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Advice and insights to help get you a better small business sale or purchase..

A real life conversation about leaving corporate and buying your first business

Michael Kerr - Wednesday, August 16, 2017

Employment ain’t what it used to be!

As a result more employees are considering leaving their job and running their own small business. Some will start a new business and others will buy an existing, established business.

Laura Fitzpatrick is someone who has already made the leap. A trained music theatre performer turned Corporate Communications Specialist she bought an existing business, Dogs HQ Melbourne http://www.dogshq.com.au, a thriving doggy day care business where “its cool to drool”. 

Dogs HQ that is going great guns. In this article Laura and Michael Kerr from Kerr Capital www.kerrcapital.com.au talk about Laura's reasons for leaving her job, how she went about finding and buying her first business and her tips for people considering doing the same. 

PERSONAL BACKGROUND

Can you just tell me a little bit about yourself?

I used to work in music theatre a long time ago.  I did that for about 10 years.  But I enjoyed it much more as a hobby than as a career.  From there, I kind of fell into communications, just because I enjoy writing. I had no formal qualifications but just got some freelance work.  And from there it built up. I never intended to stay doing that for a very long time, but seven years later I was working in corporate communications for a very large IT organisation.  And while I enjoyed that very much, I just never found it particularly fulfilling.  And as I got older, the idea of having something that I was in control of, that I could care about, became more and more enticing.

Did you come from a small business family?
No, not at all.  My parents are both academics.  So they’re very smart but they know very little about small business.  They have put on a few musicals, which I guess is kind of, you know----- And did that spark your interest in musical theatre?
Well, yeah, it was definitely my dad’s interest in musical theatre that got me in when I was very young.  So yeah, we’ve always loved that.

What did you do in musical theatre?  Were you a writer or a performer?
No, performer.  Singer and actor.

What was the highlight of your musical theatre career?  
What’s my favourite?  There’s been a few.  I enjoyed doing My Fair Lady very much about 11 years ago now.  I played Eliza.  That was very fun. That was at the Comedy Theatre in the city.  And I’ve done Fiddler on the Roof a couple of times with Topol, which was pretty cool.  And a bit of travel as well, a bit of touring to China and South East Asia.

Do you still sing?
I do, but only for fun now because it was definitely one of those things where making it a job took the joy out of it.  And it is a very unstable career.

DECIDING TO MAKE A MOVE 

And so you saw employment in a corporate as being out of your control?
Yeah, exactly.  Because our company was bought by a major global corporation it became a bit harder to care about the work we were doing because it was just like I’m here to make money for people who already have huge amounts of money and who don’t really care very much about me as a person.

How long do you think ago it was that you started to think this is not for me? Was it months, years?
It was from the beginning I knew that I didn’t really want to do it.  I just didn’t really know what I did want to do otherwise. So I just coasted along.  I was looking for another job and hoped something else that would come along.  But the idea of actually having my own thing didn’t pop in until about a year ago.

So it was a case of a sense of dissatisfaction with corporate life?
Exactly, yeah. It was just one of those things, that little bit of dissatisfaction just bubbling away and you think I should do something about this someday, but it’s always somewhere off in the future I’ll worry about that.

But you’re well established so you’ve got probably a safe job and get paid well?
Yes and very easy just to keep going, put change off.

FINDING & BUYING THE BUSINESS

Can you just describe the process from when you decided to go find a business up to the point where you bought this business?
It all started from a conversation with a friend who takes her dog to a day care.  We noticed that they’ve been popping up a little bit and everyone’s getting dogs that we know, and some are getting two dogs!  And so we thought haha!! What a great business. One thing just kept leading to another. She couldn’t end up doing it in the end because she’d just had a baby and it was just, the timing was bad.  And so I thought I’ll just do it myself.

So you were actively looking up online on the business for sale portals?
Yeah.  So we looked, I scoured those for anything kind of dog day care related, and there were two for sale when we looked, this one and another one that was much less expensive but much further away and also just not nearly as successful a business.  So we were always thinking of this one.

