Women entrepreneurs - Are you ready to buy a business?

Monday 01 March 2010

by Rebecca Zizzo
Accru Felsers, Sydney

Figures from the latest available census show that there are around 1.48 million owner-managers in Australia. Of those, only about a third are female. Buying a business is indeed a huge step, but why have so many women been reluctant to take the plunge?   The reasons lie in a combination of factors, according to a survey of 100 successful female entrepeneurs¹. 

The study found that women in business are generally more risk averse than men, their career choices are more often motivated by 'making a difference' rather than making money, and they find it hard combining entrepreneurship with having children.  When it comes to business ownership, the demands are seen to be too great.

One notable exception is Caroline Diamantis of Blooms Pharmacy Balmain who bought her first pharmacy business many years ago at just 23 years of age. Caroline believes if she had waited another 5-10 years (when family considerations entered the picture) she might never have bought a pharmacy. "I just wanted to do it at the time” she says. “I could see my father had a successful pharmacy and I thought it would be lucrative.”  

The statistics are indeed changing. As the number of female graduates has caught up with the number of male graduates over the last 10 years, there is now a growing wave of well-educated women in their 30s, backed with networks and experience, who expect success and are looking to start their own business ventures.  

So is business ownership for you?

In assessing whether ownership is for you, there are three main areas to consider:

• Your objectives and motivations –  For example, do you have a pioneering spirit and are you motivated by profit as well as wanting to make a difference and follow your passion?
• Managerial skills - Do you have the skills required to manage a business and lead staff or are you prepared to develop these?
• Your lifestyle - Be prepared for the personal and physical demands.  Given the long hours and extra responsibility, do you have your family’s full support?

It’s the final question of juggling workload and family that needs more careful consideration by women than men.  Research indicates that behind most successful female entrepeneurs is a supportive life partner. Caroline’s situation reflects this,  saying she could not have made her business a success without without her husband’s and parents’ support, as well as a lot of hard work.  “Owning a business does invade your life 24x7. Be prepared to feel guilty you haven’t done enough for your kids, your husband or your business. And be prepared to forgive yourself."

Selecting the right business

Surveying the business-for-sale websites, you’ll soon see that there are a huge number of businesses available for sale. So how do you choose the right one? Businesses are expensive investments and require constant growth to cover debt and provide the owners with salaries. There is risk inherent in buying a business, but it can be minimised by obtaining the right advice and doing adequate research before buying.  There are a number of factors to be considered at this point:

• The type of business –   Work on determining what type of business will thrive from your strengths and not suffer from your weaknesses. If the business is part of a franchise, it is important that the group matches your own core and business and professional goals.
• Are there growth opportunities? Pick businesses in high growth industries
• How does it fit with your lifestyle? – eg location
• Your budget and your ability to repay debts -  Determine how much of your own cash you are prepared to invest and understand how much cash the business generate
• Information technology - what business systems are being used and can they be upgraded and adapted in future?
  

When Caroline brought her Balmain pharmacy, she knew within the first few days of reviewing the documents it was for her.  It was the right size, in a community not a shopping centre, had growth potential, and very importantly close to home.

Paying the right price

Early in the decision making process, it’s important to understand the true value of the underlying business that you are looking to purchase. The ‘true value’ is defined as the value a business will fetch on the open market.  If there is a premium built into the purchase price, make sure you understand the logic behind it to determine whether it truly exists and can be recovered in the form of profits in the future. A professional valuation of the business is well worthwhile.  

By undertaking a business plan at this stage you can also gauge the level of debt and interest costs that the business will incur going forward. In the current lending climate it would be difficult to obtain bank finance without a business plan.

Determining the best business structure

Consult your accountant to ensure the right structure from the outset. This is important not only from a tax standpoint but also for understanding the legal obligations in the State and Territory that the business operates within.  At this point it is also imperative to prepare a business plan either yourself or by engaging consultants. To do this, you will need details of the past performance of the business, together with profit and cash flow forecasts.    

Developing your management skills

To ensure that the business succeeds and provides you with personal reward, it makes sense to invest in developing your commercial skills. Caroline recommends “Networking and asking questions, going to courses, conferences, reading articles and learning from trial and error.” Joining an industry association will also provide opportunities to network and learn from others in the industry.

Caroline’s parting advice to women considering buying a business? “Know what you want and that you’ve got your family’s support, but don’t over-analyse or you will scare yourself and never do it.”

Accru have helped many clients become successful business owners. We can walk you through the valuation process and help you negotiate the sale, as well as assist with financing and preparation of business plans. If you would like more information about buying a business, please contact your local Accru adviser.

¹ _{Survey by Amanda Gome, as quoted in “Top 10 lessons of successful female entrepreneurs”, www.smartcompamy.com.au February 2008}