I had an interesting conversation with someone who was referred to me by a former client. This young man had been very successful in his career for the past decade with a track record of promotions. But something was causing him to consider other options because he didn’t want the job his manager’s supervisor had. To him, that job seemed too political, focused on consensus building, and would take him out of the financial analysis and people management parts of his role that he loved.
Since he was coming out of a leading fintech company, I assumed he wanted to be a business consultant or build his own app, but that was not the case.
Instead, he wanted to talk through other options, and specifically what buying an “unsexy” business like a plumbing service or HVAC repair company might look like. He was excited about getting his hands in all aspects of the business – financial analysis, operations, hiring, payroll, etc.
I reminded him that the good technicians who started and grew these kinds of businesses probably didn’t have the technology and processes in place that he might expect, and there would not be the kind of technical support that he was used to at an enterprise organization. He had thought of that and seemed fine with it.
The obvious benefits of buying a successful existing business include a tried and proven business concept, a current client base, and potentially recurring revenue (depending on how the services are packaged).
Another big pro for buying an existing business would be that you would significantly reduce startup time. You would be jumping in feet first from day one.
Getting any necessary financing might be easier because the business is established and (hopefully) has a solid financial history.
You might also have existing employees who are trained and, hopefully, known and liked by current customers.
What I stressed on the cons side was performing all of the due diligence necessary, or he could walk into a hot mess and not know it.
There could be angry customers or undefined processes or a reliance on the founder for all the information because they didn’t share it with employees, or leverage technology to capture the knowledge.
Key person risk would definitely be something to keep an eye out for.
My prospect was thinking the founder would be exiting the business, but I could see that he might want to have a runway of 6-18 months where the founder would still be involved to smooth the transition internally and in the local area. He lived in a small town, so he would benefit from keeping the good aspects of the business as much the same as possible.
I suggested the founder might be happy with an investment of capital and someone who wanted to manage the business, instead of doing the customer work. Often, good technicians start businesses and find they like doing the work more than running the business, as that takes the technician away from interacting with customers and doing the work they were trained for.
My final suggestion was to try to work in the business in some way before investing, just to make sure he liked the business. I also recommended researching the different types of businesses and trying to get an understanding of profit margins he could expect.
I really enjoyed this conversation, so I thought I would share it here, in case any of you are considering buying an existing business.
What would you add?
Photo by Kenny Eliason on Unsplash
