Qualities to look for when acquiring an established business

Perhaps one of the most important career choices you will ever make is whether to work for a company or start your own business. Working for yourself and managing your business might sound ideal, but it can also be very risky. More importantly, it requires a great business idea, something not all of us can […]

Perhaps one of the most important career choices you will ever make is whether to work for a company or start your own business. Working for yourself and managing your business might sound ideal, but it can also be very risky. More importantly, it requires a great business idea, something not all of us can come up with.

But there is another option; something one of my acquaintances always chooses, and that is buying and taking over the reins of an existing business. This is also referred to as entrepreneurship through acquisition.

Think about it. Say you hear that your favourite store is up for sale because the owner has to leave the country. It already has existing clients, and has a steady income. Imagine if you could start managing it next week if all goes well.

In the case of my acquaintance, she acquires businesses that are not only profitable, but have a long-term sustainable source of income and, of course, a good customer base.

Her business portfolio includes a number of businesses she has acquired over the years, none of which she started on her own. She did not want the hassle and would rather purchase something that is already doing well and then be able to enhance it. For example, she bought a small takeout restaurant that has been in Abu Dhabi for more than 20 years. By buying an existing business, it helped her secure funding when she approached lenders to push through the purchase.

Yes, she tweaked the business model here and there, but there were no major changes that would negatively affect her clients’ purchasing habits.

Although some of her friends have encouraged her to invest in emerging high-tech companies, or app developers – concepts that could potentially provide high returns – she has stuck to what she knows. To her, acquiring stable businesses with a solid income history may seem boring to some – especially those who are after the profit margins that tech start-ups can deliver – but it works for her. This is because the companies she acquires have the following characteristics which make them profitable over a long period of time:

Returning customers

When managing a business, it does not matter how much you expand it if you do not have a strong base of recurring customers. This is one of the key elements my acquaintance considers. To her, what makes a great business is one that is able to retain a number of loyal customers who return over and over again. Before she purchased the small takeout restaurant, she spent a large chunk of time analysing its customer base. She concluded that most have visited the outlet for years with their children, and when their children grew up and started their own families, they would also visit. The restaurant is a favoured location for many people in Abu Dhabi. Although many other restaurants have sprung up nearby, its clients have stayed faithful. In a market, where customers are easily bored and always on the hunt for the latest trends, that level of stability was extremely important to my acquaintance.

They are established and have a steady growth

Fast growth sounds good, but it does not come without risk. A company that is newly established and has an original concept always attracts competitors, and those who would like to take advantage of the opportunity this new market represents. When a company is established, however, growth is slower and so is risk. This allows adequate time to analyse your company, understand your customers and what they like or dislike, and enough leeway to develop new products or fine-tune existing ones.

Entrepreneurship is a process where you never really know how things will turn out. Your idea could be great, but your customers may not be ready for it yet. It is also a lengthy process that involves a wide variety of skills from identifying a good product, sourcing the right staff, finding the best lending option, identifying your clients, marketing and much more.

Buying an existing company, however, is not risk-free either but it does offer some guarantees and gives you enough time to focus on product enhancement and growth.

The most important thing is that you would still be your own boss, and would also enjoy some level of certainty regarding profits and clients.

Manar Al Hinai is an award-winning Emirati writer and communications consultant based in Abu Dhabi. Twitter: @manar_alhinai.

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Source: Business

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