Buying a business is serious business

Ange
Party. Woo woo. Okay, so I’m sure you’ve all listened to a number of our podcasts by now, but for any of you newbies out there, each week, every Monday, Andy and I break down a different trade business topic and give you our insights on how to tackle each situation, plus a few tips and tricks from our personal experience along the way.

Andy
That’s right. We ran our trade business for over 20 years, and now we’re educating trade business owners on how to get their business model right to ultimately make more profit and live an epic life.

Ange
Absolutely. You can say that again. So Andy, I got the Tradie toolbox here, and perhaps we should draw our first topic for season six. What do you think?

Andy
Well, let’s crack it open.

Ange
As always, if you’ve got a trade business topic, a story, or an issue that you may wanna share, then email us at podcast@lifestyletradie.com.au. This one is from an anonymous trade business owner. Hmm, interesting. They ask, I’ve been looking at buying a trade business rather than starting my own from scratch. Any advice?

Andy
Wow. Gotta love this. I saw another one very similar to this as well, and they said, I want to own a jewelry business. Like plumbing and electrical. How do I go about buying the electrical one when I already own a plumbing business?

Ange
Well, they should absolutely go back and listen to Kieran’s episode. It was called How to Turn Over a Million Dollars and Make Profit in Under Two Years because he owns a Jewel company, Plumbing and Electrical down in Melbourne, and he bought his partner out of the electrical side of the business.

Andy
Absolutely. And that was a cracking episode and he has done so well over the last few years. But look, in either scenario, buying a business is serious business. There’s a lot of factors that you need to consider because the last thing you wanna do is buy a lemon.

Ange
Yeah, exactly. So choosing the right business to buy, I guess depends on two key things. Firstly, your needs, like why are you even buying it? And secondly, you really need to give consideration to your lifestyle. We’re clearly all about lifestyle. It’s even in our name, Lifestyle Tradie.

Andy
Yes. You know, I’ve started a lot of businesses from scratch myself, but I’d admit that buying an already established business does have its advantages. Some of the hard work has already been done for you, like maybe hiring staff. Some of the operations may already be set up and they already may have set up a name for themselves in the geographic area that they live in. So they’re a bit established. You know, the grunt work has already been done for you, but now it’s time to put some smart strategies in place and kick it into another gear.

Ange
Yeah. Another advantage I can think of is most of us would need a bank loan, I imagine, or some type of financial backing to buy a business. So if that business is already profitable, a banker’s gonna be much more likely to loan you money if you need it, because it seems like a really safe investment for them.

Andy
Yeah, that’s a great point. You know, for the tradie that asked that question about a jewel business, and they already have a plumbing business. But they want to buy an electrical business. Well, they’re in a pretty good situation, so I would be assuming that their plumbing business is highly systemized. It’s set up the right way and it’s making good profit. So when you go to a bank, if you need to buy this next business, the bank’s gonna look very favorably at you, and there’s a good chance they’re gonna lend you some money for that acquisition.

Ange
Exactly. So on paper it does sound like a worthwhile investment, but the important thing to remember is that you must take the necessary time and effort to research the business and the industry you’re looking to move into. You must do what we call due diligence. So to your point before Andy, about buying a lemon, whilst during covid, a lot of businesses did really well because we are classed as essentials now with a sharp rise in cost of living and material shortages. All the things we’ve banged on about last season. The profitability of some businesses is starting to waiver.

Andy
Profitability is not on an all time high for some people right now. And staff are becoming more demanding that wanting pay rises, aren’t they? And they’re looking for better benefits because they know there’s a bit of a staffing shortage out there and it’s really hard to get good tradies at the moment and a lot of people are capitalizing on it. So you really wanna make sure when you’re looking at a business that it’s consistently profitable, not just the last one or two years. Let’s go back three years. Sometimes I even like to look back five years. I know five years is a long time, but you need to make sure it’s profitable. You need to make sure it’s got a good culture, good staff, and that business is run reasonably well and out in the industry. People like the name of this business.

Ange
Right. So Andy, if you were gonna buy a business, what’s the first thing you would do?