So it had been on the market for a while?
I think it had been on the market for about six months.  It had had a lot of, I mean I was told that it had a lot of interest, but who knows?  But I think it actually had because, and it got very close to being sold a few times.  But when I started looking at it, it was about six months on the market and I, again very naïvely thought yes, I’d like to buy this.  And I did sit down and do the sums and do a business plan and work out the finances, but I also thought it would happen very, very quickly, and very easily, which it did not. I learned a lot through that process.

MAKING THE MOVE 

Tell me about your new business.  Where is it located, how many employees, what goes on day to day?
So we’re in Abbotsford, on Hoddle Street, which is a great location because anyone coming off the Eastern Freeway drives straight past heading into the city.  And the biggest service by far is the dog day care service, so it’s just for the day.  We take dogs and look after them, and they play with other dogs and get tired and don’t chew up their owner’s houses and bark all day at home.  So people need us.  That’s definitely the biggest focus of the business.  Now, there’s a little bit of grooming on the side and a little bit of retail, but none of that’s been built up.  There’s six employees at the moment, including a manager, who has been here for about three years I think, who pretty much runs the place, which is fantastic.

This is your first business, isn’t it?
Yes.

So you basically charge owners a day rate for their dog to come in and hang out with other dogs?
Yes. 

Do we need a dog census now?

Yeah, I think they probably do.  They do.  Dogs are everywhere.  I just thought it would be not only a lovely business to work in, because we both love dogs, but also a smart business because it’s a growing industry and I can’t see that some kind of technology will take over doggy day care, whereas that will happen to a lot of other businesses.

What inspired you to get into the industry?
It started off as being as simple as I really love dogs.  I have two.  And I was thinking what do I enjoy doing?  What do I want to do with my life?  I really enjoy hanging out with my dogs.  And so from that very simplistic idea it kind of went from that.  But also what I was saying before about thinking about how many jobs and industries will become redundant at some point in the next 20 years, what’s something that I know is going to be around?  And that’s dogs.  Dogs and kids.

What were the learnings?
Just that, it was very important to me to have advice from people like you, and from my lawyer and accountant because you don’t know to ask for what you don’t know.  So there’s many unknown unknowns in this arena.  And while there’s a lot of information online, if you don’t know what you’re looking for then I don’t know how you find it.  So it was just things that I never would have thought I needed to worry about would then pop up and become a road block and a problem and something to be worked through.

So in the context of spending many hundreds of thousands of dollars not getting that advice on the unknown unknowns could be costly.
Oh, absolutely, yeah. So the negotiation took a while, a bit longer than I expected.  And it was a little bit fraught at times. But that was finalised in early March actually.  So I was expecting to be in there in January.  The negotiation itself didn’t finish until March, just because of the back and forth and everything takes several days longer than you think it should or expect it to.  So at that point we had to do the contract itself, and that also took a fair amount of time, there were a few sticking points.  But then the thing that took me the most by surprise, and it makes sense now I think about it, but it just wasn’t something that I even thought about. We had major issue with the transfer of lease because the landlord had concerns about me as a first time business owner. Six weeks later was the actual settlement, May the 31st , about 8 months after my first enquiry in October 2016! 

I know you’ve only been in the business for eight weeks, but it sounds like you haven’t really changed the business radically since taking it over eight weeks ago?
Not yet.  I have a lot of ideas for improvement and certainly there’s never been really a formal marketing strategy, so I definitely want to put those things in place.  But I was very, very determined that when I came in I would give myself some time to actually understand how the business is running now, and I have the great luxury of having bought a business that is doing very well, so it’s not like I need to make changes, it’s kicking along very nicely.  So I made a decision that for the first three months at least I wasn’t going to just make any radical changes.

Just want to settle in and get to know the ropes?
Exactly.  Get to know the customers, the dogs, the employees.  So that’s still my focus at the moment, even though, yes, ideas are bubbling away.

Did you try to find other businesses that might be for sale?
I really liked this one.  This one felt like the right one.  I was still looking the whole time, but there aren’t a lot of dog day cares for sale because they are really good businesses if you do them right.  So I just to keep checking on line. But I realise now that I might have been able to find others by also making direct approaches to owners of existing businesses, not that it matters now!

