Gill South: Turn redundancy to opportunity by buying your own business

For senior executives who have been made redundant - or fear it may be just around the corner - rather than dreading the moment, perhaps you should be taking control and looking for ventures where you will have more say in your destiny. Redundancy could be the opportunity to buy a business and see how you like being your own boss.

Andy Somerville, the National Bank's general manager, business banking, says the bank sees former corporate employees and people returning from overseas snapping up businesses. Sometimes it ends in spectacular failure; others thrive.

Somerville says the failures tend to happen when the purchasers have just bought the first thing they see, without doing any planning and without understanding the business.

"Ninety per cent will tell you it's hugely longer hours. But most will say it is very satisfying doing what they want to do; they have reaped the rewards."

Somerville recently had a couple from overseas looking at buying a lodge. While they had good experience in the lodge market, he didn't feel they had done all their homework. "They needed to get in there and have a good look, get amongst the business. Some of these lodges are down 10 per cent."

Having a clear view of where you want to take the business is crucial, he says. "I can't emphasise enough the need for preparation work."

Somerville warns against the idea of buying a business just to buy yourself a job.

There needs to be individual passion and a desire to get into a particular area of business.

There are some excellent opportunities for people wanting to buy businesses at the moment, say the directors of business broker Switch Business, Paul Devcich and David Newport.

A savvy and enthusiastic new owner can make all the difference to an operation, they say.

"Often some simple changes of business levers (such as staffing, management practices, stock levels or debt reduction) will create a more saleable business," says Devcich.

Buying an existing business is preferable to a start-up, he believes. "The benefit of buying existing businesses is you have got sustainable profits from day one."

It's not just ailing businesses that are for sale, adds Newport. Many baby boomers are selling their businesses because they want to do other things with their lives. "They've lost their passion for it."

The key to any business is that it still has sustainable cashflow and sustainable profit, he says.

"I think the key to anything is how you buy." The famous quote that "you make most of the money when you buy rather than sell" is true, he says.

For people who feel they don't have all the necessary business skills, buying a franchise can be a good idea, say the Switch Business directors.

When Mike Smart, the branch manager of a manufacturer, was made redundant last October, buying into a franchise wasn't his first thought. However the engineer decided that at age 50 he wanted to be in charge of his own destiny.

"I had been in New Zealand for 15 years and this was my third time out of a job - I'd had two liquidations and one redundancy." He wondered whether he was going to have to go through the same experiences again in the 15 years before he retired.

Smart contacted Simon Lord, editor of Franchise NZ magazine for some advice.

"What franchising enables you to do is to move from one career and industry sector and do something completely different," says Lord. "When you buy a franchise, a good one, then you are selected for your aptitude and skills rather than experience. Then you are trained in operating that particular business."

He suggests reading Richard Bolles' What Colour Is Your Parachute?, which encourages people to analyse their skills and aptitudes when changing careers.

For Smart, the typical food franchises didn't appeal - with his professional background he wanted something educational or business-related. He looked at coaching franchises but felt this area might be under pressure in the current environment.

In the end he opted for an Expense Reduction Analysts franchise, an operation which helps companies cut costs in areas such as telecommunications, freight, courier services, and stationery. As a manager with a good supply and logistics background and process analysis skills, he felt it was a good fit.

The company charges a fee of half the savings made after 18 months. A successful international franchise, it started in Australia in 1992 and New Zealand in 1994.

Smart, just back from two weeks' training in the States, is talking about his experiences on his SmartMoves blog on the Franchise Association website, franchise.co.nz.

"So far I am enjoying it. I'm enjoying the freedom, it's quite different from the corporate life. You have got to be quite disciplined otherwise you can be distracted."

While he is confident of his management skills, Smart says he has now had training in sales, something he didn't have experience in.

The new franchisee is very happy with the support he is receiving from his franchisor, based in Wellington. And he can call on other franchisees to help if he feels their skills would contribute. As part of the franchise deal, he has also been assigned a mentor.

Smart has a good chance of success, according to Daniel Cloete, Westpac's national franchising manager. He finds people who come from corporate backgrounds make good franchisees. "They know how to work with structures that are proven."

With franchising you tend to have better support structures such as management information systems and banks like this. "We like the business owner to know exactly what's going on in their business," says Cloete.

But he warns: "We do find when people have had a large payout, they tend to dump it on the first good idea that comes around. And there's a lot of people who will sell you businesses because you have the money."