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How to choose your sector when buying a business

CHOOSING

There are many things you need to consider before you decide which sector you are going to buy into.

Your experience

No matter how potentially profitable a business, it is always vital to take into consideration your own personal knowledge of an industry. However much money a bakery might make, if you've never baked a cake you might not be in the best position to decide what works and what doesn't. 

However, if you spent five years working in a restaurant, the knowledge you picked up about catering may be good for, say, a business supplying agency staff for catering events. It is much easier to move into something you know a bit about rather than investing in a business whose demands you are unaccustomed to. 

If you do find a great business proposition in a field you have no background in, do some research to make sure it's as great as it seems. 

You may also consider finding a business partner with experience in the sector. Simply employing a manager with the requisite background is not necessarily a solution as they won't care about the business as deeply as you and they can leave at any time.

If a business is struggling then you should consider whether it's down to poor management or simply a difficult climate

Take the restaurant sector. Failure rates are high and quality chefs notoriously scarce. If you're lucky enough to find an accomplished head chef then giving him an equity share is a sure-fire way of giving your business stable foundations.

Your skills

Everybody has different things they are good at and you should take into account your own strengths and weaknesses when considering your investment. For example, to thrive in high-street retail you need to be comfortable dealing with customers face-to-face, which requires good people skills. If that isn't you, then perhaps try selling through a website instead.

Doing something you love?

While it is important to take into account your skills and your experience, buying a business based on passion for the sector is not always the best way forward. You can't let it blind your judgement. 

If you are passionate about flowers and want to start a florist, that's great. But don't simply buy the florist for sale nearest to you without conducting your due diligence - checking the business is as good as the seller says it is.

The florist might be struggling because it's competing in a saturated market against accomplished competitors. Or the vendor might have overvalued the property and be unwilling to compromise.

However, having a passion for your work improves your chances of success considerably. When you enjoy what you do, you work harder and don't begrudge longer hours.

Sector trends

No matter how good you are at something and how much experience you have, certain industries are struggling. For example, removals companies will be less busy now with the housing market still slow. 

An ageing population, anaemic growth and the prospect of many more years of austerity ahead have led many analysts to forecast a decade of economic stagnation. With this in mind, you may wish to buy in a sector that is recession-proof to at least some degree.

If a business is struggling then you should consider whether it's down to poor management or simply a difficult climate. If it is the latter you may want to go into something else.

Costs

You need to research all the hidden costs involved in any business. Thorough research can be done using websites like Santander's business guides, which provide an overview of every industry in the UK. 

They also break down all the costs involved. If you don't have much money to invest, you may want to consider buying a website as start-up costs and overheads are much lower, because you're not buying premises and you need fewer - if any - staff.

 

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