Buying a business? Looking to expand your business portfolio? Then you need to read this.
In an uncertain economic climate, making those all-important business decisions is harder than ever. Risk is something we all have to work with on a daily basis.
We asked some experts what their top tips would be.
Thinking like a strategist is key
Understanding the strategic risk is the first vital step you need to take when thinking about acquiring a new asset. How does this new business fit into your plans?
James Lloyd-Townshend, the CEO of Frank Recruitment Group, knows all about this too well. “Back in 2006, our business consisted of just one core brand, Nigel Frank, which was – and still is – our original Microsoft recruitment arm”, Lloyd-Townshend told us.
“After seeing opportunities for hiring services across hyper-growth markets, we decided that we would expand our portfolio. We did this by introducing new brands dedicated to other niche technologies. Whilst there will always a risk of diluting your original brand and stretching resources too thinly, we made sure each business had a clear purpose. We also ensured that each business had a product range that would allow them to dominate their specific markets. Importantly, we also didn’t grow until we could afford to.”
Since making these decisions, Lloyd-Townshend has now created seven hugely successful niche brands which operate across offices in five different countries. The risk paid off.
Taking on a business in debt
Many assume that when purchasing a company, the debt will disappear with that sale. Yet not every business transaction results in the new owner taking over any existing debts. An asset sale is something worth looking into, as you can opt out of taking on any liabilities you don’t want.
Then as an alternative, a stock sale involves the transfer of all assets and all liabilities. However it is estimated that less than 5% of businesses are sold as a stock sale.
These are definitely worth investigating thoroughly.
Risks can pay off when buying a business
What is financial risk in a nut shell? Well financial risk is a firm’s ability to manage and leverage debt. Business risk is different. This is where a company’s capacity is analysed as to whether they can generate enough revenue to cover their operational costs and expenses.
Whatever the risk you might be facing, it can be a tough thing to face. Yet risk and growth can often be two sides of the same coin.
We got some words of wisdom from the Director and Co-Founder at Luxury Academy London, Paul Russell. He told Compelo:
“For us, the real risks we have taken have been those that have ultimately led to growth. Business risk often involves change, and this is something that people can shy away from. There will always be an assumption that what is known is safer.” Does this sound like you?
Russell explains: “The first risk we took was when we moved from targeting a small segment of the market to then the larger luxury market. The second big risk was when we expanded into India. Something vital to know is that in business, nothing stays the same forever. Markets change, customer tastes evolve, the economy falters or soars. You simply have to be willing to make changes to survive. And, in most cases, this involves some element of risk.”
Should you take on a business in debt?
Debt and risk are two things you will undoubtably come across. However, understanding the company’s corporate life-cycle during any valuation process is essential. Consider all the factors, and you will be onto a winner. There is no reason why your portfolio can’t flourish and grow to new heights.
Find out more about getting a company valuation here.
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