What was the attraction to this business?  
I think the location’s a really big one because it was putting myself in the mind of the target market, even though they love their dogs, if there’s one thing that’s going to be an obstacle, it’s having to drive half an hour out of your way in peak hour.  And I just thought this is such a central location.  The surrounding suburbs and the suburbs coming from the freeway are absolutely the kind of people who have dogs and take them to day care.  So that was a big one.  And also the fact that it was already profitable for me as a first time business owner, that was very important because it took some degree of the risk out of it I suppose.

Did that raise any alarms that you’re buying a business that’s profitable, therefore why are they selling it?
Yes.  I definitely had a lot of questions about that, which were mostly satisfactorily answered.  And meeting the previous owner was really good, just to have that face to face conversation to be able to talk to a person and, yeah.

As opposed to hearing it from the business broker’s perspective?
Exactly.

But what you’re saying I think is that to hear it from the owner is really important.
Absolutely The way she spoke and just sitting with that person, I was like yeah, I believe you.
Seeing the place and meeting the owner was a big thing that had to happen before I could really invest in it in any way, emotionally or financially.  And so once that happened, from memory, then I really got everyone to look at the stuff.

Did you go into the comparison of starting something versus buying something?
I did a little bit, yeah.  I tried to do the sums based on the financial information I had about the business in its first five years, which is not a perfect science, but it was the only information I had.  And it was such a hard slog to get this business up and running because of the kind of business it is.  Landlords are a little bit unwilling to offer leases to people who are going to have rooms full of dogs.  Possibly because of the barking and also maybe just because the soiling of things.  And also it’s really difficult to get a permit, which also makes sense, especially in a residential area.  So it had taken the previous owner nearly a year to be able to even be trading with these huge expenses and great amounts of stress.  And I just thought, you know what, the financial risk is terrifying but I also just think the stress of trying to build it up from nothing would be too much.

So you came to the conclusion that starting up was going to take a long time?
Yeah.  And I mean I vaguely looked at a couple of places for lease.  But there’s just so much that needs to be done, because it is an unusual business.  There’s special flooring that needs to go down and all kinds of stuff.  So it was just going to be a very different proposition that maybe someone with a bit more courage and business nous would have been willing to take on.  But I was like not for me

What are the plans for, say, in the near term and then perhaps in the longer term?
We’ve just had a record week, although it probably will end up being a record month, which is exciting. At the moment, we’ve got two big play areas up and running and some small rest areas. But there’s a third big play area that is not operational yet.  So, we’re just finishing that off now which will mean that we can keep accepting the new dogs that we’re getting, because we’re getting a lot.  We’re getting – I think in the last month we’ve had about 40 new dogs come through, which is just crazy.  So we’re getting bigger and bigger.

And you haven’t even changed the marketing yet, wow?
No.

So you’re going to start some marketing?
Yeah.  So I’ll do, the staff here do a really good job on social media already with putting up photos and videos of the dogs, which is great.  But I’ll probably do some more strategic, paid advertising as well.  At the moment I don’t need to because I don’t have room for the dogs.

LEARNINGS

What did you learn through that process?
Ask questions a lot. I probably sometimes fell into the trap of feeling like there that I would have been expected to know and if I admitted I didn’t know something then I would look like I didn’t know what I was doing.  So there were times when I probably didn’t ask questions of my lawyer or the other seller’s broker that I just should have asked. And now I know it doesn’t matter.  They know, everyone knows I’m a first time business owner, I can’t be expected to know the things that I don’t know. I’ve learned the importance of that.  And when I started to do that it was a lot better because I understood what was happening. You hadn’t particularly come from a financial or a legal or a business background.

So there would have been a lot of things that were first time.
Definitely, yeah. But there’s also a lot of common sense and just general intelligence in doing this sort of assessment if you know where to look and what to analyse.

So if you were telling someone else going through the process, you’d be saying?
1. Ask all the questions you want to. It doesn’t matter if you think you sound stupid.  Just ask.  Don’t hold back.  
2. I learned it takes longer, everything takes longer than you think it’s going to take and probably costs a little bit more. But it’s okay.

