The Tribune

By SIMON COOPER

Res Socius

I HAVE enquiries from people every day who are thinking of going into business. Some are interested in my businesses for sale, while others are just fishing. The latter usually depart with a remark like: "Why should I pay to have a business" or "It's cheaper to start your own", or something similar. Some go on to succeed. Many more do not, because they overlook reality.

New businesses often start from home, where they have no overheads. The real change comes when they suddenly demand money for expenses such as premises, equipment and personnel. Suddenly, the profit vanishes just as purchases increase, and they are in serious trouble.

Every business entering start-up mode needs a comprehensive budget to avoid cash flow hitches. It is relatively easy to predict big numbers such as personnel costs and building rent. The devil is in the detail of what is euphemistically called miscellaneous expenses, which cover a multitude of sins.

As business broker, it is my task to declare all known overheads, meaning far fewer surprises for the purchaser down the line.

One of the biggest disadvantages of beginning a new enterprise is that it is impossible to test drive before you start investing. The future is seldom the same as an enthusiastic forecast. The comparison with a tried-and-proven company, with good books, is obvious.

The same applies to what I call 'purchasing extravagance'. Many established Nassau firms are doing well with what is politely called 'aging shop fittings and equipment'. Quite why new businesses must have the latest and greatest is beyond me, especially when it is worth nothing on the re-sale market if they fail.

Part of my role as business brokering consultant is to strive for maximum transparency with every business for sale I have. A good set of existing audited books is akin to test driving a new business. It is often possible to spend a few days on site before concluding a deal, too.

The biggest killer that I know is "gap closure". This happens when a business owner (usually entering start-up mode) fools themself into finding creative ways to forecast profit, not loss. Good examples are how much money they need to draw out for personal expenses, fiddling tax returns and getting going before they are ready.

The final risk that I often see as business broker is the temptation to take extra money out when it is not necessary. This can range from providing free holidays in a B&B for friends, through to spending high season profits from a retail store on a new ski-boat or motor car.

Business is never for the faint hearted or foolish, because there is always an element of risk involved. It is manifestly better to pay money out upfront on a profitable business for sale, than to watch your start-up enterprise quickly empty pockets until you run on dry.

NB: Simon Cooper is a founding partner of Res Socius, a business brokerage firm and businesses for sale directory service. Res Socius is authorised by the Bahamas Investment Authority to facilitate the sale and purchase of businesses and provide consultancy services. Contact 376-1256 or visit www.ressocius.com.