Industry sector:

Outside caterer: Buy an existing business


You might decide to buy an existing catering business rather than start your own venture from scratch. Buying a going concern can mean that:

  • premises, business equipment and fittings may already be in place
  • there may be established customers (although many customers will only use the services of a caterer on a one-off or very infrequent basis)
  • the business has a reputation and can generate income immediately
  • suppliers have been identified and relationships established with them
  • the business has a track record, which can help if you are looking for finance
  • staff may already be in place

However, look critically at any business that you are interested in to make sure that the price you negotiate with the seller is a fair one. Try to establish why the business is for sale - for example, is the owner keen to retire or is there another personal reason for selling up? Be sure that what you're actually getting justifies the cost premium of buying a catering business as a going concern - if you're not getting much in the way of substantial business assets and there is little in the way of reliable repeat business then all you're really buying is a name and reputation, which may or may not have much real value. It may be worth stopping to consider whether you would be better off simply starting up your own business from scratch.

Your market research into the sector as a whole and the locality in particular will help you to establish whether or not the owner is selling because he or she can no longer generate enough income from the business. This may not necessarily deter you - many business people are confident that they can turn a failing business around. The important thing is to have established the current position so that the price you pay for the business is not too high.

Other matters to consider include:

  • does the success of the business depend on the skills of the current owner (for example, their cooking skills may be well thought of locally) which you are not able to match
  • the state of the premises, fittings, equipment and so on. Will you have to spend money refurbishing or replacing assets
  • is the existing owner prepared to give you some training after you take over (if necessary)
  • existing staff rights
  • how to retain key personnel once you've taken over
  • does the business owe money that you will be responsible for

Are there any guarantees that the seller will not simply start up in business again in direct competition with you? Consider this possibility, and if necessary discuss your concerns with the seller.

Ask your accountant to look critically at the business accounts for the past three years and discuss the selling price with them in the light of what the accounts reveal. Make sure you budget for other professional fees such as legal fees and valuation and survey costs.

Franchises

Franchising can be a good 'halfway house' between starting out from scratch and buying an existing business. If you purchase a franchise you'll still be setting up your own business, but you could benefit from the experience, resources and brand name of a business that is already successful.

There are various different franchises available in the outside catering industry. Although different schemes vary in detail, most feature the following key points:

  • as a franchise holder, you will remain self-employed but will use the identity (corporate colours, logos, trade name and so on) of the franchisor
  • in return, you will pay the franchisor a fee - this might be a one-off investment, a monthly charge, or a combination of both
  • both you and your franchisor will have to fulfil certain obligations and maintain certain minimum standards

Many franchisors will provide you with any specialist training you require, help with advertising and marketing, and advice and support on a range of business and technical matters.

Details of the above points are set out in the franchise agreement or contract, which both you and your franchisor will sign. The agreement will also deal with other matters, for example any territorial exclusivity due to you and the minimum period for which the franchise will run.

Before entering into a franchise agreement, it is advisable to compare the terms of different franchisors to be sure that you are getting a good deal. Go through the contract with your solicitor before signing anything. More information about franchising is available on the Franchise Info website. Information is also available from the British Franchise Association (BFA).