What about paying for advice?  
I paid for my Accountant and of course Kerr Capital – without that advice and on my own it would have been a disaster.

So trying to save a few thousand dollars or whatever in the context of many hundreds of thousands of dollars probably wasn’t significant?
No, exactly. As I was saying before, there are just things that you’re not going to know until you know them.  So you need to have people around who know those things and who can kind of take you on that ride. Also, and maybe not everyone else would feel this way, but for someone like me, the ability to check in with a trusted advisor so you’re not constantly second guessing whether – am I doing the right thing, is this a bad idea, have I said the wrong thing?  To have someone to bounce things off is really, really helpful. And also I think the contracts, especially when it’s to do with this amount of money, big, scary things, and if I hadn’t had good people around me I probably would have fallen, not that anyone was trying to get one over on me, but I would have let things go or let things lie that would have made things difficult for me down the track.

What are you hoping to achieve out of the business financially? 
I’m not looking to take over the world and become a millionaire.  I would like to think that it could grow significantly financially and potentially open up new locations.  But I’d be perfectly happy to make a good, comfortable rate.  That would be fine.  That would be success to me.

And non-financially?  Is this fulfilling your personal, emotional needs to be on your own, in your own business? 
Yeah, it’s never something I thought that I was remotely interested in.  But just even the process of buying it – I can’t think of another word, that’s a bit of a cliché word, but it is a very empowering thing to do, to be able to take control.  And it pushes, it’s already pushed me to do a lot of things that I just never thought I would be able to do.  I hear myself having the full conversations that normally I would run away from because I would get someone else to do it.  And I don’t recognise myself, but something has clicked in that goes no, there’s no-one else that can do this.  It’s you.  You have to do it.
There’s no time to think or get anxious about it.  You just have to get in there and do it.  I really like that aspect of it.  That feels very empowering indeed.

The buck stops with you, and it will just be unfinished business unless you tackle it?
Exactly, yep.

So you’re more confident and growing personally?
Definitely.  Hugely.  And everyone around me is very aware of that.  People comment on it a great deal. I think I’m using these skills that I never knew I had! There’s no other option than for them to come out, which is good.  It’s what I need.

But you’re thriving on it?
Yeah.

Do you think your education and professional background has helped or hindered?
I think aspects of it have been helpful.  Certainly, having worked in corporate and being in corporate communications, I’ve been in a lot of meetings about business planning, so that has given me a little bit of very far away insight.  So that’s helped.  And certainly marketing and communications are always going to be helpful.  I mean just day to day communications, I feel that’s one area I’m fairly confident in.  And as we grow, I feel confident with the marketing stuff.  So that will definitely come in handy.

For the readers who are thinking about small business what are the best and worst things? 
The best things are, as I said, that kind of new sense of self and confidence and feeling like you’re in control of your own destiny. It’s very exciting to be in charge. Even though I’ve bought rather than started, I will build it up even further and it’s exciting to do that with something that’s yours.  That’s very cool. It’s very nice to have people pay you and know that the money’s going into your bank account, which is very silly but true. I guess the worst things are, every day carries its own little moment of stress or crisis, and that’s just the reality.  And if you’re like me, you’re doing it by yourself, there’s no-one to kind of take that on with you.  But again, there’s something empowering about that as well.

Let’s move onto the growing uncertainty felt by lots of employees, fuelled by  uncertain long-term employment prospects, large scale downsizing and workforce casualisation.  Is owning and running a small business a smart alternative?
I think for sure.  I think that that was one of the big things that I was very aware of in my old job, I was very aware that my skills were potentially going to become redundant.  I don’t know if I have the skills to keep up with the things I need to keep up with in the IT industry, because I picked it up so late in life, and I just thought this is a really unstable position for me.

You could see the writing on the wall and you acted to do something about it.
Yeah.

I’ve met many professional advisers who would be dead against the idea of buying a business as a way to create a job for yourself. Is it time to rethink that ‘wisdom’ and embrace the idea of controlling your destiny by buying yourself a job?
Well, I think it’s great.  That’s exactly what I’ve done.  I mean you should be lucky to be in a position to do it.  But I think I don’t have any problems with that as an idea, because as we’ve discussed, it brings with it so many things that just a normal job can’t.  And as I said before, if I just make a good wage out of it, then that is a success for me because it’s brought me so much other stuff as well.

