The key to finding the right business opportunity, according to a pair of business experts, is making sure you have enough knowledge to avoid any scary surprises.
David Gray and Claus Etzler offered some practical advice on how to circumvent the risks inherent in buying and selling businesses during a seminar held in a spacious conference room at the Metro Toronto Convention Centre during the Small Business Forum, presented by Enterprise Toronto Oct. 18. "You've got to do your research, tie up all the loose ends," said Etzler, an independent franchise consultant with more than 20 years of experience in hospitality, restaurant and other commercial sectors. "All that stuff will come back to haunt you."During their one-hour presentation to an audience of small business professionals, Etzler and David Gray, a business lawyer, kept hammering the point home that ventures fail because their operators are simply not up to the task."Seventy-seven per cent of new businesses fail within five years because you run out of money before you know what to do properly," Etzler said.He suggested conducting discrete interviews with prospective business suppliers, bankers and competitors to gain valuable insight - information that is often provided willingly if asked for in the right way."People are willing to blurt it out if you ask nicely," he said. "I've had 40-minute conversations and had to stop the interview because it's too much."Both he and Gray suggested looking into franchises as a lucrative, albeit pricier, alternative to sole-proprietorship thanks to the benefits of strong branding and the luxury of not having to stake one's personal reputation to the health of the venture."Franchises are a proven model because you want someone to teach you how to open and thrive in a business that's already well known and well supported," said Gray, a lawyer with Toronto law firm MacDonald Sager Manis.But getting into franchising also means much higher costs in the form of royalties that eat into profits, warned Etzler."You need to figure out if you are better off paying them or doing it yourself," he said. "Are you benefiting from their expertise or are you their first guinea pig?"He suggested that both buyers and sellers delve closely into financial statements of their prospective business partners and constantly be on the lookout for anything that seems too good to be true."You always want to be aware of red flags like missing financial statements," said Gray. "Make sure you request that information, and if a wall gets put up then something's definitely fishy."Armed with the right information, both buyers and sellers can prepare themselves for a venture that sours. But, Etzler cautioned there was no "magic bullet" to targeting the perfect opportunity"You have to know what you are getting yourself into and how to get yourself out," he said. "Always plan an exit strategy."