Andy
Well, the first thing you wanna do is make sure you are set up right from the start. You know, you need to personally be in a position to take on this responsibility because when you wanna buy another business, there’s a lot of information you gotta take in, and you need to be at your very best. I mean, I talk about, you know, it’s your grand final. You know, if you are going into a sporting match and it was your grand final, you need to be your best. Well, taking on another business isn’t just simple. And I think a lot of people go, oh, I’ll just take on another business. No problems. Well, you know what? There can be a lot of problems, so you need to make sure you are definitely in the right headspace and you’re mentally prepared for what’s in front of you.

Ange
Yeah, I agree with that sentence, Andy. And I would also say you need to be sure that you’ve actually got the time When we are looking at this conversation or this question about having a dual business, what’s gonna be important is that you’ve actually system mind and streamlined your current first business and truthfully removed yourself so that you know you have time.

Andy
Yeah, because I think the big thing there is you need to make sure that your business model is right in your first business before you take on anything else. Too many people take on these new businesses or try to grow when they haven’t even got the first structure of the business, right?

Ange
That’s right. They’re trying to do too many things too quickly. So my advice there would be to slow down and make sure you have your first business, perfect. That it’s truthfully profitable. Consistently profitable, and you have truthfully removed yourself from the business and it’s systemized. Because only then can you say, okay, I am ready from a time perspective to give every effort to this second business, to this dual business. Time is so important in a trade business owner’s life that we actually teach it with regards to what we call the time maximizer, and there’s some information in our show notes or at lifestyletradie.com.au/free-resources where we share with you how to get a better handle on your time. This will actually teach you how to get back four to six hours within one week. It’s that important.

Andy
Yeah, it is. And there’s so many trade business owners out there, go, I know I need to do it. I really need to do it. I’ve gotta be better, but I’ve just got no time. Well, everyone’s got the same 24 hours in a day, but download our, maximize the guide, cuz I guarantee you are gonna get that four to six hours back. So make sure you go to lifestyletradie.com.au/free-resources.

Ange
I actually did this exercise with one of our members recently, one of our new members. And we found 20 hours, we got back 20 hours in one week.

Andy
You know why? Because most people are running around with their head cut off doing absolutely effing nothing.

Ange
Well, they just dunno how to, well create efficiencies.

Andy
Well, that’s right. And they look back and go, oh, I’ve had the busiest week. Right. But once they do our process, they go, oh my God, I fuck around.

Ange
Well, busy for busy sake I call it.

Andy
That’s right. So to go back to the original tradie toolbox question, if you are looking to buy an existing business, rather than start one from scratch, you definitely need to be honest with yourself. Do you know enough about how to be a great business owner? Not just a great tradie, you’ve gotta take on the ownership and responsibility of a trade business, and you need to know what you’re doing. I’m sure you’ve all heard me say before, it’s not about being the best tradie that makes the best business. It’s about being the best business person. So the last thing you wanna do is run a profitable business into the ground with poor business management.

Ange
Yeah, it happens all the time. We’ve seen a stack of great businesses go under in literally months because a new owner either changes everything, they change too quickly, which upsets the existing team, or they just get super overwhelmed. So you’re so right, Andy. Step one is getting yourself in the best position possible with regards to your knowledge because you need to be able to commit to operating this new business.

Andy
And I actually know quite a few business owners that sell just knowing that the new business owner doesn’t cut it and that they’re gonna fall and then they hope that maybe in a few years time they can buy it back and build it back up. And I think everyone out there’s probably heard that story before. So if you’re buying a business, you need to understand what you’re doing and have the business smarts. Once you believe you are certain about wanting to buy a business, you need to have the time to invest in it. You need to also have the mental capacity to take it head on. And you need to know you have the means to financially afford it as well. And having some business knowledge under your belt is definitely the only way to go. And when you’ve got all those things, then you are ready to find the right business, right. You know, the right one probably just won’t fall outta the sky and land in front of you. You know, sometimes it can take hours, it can take days, it can take weeks, and maybe you’ve gotta even get a broker involved to try and find the right business for you.

