Should I buy an existing business or establish a new one ?
The answer to this may be determined by the availability of a suitable business, your finances and aspirations. However, your ability and past experience often provides the best answer.
For those starting from scratch in the industry – particularly those with no business background at all – it may be wiser to consider buying an existing business, with existing clientele, significant goodwill and with a management and marketing system in place. It is often possible to negotiate a transition period as a condition of sale, whereby the previous owner/ manager remains to teach you the ropes and to ensure a smooth change-over. Finance institutions often look more kindly on supporting the purchase of an existing business, with a proven track record.
Other advantages in buying a business can be:
- Reduction in risk – esp regarding consumer demand for the product
- Reducing time and set up expenses
- Established goodwill, with previous customers and business relationships
- Existing staff to ensure continuity of operation
- Easier financial and market planning
- Easier to obtain finance
When evaluating an existing business to buy the following points are worth considering:
- Why is it on the market ?
- The reputation of the business in the marketplace and among suppliers
- What is the ratio between what the business owes and what it owns ?
- The value of the stock
- The condition of the assets
- Past sales and profits (over 3-5 years if possible)
- Factors that could reduce its performance (eg poor management, poor maintenance, bad location etc)
- The attitude of staff to the business
- Current and potential competition
- Changes in the marketplace that may affect the business
- Its location in relation to passing visitor patterns
- The quality and accuracy of financial statements
- Any limitations imposed on the lease
Even if the business looks a rock-solid proposition, it is essential to involve business experts to help you assess the many hidden aspects of the operation.
The establishment of a new tourism business is considerably riskier and is often best left to people with at least some business background, if not also possessing tourism industry experience. It may be a lot cheaper to establish a new business, but the path to viability and profit may also be a lot slower.
Advantages of establishing a new business are:
- Generally (though not always) cheaper
- You do not pay for ‘goodwill’
- You can develop the business at your own pace
- You can design the business from ground-up
- You can choose your own location
Click here for a more comprehensive overview of things you should consider when buying a business
Franchising is becoming more commonplace for the dining and accommodation sectors of the tourism industry. A franchise can be a significantly less risky way of buying a 'turn-key' business, particularly for those with little or no business experience. The assistance of the franchiser should be available to help franchisees through the establishment and growth phases. The Franchising Council of Australia and the Australian Competition and Consumer Commission websites can assist your understanding of franchising and to help you to evaluate the difference between good and poor franchise deals. Franchising is not a foolproof system to deliver all the business you will need. Franchisees still need to develop marketing strategies and tactical campaigns at the local level to be successful.
A franchise should offer the following advantages:
- Established market for the product or service
- Standardised and tested methods of operation
- Provision of finance, in some cases
- Assistance in selecting a location, building and fit-out
- Marketing
- Greater buying power
- Staff training
The downside to franchising can be:
- Lack of independence and freedom
- Initial cost of purchase and ongoing fees
- Variable quality of franchisers
- Effectiveness of the marketing
- Cost of merchandise
Click here for a more comprehensive overview about buying a franchise.
One final word about buying or establishing a tourism business……the old real estate adage ‘location, location, location’ equally applies to tourism businesses. It goes without saying that some of the most successful tourism enterprises are established where people already gather, or where they travel on established touring routes.
It requires a business with very special appeal to attract visitors off the beaten track. Signage is no substitute for a poorly located business. Road authorities will generally only provide very limited directional signs close to your property and not from the nearest highway or freeway. The authorities will generally only consider the need for signs on a traffic management or motorist safety basis – not the promotional/ advertising needs of your business.
Click here to download Victoria’s Tourist Signing Guidelines, prepared by Tourism Victoria and VicRoads.