How to find a ready-made business for sale… and work out if it will REALLY make you money
Fed-up workers face a conundrum. The jobs market is in the doldrums, limiting opportunities for jumping ship to a better role.
In light of that it’s no surprise many of us daydream of ditching the corporate ladder altogether and becoming our own boss.
According to entrepreneur organisation Enterprise Nation’s most recent StartUp Ambition report, 47 per cent of workers would like to start their own business.
But starting up from scratch is hard and fraught with risks, with half of new businesses ceasing trading within three years, according to research by credit firm Experian.
So what about choosing to buy an established business that’s already making decent profits?
It sounds expensive, but marketplace BusinessesForSale says it has seen growing demand for ready-made businesses and franchises, with enquiries rising 42 per cent over the past five years and continuing to climb.
Andrew Markou, chief executive and co-founder of BusinessesForSale, said: ’We’re seeing a clear shift in how people are approaching business ownership.
’What’s also changing is who those buyers are. Business ownership is no longer dominated by a narrow group of wealthy or serial entrepreneurs.
‘We’re seeing growing interest from younger people – including graduates struggling to get established in a tougher jobs market – as well as older professionals looking for a second act after corporate careers end earlier or more abruptly than expected.’
But while buying an existing business allows you to benefit from a firm with trading history, it is not without risks. We explain what you need to know if you’re tempted to take the leap.
Already open for business: Buying a going concern can remove some start-up risks
Buying a business vs a franchise
When it comes to buying a ready-made business, there are two main options. One is to purchase a going concern outright from its owner, another is to take on a franchise of an existing business.
A franchise involves an established business selling the right to an independent operator to use its name and products or services for a set period. It usually involves an initial one-off fee and potential starting costs, plus a share of future profits. Some famous businesses offer a franchise model in the UK, including McDonald’s, Costa Coffee and Greggs.
While buying a business outright gives you total ownership, depending on contract details, it can require substantial investment. A franchise tends to have a lower starting cost and an element of support from a larger partner.
Markou says: ’Franchising offers a compelling middle ground: the independence of running your own operation combined with the reassurance of a proven model, existing customers and structured support.’
There is also growing demand for this type of business from women. Figures from the British Franchise Association show females now make up 34 per cent of new franchisees, compared with 16 per cent 20 years ago. When asked why, 62 per cent revealed their main motivation for franchising was ’flexibility and work-life balance’.
How to buy a business
You can find a business for sale direct, perhaps by identifying a target and approaching the owners with an offer or discovering an opportunity by word of mouth.
Alternatively, you can search listings at brokers, such as Christie & Co and Chelsea Corporate, or online platforms like BusinessesForSale and RightBiz.
There are a host of different opportunities, from dental practices and pubs to data analytics firms and telecoms providers. Prospective buyers can access figures for turnover and net profit and contact the selling broker.
The cost of buying the business can vary from just £1 into the millions. However, often those businesses listed for very small sums involve simply taking on existing premises, with the requirement to pay rent and other fees.
There are businesses listed with accessible prices in the thousands. These include an ice cube and crushed ice supplier in Wiltshire with an asking price of £3,500, annual turnover of £15,000 and profit of £2,000.
Further up the scale, there is a gardening and weed control business in Wrexham, North Wales, with an asking price of £35,000, turnover of £30,000 and net profit of £10,000. Meanwhile, an Italian restaurant in Hertfordshire has an asking price of £199,950, turnover of £213,000 and profit of £81,000.
Higher value business listings may be coy on revealing financial figures publicly. For example, an established steel fabrication business in London is listed with an asking price of £1million to £5million, turnover of £1million to £5million and net profit of £250,000 to £500,000.
Franchises may also be listed on marketplaces or companies’ own websites. While some can feel expensive for a business you don’t fully own, they will usually come with a proven brand and track record. Others may be more affordable but with the trade-off of being lesser-known.
Whichever route you take, all details should be checked carefully and professional legal advice sought before you jump in.
What do you need to consider before buying a business?
Being your own boss means a significant shift in work-life balance and the reliability of income compared with being an employee. Be aware that your business could go bust and you lose all your investment.
Set out a plan for the personal and financial commitment the business will require, keep a rainy-day fund to fall back on, and be prepared for a substantial call on your time.
Tina McKenzie, policy chair at the Federation of Small Businesses, says: ’The early days in charge of a new venture can be a lot to handle, so make sure you and your family are prepared as far as possible.
‘The financial impact, especially if you’ve taken on debt to close the deal, could take a while to stabilise, so make sure that you have a plan in place for the long term, as well as for the immediate future.’
It is essential to ensure you know how to separate the wheat from the chaff when looking for a business to buy. Measure its price against both its turnover and profit and valuations for similar businesses in the same industry.
Seek the advice of those who have worked in that sector before, other business people and take advantage of the guidance your bank and business organisations offer.
To find out more read the British Business Bank's guide to business valuation.
Markou says: ’Often, the biggest mistake people make when buying a business is focusing on the romantic idea rather than the cold, hard numbers. When buying a business, start with the basics: cash flow, profit and consistency. Look at the audited accounts going back several years.’
McKenzie says it is also worth finding out why the seller is parting with their business in the first place.
She said: ’Is it that they want to retire, or has the business recently experienced a downturn in sales, or competition from a new source? Those aren’t necessarily reasons not to buy the business, as long as you go in with full awareness of the situation and are getting a fair deal.’
