Fast-track business success – invest in an existing enterprise

sbAlways wanted to be your own boss, but daunted by the prospect of starting a business from scratch?  Finding an existing business in which you can invest your passion for independence could be the most viable option.

What is important, however, says Ravi Govender, Head of Small Enterprises at Standard Bank, is that you consider and evaluate all options available before making a decision on where best to invest your hard-earned cash.

Like some of the finalists in the Standard Bank-supported ‘Think Big – Building Business Champions’ TV series, you could find that a carefully selected investment will give you the opportunity to fast-track the business you select and help it reach its true potential.

“The desire for independence and a passion for business are what drive most entrepreneurs. The easiest way to enter an already successful business is to scan the sector of your choice for someone you feel has these qualities, and is a ‘personality match’ for you. Then, potential avenues for investment can be explored and mutually-agreeable solutions reached,” says Mr Govender.

Before contemplating a bold move into business, the first step is to do your research and consider:

  • What type of business attracts you and whether it suits your personality and ambitions.
  • If you have the skills that are appropriate to the sector.
  • How much capital you need to invest in a business and whether additional funds from a bank will be required.
  • Find out why the business is for sale or is looking for investment. Check if there are any hidden reasons for this.
  • Checking the product lines. Make sure stock is up to date and not obsolete, and that sales match what is claimed.

Once you have identified a potential investment opportunity, check the financial status of the business. Consider any outstanding debts or major commitments it may have.

When looking at entering an existing business, there are two avenues to think about:

  • Buying equity in a business and joining it as a partner with full-time responsibilities. The advantages of this approach are that your shareholding can be increased over time. For example, you can agree to make set financial investments in the company over a defined period and be awarded predefined equity stakes as investments are made. Your stake in the company will grow with your experience and provide you with the opportunity to eventually assume total control.

It is important, however, to consider the role of the original business owner. He or she may have sacrificed some control in return for the funds to grow the business.

Emotionally, the original owner may not be ready to let go, which could lead to disputes – especially if you have conflicting ideas.

To avoid this try to find a business where your expertise will complement that of the original owner or identify different roles upfront.

  • Taking over the reins of a business totally is probably the most attractive option. The business will have a track record, established suppliers and staff so that you can continue trading profitably.

Again, carefully assess the business and your skills. The take-over process could be easier if you negotiate for the existing owner to stay on for a hand-over period. You then benefit from this person’s experience and accumulated knowledge.

In the case of both of these options, with a strong track record, you will find it easier to obtain a loan from a financial institution, if the necessary financial records and business plan are available.

“All investments in existing businesses should be made cautiously. It pays in the long-term to ensure that you ask questions and that you are satisfied with the answers provided. If a stake is being offered in a business, or if it is for sale, the reasons for this must be valid.”

“Seeking the assistance of a professional to ensure that your investment is sound and that you can confidently begin trading on your own is the best investment you can make,” says Mr Govender.

Press release by Magna-Carta.

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