{"id":197064,"date":"2025-10-13T12:47:09","date_gmt":"2025-10-13T12:47:09","guid":{"rendered":"https:\/\/www.newsbeep.com\/uk\/197064\/"},"modified":"2025-10-13T12:47:09","modified_gmt":"2025-10-13T12:47:09","slug":"why-buying-businesses-is-more-lucrative-than-founding-them","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/uk\/197064\/","title":{"rendered":"Why buying businesses is more lucrative than founding them"},"content":{"rendered":"

Most people\u2019s Christmas list features people they have an existing relationship with. Charles Skinner sends letters in the run-up to the festive season to potential business acquisition targets. <\/p>\n

He knows their owners, particularly those running small companies, will be in a reflective frame of mind at that time of the year. Some may be receptive to an offer. <\/p>\n

\u201cYou might send a hundred letters and then three people come back very quickly. But I\u2019ve had situations where somebody rang me and said, \u2018I got this letter from you four years ago\u2019,\u201d says the chief executive of Restore, the listed data management and records business. A serial buyer of businesses \u2014 he\u2019s acquired more than 100 \u2014 Skinner, 65, has been keeping up his letter-writing habit, on and off, for more than 20 years. <\/p>\n

By getting close to the seller, hearing what they need to get from any deal, he stands a better chance of being the winning bidder at the right price. \u201cAs a buyer, once you\u2019ve identified your target, you need to hug it close, so that its owners don\u2019t start looking around for other offers,\u201d he writes in a book called Buy, Run, Build, which is out this week.<\/p>\n

Skinner\u2019s CV includes a stint in corporate finance for 3i, the private equity firm, then almost ten years as the boss of Brandon Hire, the tool hire company, which he built with John Laycock, the entrepreneur, and then sold to Wolseley for \u00a372 million in 2006. A short, disastrous stint at Johnson Service Group followed, where he says he learnt a lot of valuable lessons, before he landed at Restore<\/a>, a group of unloved businesses that needed a tidy-up before he could build on them. It is valued on the stock market at \u00a3348 million.<\/p>\n

His book is a rallying cry to entrepreneurial managers: not company founders, rather the professional managers who can\u2019t tolerate making the boss feel good about themselves. \u201c[I am] a manager who has always found it difficult to work for other people. I need to be the CEO,\u201d Skinner writes.<\/p>\n

Founding a new business is really tough. Far better to recognise that game is not for you, he argues, especially when the decision is likely to give you a better chance of being a success in the long run. \u201cIf you can turn a \u00a33 million company into a \u00a3100 million company, I\u2019d argue you\u2019re every bit as much of an entrepreneur as someone who founds and builds a \u00a310 million company. You\u2019re probably much wealthier, too.\u201d <\/p>\n

\"Book<\/p>\n

Skinner\u2019s book is out this week<\/p>\n

Skinner is not alone in seeing this: one of Harvard University\u2019s popular modules in its MBA programme is called \u201cEntrepreneurship through acquisition\u201d. In fact, Skinner argues that the era of the entrepreneur-manager is upon us. There has \u201cnever been a better time\u201d for such corporate creatives as the baby-boomer generation reaches retirement age and many accept that their children will not thrive in business.<\/p>\n

\u201cMost business owners are practical people and unless the kids are a chip off the old block, they don\u2019t want to burden their kids and scupper their own retirement plans by handing on the business,\u201d he observes. <\/p>\n

Company valuations<\/a> are also down: \u201cIn the past, I\u2019d usually value a typical business at around six years\u2019 earnings. My experience of the current market suggests three years\u2019 earnings is now the norm. There are bargains to be had everywhere.\u201d <\/p>\n

Skinner\u2019s book is warm, engaging and full of valuable tips, war stories and funny scrapes to guide potential business owners, as well as existing buyers and sellers. He believes buying and selling businesses can be done within a fairly simple framework of aligning interests, alongside some sensible due diligence to make sure you understand the market and whether the numbers or people you are dealing with are not withholding vital information. <\/p>\n