If you’re advising someone who is sitting in their desk in the city at the moment and they’re thinking about leaving employment to buy a business, what would you say to them?
I think it’s a wonderful idea.  Obviously you need to be very prepared.  But it’s not something to be scared of either.  That’s the thing that I think would stop a lot of people, it just seems like such a massive change and a massive risk.  But I know I haven’t been here long, but so far I would definitely say that the good things absolutely outweigh the bad.  And I have surprisingly few sleepless nights worrying about it all going down the toilet.  You just kind of adjust.

So in summary. 

You bought into a business in an industry that you had a personal connection with.

Yes.

You bought into an industry that looks like it’s growing, won’t be disrupted.
Yep.

And you bought an existing business, which came from an owner that you came to fundamentally trusted and who had done a lot of the hard work.
Absolutely.

So they may be three things that someone looking to buy could do to take some of the risk out?
Definitely.

Would you do anything differently next time if you were buying a second business or you were buying this, if you could go back in time?
I think probably if I did it again, I would be a bit more business minded about it than I was.  I’d probably be a little bit less emotional about it.  But I don’t actually have any regrets about it, but if you look at it objectively, there are a few things that I bent on that I probably didn’t need to.  And sometimes it just gets to the point where you think in the context of it, another couple of thousand dollars more doesn’t really change anything dramatically, and maybe we just go and we get this done. But I’m perfectly happy.

That’s great.  And I think it’s smart to be achieve an outcome that alos leaves the owner feelin ok so they are cooperative in the handover and don’t carve the business up before you come in.
Exactly.  You want to preserve that relationship the best you can. As it turned out the handover went really well and we actually cut it short. The owner did a wonderful job and then I just wanted to get on with it myself.

Overall you had some good advice through a very unfamiliar process?
I couldn’t have done the negotiation by myself.  I just couldn’t have done it.  I probably would have just paid another $50,000! I didn’t have any idea of how the process worked and no idea when to hold back or when to push, I just didn’t know.  This is why I think it would have been disastrous. It was good because you (Kerr Capital) would look at all the numbers and then tell me the best way to negotiate and the right way to put your position forward in writing. I know that they were very impressed that I had explained how we’d worked through it and gone through how I got to where I was at.

Do you think that’s psychologically important to the owner, because they can see that you are serious and are investing in the right process to buy the business?
Exactly, yeah.  And it was very important for this owner because she was very – having had a couple of very near sales, she was very concerned about investing any emotional or financial energy into a buyer who wasn’t serious. And I actually remember her broker saying to me, he said, “I’d said to her, she’s just worried is this going to be another one that just messes us around.”  And he actually said to her, “Have a look at what you already know she’s spent on this negotiation in terms of her advice.  She’s not just messing around.”  So it was a big deal.

So the process we went through was structured and it was good for getting your heads straight about what you wanted?
Exactly, yeah.

Any other critical lessons you’ve learned in the first eight weeks?  Again, to think about it from the perspective of another first time owner.  
If you’re inheriting a team, what will inevitably happen is that everyone will come to you with all of the things that need fixing and changing and improving, and that can be quite overwhelming.

Because they’re all good ideas?
They’re fantastic ideas.  And they’re right, it’s stuff that needs to be done.  But it can be a lot to take in in the early period. So what I did was I just explained to them that this is what I’m doing, I’m going to get to know the business as well as I can as it is now, and then when I know it better and also when the cash flow is at a point where I can financially, I will start to re-invest in it.  And I just put together a spreadsheet and captured every little thing that they told me, just to show them that I was listening. I got it but I’m just not going to do it right now.  So to fight that pressure to feel like you have to show that you’re a go-getting business person and look at me, I’m changing everything and improving everything.  It’s actually been really important to understand the business first.

The transcript of a real life conversation between Laura Fitzpatrick (proud new business owner) and her advisor on buying the business, Michael Kerr from Kerr Capital. 






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