Ange
Absolutely. So when you start thinking about buying or you know, bolting on this additional business, the first consideration I would suggest is have a really good think about what type, I’m not saying business, but what market segment specifically that you’re trying to work with. And what I mean by that, Is it residential? Is it commercial? Is it strata? Real estate? That type of thing. What, what is that ideal customer for you? Because what that means is the way your cash flow works and the balance of money coming in and out. Because some customers are really good on cash flow, like residential, where you follow processes, right, and collect at the end of the job. And some customers are not so great with cash flow because they pay at the end of the month, you know, 30, 60, 90 days, real estate, strata, commercials, those types of guys. So you do need to find the right balance based on the team and the skills that you have within your business.

Andy
Yeah, you might be trying to find something specific to balance out what you already have, or you might wanna take on more market share by adding an established similar style of business to your current mix. You’ve gotta start asking yourself these questions because they are important. You’ve gotta start doing the research about which business is gonna fit the bill with the criteria that you wanna work with.

Ange
That’s right. So doing your research is the key. And let me say one more time, do your research.

Andy
Yeah, that’s right. I think a lot of people get their business. They wanna buy it off an owner or off a friend or off someone. And it just sounds too good to be true and a perfect fit, but they haven’t actually looked around to see if that’s the best option for them.

Ange
Yeah. I don’t think they’ve really given thought to, uh, the style of work, although when we’re talking dual business, you know, electrical to plumbing as an example, there’s definitely a benefit. For instance, if they’re working with a particular market segment like residential to bolt on an electrical company that also works for the same market segment because they’re in the same geographic area, bigger.

Andy
Yep, that’s it. And I think the thing is, if you are speaking with the owner directly, then they are gonna sell the hell outta this business to you. You know, they’re, they’re gonna tell you everything that you want to hear, so everything’s perfect. The staff are great. The customers are incredible. You know, I make a hell of a lot of money. Ooh. I just wanna save a bit of cash on the side. Yeah, yeah, yeah.

Ange
Don’t do that.

Andy
Ooh, I’ve got this here and I’ve got, you know, what, all that kind of stuff is bullshit until you’re looking at these numbers. So listen to it. Take it on board, but don’t a hundred percent believe it. You’ve gotta be smart. When you’re looking at taking on these businesses.

Ange
You actually need to know the facts, don’t you? We need to go back to true numbers that have come out of the job management system or a financial program.

Andy
That’s it. So for me, whatever business I’m buying or I wanna buy, I will go in and have a chat with them. I’ll say, yes, yes, yes. I’ll listen to everything they have to say, but I don’t take it as gospel. Cause a lot of the times they’re pumping their own tires up and the business is nowhere near the level they’re talking about.

Ange
Right. So imagine you’ve found the business that you’re interested in buying. There are a couple of questions that I want you to consider. Things like, does a business have the potential to be more successful than it currently is? Or do you have all eggs in one basket? Like they literally work with one client, which is super dangerous, and, uh, exposes your risk. What value can you bring to the business and where do you think you could do things differently or monetize where perhaps they’re falling short? And would the current company fit your needs and lifestyle, as we mentioned before. Lots of different questions to think about.

Andy
Yeah, there definitely is. And, and the other one is, you know, what is their true customer like? What kind of, um, spend are they spending? What’s each transaction? Do they currently come back? Have they got good repeat customers? Are they working with, if you’ve heard our segment A, B, C, and D customers, are they working with good customers that are A and B customers where they’re getting a great return or they’re looking, they’re working with shit customers, C and D customers. They’re holding the business back. You know, if you took over this business, what could you do to improve this? How could you improve the customer base? And how could you turn a low average dollar sale into a high average dollar sale? So you are getting that return back.

Ange
Yeah, and you know what? We totally understand that this probably starts to feel a little overwhelming about the amount of, you know, questions and considerations about the work involved, but that’s why we teach this stuff to our members. This exact topic of how to buy a business the right way. The detail of this due diligence is so important. I can’t even begin to express that because if this is you, no doubt you have hundreds of questions and it’s gonna help to have someone by your side that knows a thing or two about this topic, or even a detailed checklist to ensure that you don’t miss a beat. We’ve seen this with countless of our Lifestyle Tradie members, and we can help you guys too. So if you are out there listening to this and you are considering buying a business. Then can I please suggest that you book a strategy session with andy@lifestyletradie.com.au. Before you make any decisions, just listen to someone else and shoot from the hip for a little while together to see whether or not you’re making the right decision.