He cites one work-uniform business he looked at buying, whose balance sheet was underpinned by a warehouse full of clothing for a supermarket that went bust ten years before. He only discovered this by visiting unannounced and opening some of the boxes himself.<\/p>\n

Here are three of Skinner\u2019s tips when buying businesses:<\/p>\n

Get close to your seller<\/p>\n

\u201cI am only interested in what they want (as I already know what I want). So I need to understand what it is like to be in their shoes,\u201d he writes.<\/p>\n

\u201cMost private vendors will tell you most of what you want to know. Frequently, this will require interpretation, which tends to come from experience: anyone who says, \u2018It\u2019s not about the money\u2019 generally gives the game away, as that almost always means it is about the money. <\/p>\n

\u201cTheir answers, which may well include details from their business and personal lives, will frame how a deal might be approached and its chances of success. Here\u2019s how I would view some common responses:<\/p>\n

\u25cf They want to retire. <\/p>\n

Great: There\u2019s a good chance a deal that works for both sides can be done. <\/p>\n

\u25cf They have run the company for a while, but would be happy to be part of something bigger, especially as the market\u2019s getting tough. <\/p>\n

Good: They\u2019re capable and realistic. Assuming other factors stack up, you\u2019ll probably be able to agree a sensible price.<\/p>\n

\u25cf They have owned this business for a few years but would like to invest more in their property interests as they get older. <\/p>\n

OK: This is a common trajectory for entrepreneurs looking for a less stressful life, but it\u2019s important to ascertain they have not been more involved in the business than they are letting on. And they\u2019ll be acutely aware of value. <\/p>\n

\u25cf They\u2019ve had enough, they\u2019ve put their heart and soul into it and are young enough to try something else. <\/p>\n

Not good: they will want to maximise exit value, are probably running the business in their own way and effectively, and could easily start up again if the \u2018something else\u2019 doesn\u2019t work out, meaning you\u2019ll have a highly effective competitor who knows the business you\u2019ve just bought inside out.\u201d<\/p>\n

What to look for in negotiations<\/p>\n

\u201cSome parties, particularly buyers, view it as an advantage to hold cards up their sleeve. They may do this by letting those without authority undertake negotiations so that those with authority can nix the deal or change its terms without reason at later stages. <\/p>\n

\u201cAt a major private equity house, the deal-doers were expected to get a transaction into its near-final form before seeking investment committee approval. Yet it was far from a given that this would be granted. The deal-doers had to conceal this from the other side, who would be negotiating in good faith.<\/p>\n

\u201cThis frequently resulted in terms being changed at the last minute on a \u2018take it or leave it basis\u2019 or occasionally deals being revoked, leaving the vendor fuming and their plans in tatters.\u201d <\/p>\n

Be wary of businesses that have rigid \u2018big company\u2019 cultures<\/p>\n

\u201cA polished-looking business may indicate the team focus on getting all the processes right, irrespective of cost. I have bought businesses from big companies where doing things in the approved way has been more important to its management than making money. <\/p>\n

\u201cThis is often the way in large, bureaucratic organisations. But for you, it\u2019s a mixed bag. On one hand, there is an obvious scope to make savings. But on the other hand, people won\u2019t be culturally attuned to making these savings. And a culture of slightly pernickety perfection can be very hard to change.\u201d<\/p>\n

\u201cBuy, Run, Build\u201d<\/a> is available from October 16 via Bloomsbury Business<\/p>\n","protected":false},"excerpt":{"rendered":"Most people\u2019s Christmas list features people they have an existing relationship with. Charles Skinner sends letters in the…\n","protected":false},"author":2,"featured_media":197065,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[84,4203,56,54,55],"class_list":{"0":"post-197064","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-entrepreneurship","8":"tag-business","9":"tag-entrepreneurship","10":"tag-uk","11":"tag-united-kingdom","12":"tag-unitedkingdom"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/197064","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/comments?post=197064"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/posts\/197064\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media\/197065"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/media?parent=197064"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/categories?post=197064"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/uk\/wp-json\/wp\/v2\/tags?post=197064"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}