, lets look at some numbers.

    You're looking for a business that earns £25 000 / year (I'm assuming that's after tax). Lets ignore your labour for the moment because if you're going to be building an empire you don't have time to be earning a minimum wage in behind your own counter.

    One way of valuing a business is by using some multiple of it's earnings - this is called a Price:Earnings ratio (or P:E for short).

    A small non-franchised retail outfit might be valued at a P:E ratio of somewhere between 2 and 6. That means that it will sell for between 2 and 6 times it's earnings before interest, tax, depreciation and amortization (EBITDAD in accountant speak).

    So, lets assume that it takes £35 000 per year to yield a £25 000 per year salary you could expect to pay somewhere between 2*£35 000 and 6 * £35 000 for the business.

    It looks like you probably don't have enough capital to buy the income stream you want right away.

    It might make sense to invest part of the capital in something that meets part of your needs and take a job to meet the remainder of your needs. That way you're getting experience without investing all your capital in one throw of the dice.
     
    Last edited: Jun 5, 2010
    Posted: Jun 5, 2010 By: Peter Bowen Member since: Jul 2, 2007
    #15
  16. ReaperGroup

    ReaperGroup UKBF Newcomer Free Member

    53 1
    Hello Esco,

    Out of curiosity, have you considered any other options?

    Rather than buying a company outright, could you go in with someone either as an active or silent partner?

    This could allow you to potentially spread your money around slightly more, with 2 or 3 smaller projects. This should allow you to gain more experience, whilst limiting the risk of losing it all whilst you are still learning.

    Karl
     
    Posted: Jun 5, 2010 By: ReaperGroup Member since: May 24, 2010
    #16
  17. QuickHomeBuyers

    QuickHomeBuyers UKBF Ace Full Member

    2,217 198
    On a serious note:

    You dont have to go for leasehold. You could also look at a freehold business worth around £206k if you can demonstrate bank to lend you on 30%+70% basis.

    You would need to browse and spend hours browsing around to make sure you understand fully and beware of sharks.

    Get rich quick exists but with great due dilligence, knowdelege and capital.
     
    Posted: Jun 5, 2010 By: QuickHomeBuyers Member since: Jan 9, 2010
    #17
  18. ivebeenstiffed

    ivebeenstiffed UKBF Newcomer Free Member

    451 65
    nail, hit and head come to mind.
     
    Posted: Jun 5, 2010 By: ivebeenstiffed Member since: Jul 22, 2008
    #18
  19. Lee Jones Jnr

    Lee Jones Jnr UKBF Newcomer Free Member

    3,751 736
    Feel free to ignore this post as nobody else seems to feel the same.

    It strikes me that you have no interest in running a business and are just trying to find a way to make a modest wage for next to no work or effort. You have no ambition and are not willing to do any research or take any risks.

    With £62k you can't afford to buy a business which makes any real money and would be much better served getting off your backside and setting up from scratch.
     
    Posted: Jun 5, 2010 By: Lee Jones Jnr Member since: Dec 6, 2009
    #19
  20. adventurelife

    adventurelife UKBF Ace Full Member

    2,040 620
    First thing is buying a business is much better than starting one in my opinion. I have done both several times and I will always go the buy route going forward.

    Pay attention to the third post on this thread from Paul it was excellent advice.

    No business is easy, all have pain attached.

    You are already thinking about buying several businesses, therefore , you calculations for the first one has to take account of a manager running it at some point as you will be buying the second business.

    The cheaper the business the more broken it normally is and harder to fix. You do not have the experience to take on a broken business so that will restrict what is available a bit.

    However, now is an excellent time to buy a business, the market is flooded with people wanting to sell and you are in the driving seat. Negotiate hard, very hard and then some.

    Do not pay for the business up front their is no need. Very few if any businesses are selling with full payment up front.

    The last two I bought I actually used the business I was buying to pay for their purchase price;)

    Consider finding a partner who also has some cash to invest but has a lot more business experience and buy together.

    Do not buy a newsagents that is going to return you £25k a year:eek: Why would you do that? You have just bought yourself a job and one that demands you are behind a counter all day everyday. If that is how much you want to earn get a job , much easier life.

    If you want to be in business get ambitious, I am not talking stupid money or dreaming about multi millions but one of the benefits of being in business is that should should earn well above average.

    Last but not least. Research, research , research do it. It pays back big time.

    I am currently looking to buy my next one so on the case most days, if you want any advice just ask.
     
    Posted: Jun 5, 2010 By: adventurelife Member since: Dec 2, 2007
    #20
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