Andy
Because let’s be real. Putting a dollar value on a business is hard work, and it’s not a process you want to do alone. The owner is gonna want top dollar and you want to pay what’s fair, right? Oh, you know, it’d be nice, you get it cheap, but , there are no. There are no guarantees in life, but if you’re gonna drop hundreds of thousands of dollars, well that is definitely a big investment. So you want to be close to certain that you are making the right choice? No, because guess what? There’s no refund. Right? Once you paid that money, sign those contracts. Whoa. It’s the old buyer. Beware, it’s your money, it’s your core. Mm-hmm. . So you’ve gotta be able to back yourself in your decision. A hundred percent.

Ange
Yeah. And this is where you need professional help. We would always recommend the support of a professional valuation, because the valuation of a business assets and liabilities is critical. Even if the owner seems like the best bloke you’ve ever met, you’ve got to just deal with the facts.

Andy
Right. Getting a professional to do evaluation will help you determine the current value of the business, and importantly, its potential growth forecast. It’s essential that you review the business, you know, their financial records, business operations, legal documents, and other reporting as well.

Ange
Yeah, this is all about risk management and identification. So I looked into this a little bit more and checked out the Australian Government Business Association and they suggested reviewing a number of key information as a priority. And you know what? I thought it was actually pretty interesting. So stick with me here while I read some of this to you, because if this is you, this person interested in buying a business. This is gonna be super interesting. So licenses and permits. So does the business have all the correct licenses and permits required to run the business? And are they up to date with your contracts and leases? Will the landlord agree to transfer the lease into your name and will you have to renegotiate the lease? Any agreements at all? So are there any outstanding agreements between this seller, this business and suppliers status of their equipment? So what I mean by that is what kind of equipment and machinery does a business own? Are they in good working order and are they licensed? Assets? So what assets does the business have and does it have any intellectual property? The inventory? So has the inventory on hand been included in the purchase? Yes or no? And how is the inventory managed and stored and distributed? What is the current state of that inventory? Maybe you don’t even want it. Liabilities. Does the business have any outstanding debt? So what refunds and warranties still exist for the business? And are there debts owing on assets that are registered on a personal property securities register? An external site.

Andy
Yeah. You just gotta be careful. There’s not a lot of skeletons left in the closet. Right?

Ange
Totally.

Andy
Some of these businesses you can buy them and at the time it’s okay, but then a job of years ago can come back and bite you big time.

Ange
Yeah, absolutely.

Andy
And then there’s a strategy around stopping that from happening. And yeah. This isn’t sexy stuff, is it? It’s admin heavy. It’s boring. Pencil pusher, crap. But, I know only to will that It’s these details that business owners can force short on.

Ange
Yeah, that’s right. This is about dotting your eyes and crossing your Ts. To the nth degree, right? And for the financial stuff, please don’t DIY, it’s really expensive to buy a business, so you absolutely need professional help. You may even pay a broker or a business evaluator, or you could even have your accountant oversee the process.

Andy
Yes, there is one other really critical thing I would suggest. You need to know, know the numbers. , you’ve heard me say it many times, but what are the numbers in the business? How many phone calls they get every day, every week, every month. What’s their conversion rate on these phone calls? How many jobs they’re doing, how many quotes they got outstanding? What’s the average dollar sale? You know, you need to know all of these details inside and out when you buy a business.

Ange
Yeah, we talk a great deal about this stuff with our members so that they understand what we call the 7 Dials to Make Profit. So these financial numbers of a business that make the wheels turn around and ultimately make your trade business profit. So it’s important.

Andy
Yeah. I’ll have to admit when I first started running my business. I really hated this numbers stuff. Oh, boring. Let me dig a hole any day. , get me outta this place. But I’ve realized over the years that to be successful business owners, you need to know your numbers. So there’s no excuses. If you do not know your numbers or know the numbers of a prospective business, you’re gonna buy you are seriously in trouble.

Ange
Yeah, you gotta know your stuff. And look, few businesses would score a perfect 10, out of 10.

