The first step to buying a business is ensuring you have everything in place – not only to buy it, but to sustain it. That means cash, of course, but also time, expertise and the right market conditions.
Follow these 10 simple steps before you head to the bank…
1. Gain valuable experience in your chosen industry. It may sound simplistic but just because you enjoy drinking doesn’t mean you can run a bar; cooking doesn’t mean you can manage a restaurant; shopping doesn’t mean you can run a shop…you get the point here.
2. Don’t give up your day job! Many people walk into their bank and say ‘Right I’m ready to buy/start my business and I’ve given up my job so I can focus on this’. A better idea would be to keep your existing role and income and work evenings and weekends for as long as possible to get the business off the ground.
3. Consider whether a physical location is really required – it may be your dream to run a quaint clothes shop but ask yourself if you’re going to get the footfall required and if the rent is going to be manageable. Would starting something online first be a better approach (see point 2 – could this be something you do in your ‘free’ time?).
4. Target a specific business. The bank is not going to take you seriously unless you have a tangible proposal. While searching, keep in mind your ideal budget, size, location and annual turnover. A professional broker can be hired at this stage to begin discreet negotiations and to help with drawing up mutually agreeable terms.
5. Write a detailed business plan – this is crucial when trying to secure finance. The final plan can take up to a month of intense work – think of everything involved in your business – costs, competitors, customers, cash flow projections, risks and any collateral you may have. Make sure you present yourself well and demonstrate a clear and honest understanding of market conditions and what strategies you have for meeting challenges.
6. Get a slush fund in place. Try and ensure you have enough money in the bank to pay for essentials (rent/inventory/wages) for at least 6 months. This will give you the peace of mind that if something unexpected happens you can afford to prop the business up until it gets going again.
7. Figure out how long it will take for the business to start to make a profit and then double it. Everything will take longer than you think.
8. Be prepared for the responsibility of running your own business – especially if you plan on hiring others. Being responsible for paying other peoples wages and livelihood can cause you many sleepless nights.
9. Start looking around for support partners who will need to help you run the business. For example you’ll need an accountant to check the business plan, your cash flow projections or your actual P&L and balance sheet once you start the business. And, of course, you’ll need a solicitor to check over new or current leases and contract of sales etc.
10. Plan your exit strategy for the business from day one – your bank manager will want to know this too. Do you plan to sell the business or pass it down to a family member?
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