The latest reports show that in the financial year 2023-2024, Australian businesses sold 15.3 million tonnes of food and non-alcoholic beverages alone. This shows how profitable owning a food business can be.
However, people are more likely to make mistakes while acquiring a small food business because they underestimate the risks.
If you're planning to buy one, beware of these common mistakes!
1. Skipping Proper Due Diligence
Due diligence includes conducting in-depth research on a business based on its finances, legal obligations, operations and processes, employee agreements, and supplier contracts.
If you forget to conduct this before buying a business, that can become one of the most expensive mistakes.
This blunder is common among inexperienced buyers or those who are too hasty to seal the deal. They end up overlooking the red flags, whether it’s poor revenues, outstanding debts, ongoing litigation, or expired licenses.
Remember to always conduct due diligence. The most important areas are audited financial statements, tax filings, and liabilities. Consult a professional legal advisor and accountant to help you ensure the business is safe to invest in.
2. Overlooking Operational Challenges
According to the documents, businesses appear profitable sometimes. However, there are major issues in the operational processes.
For instance, the business may be heavily dependent on the current owner, and the employees hardly know the ins and outs of the processes. Perhaps there is no standard recipe or process to get things done, and people just do whatever they feel like. Or there’s no proper inventory management system.
Such poor operational practices can make running the business quite challenging. So, it’s better to take your time and observe the business’s operations for a while. Talk to the current staff and know how a regular day feels.
3. Not Researching the Locality and Market
When acquiring a small food business, its location and market play a major role. However, most buyers ignore this step because they depend on their network to find businesses on sale. They end up with limited options and choose the most profitable one.
However, that’s the wrong approach. Word of mouth can only help you find limited businesses, while there are so many gems on sale!
For instance, if you want to find a bakery business for sale, it’s best to use a reliable business marketplace that includes a wide range of businesses on the same site. You can then check the food and beverage sector to find a bakery or any other business.
You will find all the lucrative options listed on their website. It will also let you filter businesses based on your location preferences.
They all will have their locations mentioned on their site. This will help you evaluate whether the business is strategically located. With this information, you can research competitors and understand their profitability to some extent.
4. Paying Without a Professional Valuation
Another major mistake is when buyers pay the asking price because it’s within their budget, and they assume the business is promising. However, many end up overpaying for the acquired business and incur major losses later on.
This is especially common if you get influenced by the owner’s emotional pitch and overvaluing tactics. Some owners even say that you may double the profits in the upcoming period and that there are other impossible growth possibilities without evidence.
So, always conduct a professional valuation to assess the business’s assets, performance, liabilities, and market conditions so you pay the right amount. You can also try further negotiations on this value.
5. Not Prioritising Brand Reputation and Customer Loyalty
The profitability of a food business is all about its brand reputation. If the reputation isn’t good enough, the customer base and loyalty are weak. You will hardly get enough patrons to keep the business going.
Sometimes, buyers think that they can rebrand the business, use certain marketing strategies, or add some trending items to the menu to boost their reputation. However, this can push away existing loyal customers. Thus, it can do more harm than good.
So, it’s always important to study online reviews of the business on Google, Yelp, and social media. Focus on what areas impress the customers and the major pain points. If the negatives are way more than the positives, it’ll take years to fix the reputation.
But don’t focus on what people say online alone. Focus on the foot traffic patterns and customer retention data. If the business has a lot of regular patrons despite a few scandalous words online, it’s a good investment!
Conclusion
Besides these, ensure you understand all local regulations and licenses and plan to preserve most of the existing staff. This will make your venture more profitable, make the transition much smoother, and attract lasting success!