Andy
No business would score a perfect 10, out of 10. And you’re not looking good, cuz if you’re there, you’ve got a 10, out of 10, you’ve got no room for growth. Yes. So you wanna buy businesses like 5 out of 10. It’s not run that well. And you are so smart. You know how to improve that.

Ange
That’s right.

Andy
And make it an eight or a nine.

Ange
This is right. This is about your business smarts. Regardless of how much you end up spending for this business, this is around you using facts and using professionals around you to decide that this is a good investment.

Andy
Yeah. I know a lot of people out there are buying businesses at the moment, and a lot of our members are going down that path because AdWords and other marketing costs have gone through the roof. And sometimes you can buy a business and get more leads in the door by buying a business and staff, then the budget some of these companies are spending on AdWords. Yeah. I was talking to a guy the other day, 2 million a year on AdWords. I’m like, how many leads? And I went through it and I said, mate, you’d be better off putting that money into buying businesses.

Ange
Yeah. On a platform that is uncontrollable and could turn you off in a heartbeat.

Andy
That’s right. That’s right. So listen guys, if you’ve weighed all this up and you’re feeling pretty good about buying this business, then absolutely go down and make an offer. You know, negotiations I find very, very exciting. But it definitely can be tough and it’s easy to get caught up, you know, especially when you spend days, weeks, months on trying to buy a business. What I see too often is everyone gets too emotionally attached.

Ange
Agreed.

Andy
And then you make silly decisions. So I suggest when reviewing a business, write down a clear figure of your absolute top dollar, and then make sure you never go over that.

Ange
Yeah. I imagine that this, in my mind, it’s just like overpaying when you buy a house, this is where you make money is when you,

Andy
It is, you know, exactly.

Ange
You get into a value. Mm-hmm. It’s so easy to fall in love with a potential business and it can be really, really hard to walk away, especially when you’ve spent so much money and time investing in the research.

Andy
The thing is though, when you buy a house. Majority of the time, it doesn’t go down. No . When you buy a business, if you don’t get it right, you can crash and burn, baby. Yes. If you do get it right though, you can make more money than a house. Even going up per year, you really can. If you can get the right business and really turn it around, you can make killer dollars.

Ange
It’s time for the news baby.

Andy
Woo. I’ve got a good one this week. I just recently read an article and it was about how the ATO is cracking down on money owed to them.

Ange
Yeah. Gee, I read that one too. That’s a good one. And it’s so timely given we’re in the first month of the new financial year.

Andy
Exactly. The article was basically saying that during the pandemic, the ATO chose not to chase outstanding debts from businesses because they wanted to prevent closures of thousands of businesses to ensure they were still saving jobs.

Ange
Right. So they basically weren’t chasing the money that you owe on your bass.

Andy
Exactly.

Ange
So just to clarify, your best reports, your tax obligations for both GST and PAYG. So GSTs money collected for goods and services. PAYG stands for pay as you go, and basically relates to the taxes you collect on behalf of your employees. But now that the pandemic is over, the country is in debt and they’re scrambling to chase all the money owed to them.

Andy
We kind of knew it was coming right with all of these handouts and stimulus packages to help boost the economy during a rough path. There’s bound to be a catch at the end.

Ange
Yes, and the bad part here is for trade business owners, because we make up the biggest sector that owes money to the ATO. And in fact, the construction industry owes a whopping $7.2 billion. That’s a B billion, not million B.

Andy
Wow. And guess what? They’re gonna be chasing hard, right? Mm-hmm. . I was actually just having a chat with a developer mate of mine only two days ago, and I mentioned this and he said, it’s already happened. I said, what do you mean? He said, well, normally we’d get a letter to the company saying, you’ve got this much outstanding tax. But now what the Taxation’s doing is sending a letter directly to the director of the firm saying, this is your responsibility and you need to pay this.

Ange
Like a demand.

Andy
Yeah, like a demand. And it’s setting ripples throughout the whole industry and people are absolutely freaking out.

Ange
Yeah. I’m not surprised.

Andy
So the ATO, they are definitely super serious and they are chasing really hard and I think all of us trade business owners need to be really smart when it comes to money we owe. Especially if you are owing money to the ATO at the moment.

