Business buying & selling




The Present Situation 


If you want to sell a small or medium-scale business in Kenya, you have a few limited options:


 

ü  One option is to use word of mouth and inform your friends and family that you are selling.

ü  Another option is to list on an online classifieds platform like Jiji.

ü  You can also post on social media pages and groups.

ü  Alternatively, you can share on WhatsApp or Telegram groups.

ü  Putting up a poster on the door of the business is yet another method.

ü  Utilizing a real estate broker or agent is another avenue.

ü  Lastly, you can resort to traditional newspapers.

 

Similarly, if you want to buy a business, often the information comes to you passively, perhaps from a friend.

However, if you're proactively seeking to buy one, you would search through online classifieds or relevant social media groups. If you can't find the type of business you're seeking, you may have to wait and hope someone lists one soon.

Furthermore, even when you do find a listing, the information provided is often shallow. While not everything can be publicly disclosed about the business, the classical listing usually looks something like this: 'Barber shop for sale in Mlolongo. Well-equipped. Owner relocating.'

The process is fragmented and uncertain for both the seller and the buyer, leading to numerous missed business opportunities. Businesses are forced to close not due to a lack of potential buyers who could have kept them running, but due to lack of a streamlined way to connect with buyers.

Likewise, entrepreneurs miss out on opportunities to invest in high-potential businesses given the right mix of factors.

Is there room to create a more seamless business buying and selling marketplace?

 

 Context

 

ü  Kenya has 1.5 million registered micros, small, and medium enterprises (MSMEs), with approximately 5 million operating informally.

ü  Competition among MSMEs has been on the rise.

ü  The growth of the side hustle has become integral to urban life, leading to management stress among owners, prompting some to sell their businesses, not necessarily due to poor performance.

ü  A sluggish economy has compelled certain business owners to consider selling.

 

ü  There's a prevalent trend of copycat entrepreneurship, where individuals start businesses without thorough planning, simply because it's trendy. After a short period of aimlessness, they become bored and seek to sell.

ü  The economy is highly dynamic, with growing infrastructure projects opening up new areas, thus creating fresh business opportunities. Some entrepreneurs opt to sell their current businesses to free up capital and pursue what they perceive to be bigger opportunities.

 

The Opportunity

The opportunity is streamlining buying and selling process for small and medium sized businesses. Sub Kshs.10m.

 

How it Would Work

 

The most basic approach is to establish a specialized platform for buying and selling businesses. Imagine a website where sellers can list their businesses, but not in the barebones manner of platforms like Jiji.

 Instead, it should include essential details to provide buyers with a comprehensive overview of the business.

Buyers visit the website, browse listings, and if they find a business of interest, they can contact the sellers directly. There may be some screening processes in place to filter out non-serious inquiries.

In this scenario, you act as a facilitator, and the buyers and sellers manage the business transaction themselves. Your revenue comes from listing fees.

To ensure success and value for both sellers and buyers, you need a sufficient number of listings and buyers. This requires investment in marketing. The traditional approach involves distributing leaflets door-to-door, but using the internet is a more modern alternative.

A more advanced model involves becoming a business broker. You would fully or partially manage the buying and selling process. When a buyer expresses interest in a business, they contact you, and you act as the intermediary between them and the seller. The specifics of this arrangement will depend on your business plan.

In this model, you earn money through a commission paid by the seller based on the selling price.

 

Characteristics of The Product
 

·         Easy to use

·         Quality listings

·         Checks against jokers

·         Wide variety of listings

·         Discoverable

·         Well marketed

·         Multi-platform

·         At least partially premium as opposed to being fully free.

 

Product Possibilities

The product could take the forms of:

ü  An easy-to-use website where sellers and buyers meet.

ü  A USSD platform through which entrepreneurs can buy and sell their businesses.

ü  A mobile phone app (medium term) designed for buying and selling businesses.

Revenue Models

ü  Listing fees charged to sellers

ü  Selling commissions based on successful transactions

ü  Premium listings with additional features or visibility

ü  Buyer subscriptions for enhanced access or features

 

Validation

ü  Entrepreneurs are already buying and selling businesses, albeit inefficiently.

ü  Business-for-sale listings exist on various local and international online platforms.

ü  Comments reflecting frustrations about selling businesses are prevalent.

 

Back of the Envelope Calculations
 

Listing Fees:

·         Assuming listing fees of Kshs. 500 per month.

·         Projecting minimum listings of 250 businesses based on listings on various platforms and offline sources in a two-month sample in Nairobi only.

·         Total revenue: Kshs. 500 * 250 = Kshs. 125,000

·         A countrywide platform could possibly attain 1500 listings a month with efficient marketing.

 

Commissions:

·         Commission rate: 10%

·         Average transaction size: Kshs. 500,000

·         Number of transactions: 12 (3 per week)

·         Total transaction value: Kshs. 6,000,000

·         Commission: 10% * Kshs. 6,000,000 = Kshs. 600,000

 

The commission may seem high, but conversations with some business owners reveal a desperation and urgency to sell, potentially leading to higher commissions.

The most significant expenses will likely be in marketing and transactional or legal fees.

 

Process

·         Conduct a quick survey of for sale business. You can do this online.

·         See the types, the information included, value and such other information

·         Get in touch with the sellers; act as a buyer brand understand the thinking of sellers.

·         Act as a broker and ask if they are open to use selling on their behalf

·         Act as someone who owns a listing website and ask if they would be willing to list.

·         Design how the product will look like.

·         Get the website developed

·         If need acquire a USSD

·         Acquire licenses

·         Start advertising online

·         Reach out to those who have listed their businesses for sale on different platforms

·         You could start with free listing, if listing is the model

·         Do the leg work and spread the word door to door among existing businesses?

 

Challenges

·         Getting the initial critical number of buyers and sellers.

·         Keeping off jokers more so buyers.

·         Due diligence process and cost if acting as a broker.

·         Trusting the seller if you ae acting as a  broker.

·         Poor record keeping among small businesses could make it difficult to value or conduct other due diligence.

Haters

 

Objection: There are more businesses selling than buyers.

Counter: While this may seem true, there are still many buyers actively seeking businesses to purchase but lack a centralized platform to find them.

Objection: Sellers will not be willing to pay listing fees.

Counter: However, some sellers are already paying for boosted posts on platforms like Jiji, indicating a willingness to invest in advertising.

Objection: The economy is doing badly; no one is buying businesses.

Counter: Entrepreneurs don’t sell loss-making businesses only. What may not work for one individual might be a lucrative opportunity for another.

 

Resilience to economic downturn

During an economic downturn, there is likely to be more sellers than buyers. However, an efficient and well-known platform can encourage potential buyers who may not have considered purchasing businesses before or who struggled to find opportunities.

This platform can bring buyers out of their cocoon, providing them with access to a range of business opportunities they may not have otherwise discovered.

 

Competition

·         Online classified sites

·         Social media

Purchase frequency

·         Once a year

Substitutes

·         Word of mouth

·         Social media

·         Online classifieds

 

Critical Success Factors

 

ü  Product awareness

ü  Quality of listings

ü  Quality of buyers

ü  Efficiency

ü  Sufficient number of buyers and sellers

ü  Effective marketing strategies

ü  User-friendly platform interface

ü  Secure transaction process

ü  Transparent and fair pricing model


What do you think ? Please leave a comment below.

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