To the brave will go the profits

In an uncertain market, you can pick up a business bargain if you are prepared to put your house on the line.

To the brave will go the profits

The next generation of business buyers may one day feel the need to apologise to this generation of business sellers for picking up businesses for a steal.

But before that day comes the next generation of business owners needs to be brave enough to transfer out of domestic assets during a boom, and into business assets declining in value.

It is a brave call, but the cross over in asset value cycles like this does not present itself often, and certainly does not last very long.

Of course for every individual the overall market conditions need to be translated into specifics. To be blunt, it is the sale of a house and the purchase of a business.

Given it is relatively easy to sell a house in a boom, the focus should probably be on finding the right business. If it is a first time purchase, then it is essential that the buyer understands what they are capable of.

They need to ask: What do they bring to a business? What areas of the business activity will they need assistance with?

On this second item it is really important that they be honest with themselves. Owning a business may make a person care more about certain things, but I am yet to see this translate into a new personality or skill sets. With these things in mind, a check list can be created and the market investigated.

One of the interesting things about the current market is that potential buyers care as much about the location as the business. Specifically, roughly 40% search by location and industry, 30% by location only, and 30% by industry only. But even if the business is in the ideal location, potential buyers should be wary that they are buying a business with a future.

The recent demise of the Bulletin magazine and the continued decline of BRW magazine are just two examples of long term business assets with their best days behind them.

Also try and pick business segments that are on the increase. All of the world trends are suggesting that services are the economic mainstay of the future, with more than 70% of world GDP in services, compared to less than 5% in agriculture.

However the service sector is often one of the hardest hit by economic downturn. Media, construction and discretionary purchases are also high on the list of most affected by economic cycles.

But beware, the crystal ball is cloudy; most business owners inevitably put all their eggs into the one basket – their own business.

So are you brave enough to back yourself into an uncertain future?

Andrew Kent is a director of BizExchange, an independent marketplace for business for sale or seeking investment. BizExchange has a directory of independent advisers and business brokers and information on valuations

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