Ange
Yeah, and you know, sometimes that’s a little easier said than done. I’ve heard the ATO is willing to make some repayment deals to make things a little easier on your cash flow.

Andy
Yep, that’s right. Perhaps you are in a position at the moment where the ATO may have caught in their debt. Do you have the money to pay for it? Did you put the money aside?

Ange
Mm. Scary thought. Yeah. If you are wondering how you’re gonna pay the bill, can I suggest you contact your accountant to see if you can work out a payment plan? You are definitely best to contact them ASAP and sort this out because sweeping it under the carpet will not make it go away.

Andy
No, that’s right. And a lot of trade business owners that I have a chat with that don’t have a handle on their numbers do have quite a bit of money outstanding to the ATO at the moment. So yes, you just need to get it sorted out once and for all. So then I would suggest that once you’re done, That you, you know, you’ve got this all fixed up, that you should have separate bank accounts that really hold your bass payments, call it a bass holding account, and each week you calculate how much you owe and you transfer this over into your bass holding account because this isn’t your money.

Ange
Yeah, absolutely. So calculate the GST on the revenue you’ve collected and the P A Y G from your team. So this way, you know, a hundred percent. When that tax bill comes in that you have money to pay for it and not being left short. Like lots of trade business owners we know who have perhaps been using this money as cash flow. It’s so dangerous because you are obviously then left wondering where the money is coming from?

Andy
And you gotta realize, guys, that this definitely isn’t your money. So I would suggest keeping this money in your main business account and using it on a day-to-day basis is painting a false picture for your cash flow. So stick to the easy rule that when money comes in, that includes GST, move it out immediately to a separate bank account.

Ange
Exactly. And as you pay wages, do the same thing.

Andy
If you’re having challenges with the ATO, then really it’s your responsibility as the business owner to sort this out once and for all, and have a strategy that you don’t put yourself in this position again.

Ange
Yeah. We need processes to help prevent this long term. So that’s it for the news today. I hope all you trade business owners out there are tax time ready and if not, you will be real soon. Well, that’s all for the news today.

Andy
Yeah, it is. And I just wanna just add one more thing. I am hearing there’s quite a few companies out there that do owe a lot of money to the ATO and there’s gonna be a few liquidations coming very soon. So I just wanna say to you as our guests on this podcast, If anyone out there is owing you money right now, you need to really make sure you get that ASAP, the old saying, a squeaky wheel gets the oil. Go out and get what is yours.

Ange
At our last Lifestyle Tradie member live event that we did in the Gold Coast, we actually did a two hour seminar on buying a business and wealth management in general. And we took our members through every last critical detail and decision making process and gave them our watertight checklist for business acquisition. It was super beneficial to every member in that room knowing the full world that our elite guys, this is what they’re doing. Their businesses are humming. Yes, and they know the benefit of bolting on this second dual business.

Andy
Yeah, and a lot of them are down this process, and I’m getting quite a lot of phone calls at the moment and helping them through that. I actually also heard some of our members chatting with each other about selling their businesses to one another. Yeah, I’m not gonna name names, but it just goes to show that when you are in a group like us, if your dream is to sell a business or to become a tradie tycoon, then you need to be at these events.

Ange
A tradie tycoon. That’s an awesome way to put it. It makes me think of monopoly buying up all the houses so that your competition can’t.

Andy
Yes, I love a bit of monopoly and I don’t know why, but I’m always a winner. . Yes, baby.

Ange
I think our whole family is just far too competitive.

Andy
Yes. My young bloke absolutely cracks it when he loses, but uh, yes, I think he’s learned a thing or two from his dad.

Ange
Anyway, this has been a massive first episode back and an awesome topic.

Andy
I love talking about buying and selling businesses, so yeah, what a great episode.

Ange
Yeah, it has been awesome. So if any of you listeners out there wanna chat, then can I suggest that you book in a free strategy session with Andy. You can do that by going to lifestyletradie.com.au, where you can chat one-on-one about your trade business.

Andy
Cue that party music again. I’m still all glittered up like a disco ball baby. We better make the most of it. All right, let’s go.

Ange
Let’s go out. See you next week.