The People Who Made Blogging Worth It

Monday, January 03, 2011

Buying Business for Sale in the Philippines


Welcome to the repository of broken dreams.

*Among the most successful websites in the Philippines is one run by a "Free Advertisements Magazine" named Buy and Sell. I love the story of this website and I love its concept. By far, it is still the best online business model that I've seen,  but that's for another time. Today, while I await the check payments, I decided to look into the possibility of acquiring or starting a new business in the long run.

Small businesses in the Philippines usually stem from micro retailing - here we call them "sari sari stores". They're practically micro miniature 7-11s that have a little of everything. Curiously, no business plan needs to be drawn up for these stores, you just put em up even if the only thing that you are selling is a few cans of sardines.

One can say that almost everybody is an entrepreneur in the Philippines. But again, that's for another blog post.

Buy and Sell's Businesses for Sale section.

I classified the businesses into two basic kinds:

1. Distressed businesses
  • Internet Cafes
  • Spa, Salon and Wellness Centers
  • Restaurants and Bars
2. Franchising schemes
  • Food carts
  • Water refilling stations
  • Public transportation franchises
  • Laundry shops

1. Distressed Businesses

Although starting your business by buying a distressed business is one of the quickest and cheapest ways to start a small/medium business, it is not the ideal way to do so. Unlike in the United States, small businesses here in the Philippines do not get to file for bankruptcy. There is no Chapter 11 here. There is only Chapter five-six.

Hence, business owners who financed their endeavors entirely through high interest loans, are just slowly digging their own graves. Once they have exhausted all their possible sources for loans, they then attempt to "liquidate" by selling their businesses.

I wish I was better at math, but alas, the only thing that I know about business wherever I may be, is that unsustainable businesses and business models should not be artificially kept alive through loans. Owners usually are reluctant to let go of their "brainchilds" or their "babies" and do everything in their power to stay afloat.

I am speaking out of experience.

If it does not work in day 1, give it until the first month. In any case the most that you should give a business is the most acceptable financial conundrum that you would find yourself in.

I repeat, a business which is not profitable should be operated until such extent that you deem the financial consequences to be acceptable.

Be prepared to face the creditors and work out a deal.

In any case, not all of the businesses in the website are in financial distress, there are some which look promising although their price tags may not be merited.

  • Internet Cafes
    • The Internet cafe as a business, is a doomed model. That's why they are being sold en masse on these free ad websites. Imagine buying several "30,000 Peso computers" 5 years ago and then you find out that they cost just 2,000 to 5,000 now.  
      • Cheap wireless internet
      • Cheap notebook computers
  • Food Carts
    • I've been in this business and I could say that unless you are a gambler, don't go for these.
    • At first the concept was cute, for 20,000 to 250,000 pesos you have a premade "Food Cart" that promises astronomical returns. 
    • The problem with these franchised food carts, is that they have little or not readily recognizable names. 
    • You "franchise" something not because it has name recall, but because the name reminds people of a positive gastronomic experience. So what if everybody can remember "Mr. Sushi" or "Mr. Pishbol"? If the experience is not so good, then the franchise is pointless.
    • I contracted a carpenter to make our own cart and a cheap cart only costs 4,000 including labor and materials.
    • Don't buy a distressed food cart, because it is distressed.
  • Restaurants and Bars
    • Be careful with these as their owners are usually disorganized people. Of course, there's always the exception, but unless you're buying a Dencio's or something equally as famous, be sure to hire someone who can look into the financial record of the restaurant you are buying into. 
    • Before you decide to do anything, pay someone to conduct due diligence. You won't want to shoulder the problem of another person.
2. Franchising Schemes
  • Food Cart/Concessionaire 
    • A good franchise is a franchise that takes care of its franchisees. 
    • A good name is not just a good name. Mention a name and there has to be a positive experience that you could associate with it. For instance, say Max's and you instantly think about excellent and "sarap to the bones" fried chicken. 
    • If you mention, __________ (franchise) can you relate a good experience to it?
    • There are several thousand distressed food cart owners who all bought into the hype of buying these cheap and ready made businesses only to find that they are made of hype
    • Before purchasing any franchise, be sure to interview existing franchisees without the knowledge of the franchisor. Be spontaneous when you do and ask them about the performance of their franchise.
  • Bottled Drinking Water Franchises
    • Do you buy drinking water only from one company? 
    • Think about it. 
    • Regardless of the name or the reputation of the drinking water franchise, people buy water from a water station that looks clean, with uniformed staff, and with health and sanitation permits prominently displayed on the windows. 
    • Personally, I don't really buy into the name/reputation of the water franchise and instead base my decision on actual taste, experience, promptness and cleanliness of the water station.  
    • You'll find that there are companies that install these water filtering equipment for a lower price than the hyped up water franchises. 
    • Rather than looking at the name of the company, look at the equipment that they are selling as a package. As always, get the advice of your neighborhood water station owner to know your best option.  
  • Land Transportation Franchises
    • I have personally researched about this and this is a business for people who are extremely patient, tough and willing to do the driving on their own. 
    • 99% of the time, hiring other drivers will lead to headaches no matter how trustworthy you think they are. 
    • Maintenance costs will eat up into your earnings.
    • You should set aside money to pay for traffic citations as public transportation drivers are often the milking cow of corrupt policemen, MMDA and traffic enforcers. It's a reality that you should be aware of.
    • Beware of spurious transactions. When in doubt, consult the regulating body to verify.
    • The best way to start this is through experience. It is a necessity to personally experience the rigors of being a public transportation driver. It is only then that you would know the difficulties and the problems associated with it. Once you know the ins and outs of the sector, that is the only time that you can handle other people. 
Post a Comment