Finding a business with hidden potential

If you’re looking for a business, there’s a good chance you have a rough idea what you’re interested in. However, fantastic opportunities are out there in surprising places.

If you’re having trouble finding the right opportunity, that’s not surprising. There are literally thousands of businesses for sale on SEEK Business at any one time.

That’s why we’ve gathered advice to help you find a ‘hidden gem’ and make it shine.

What to look for

Clayton Hickey, Partner at accounting firm PKF, suggests a ‘hidden gem’ still needs to have good fundamentals, even if recent financial returns are underwhelming. He suggests buyers look for:

• The potential for future profits – analyse the business’s products and services, and consider whether you’ll be able to improve them in a way that increases margins, efficiency, overall income…or all of the above.
• Low turnover in workforce – employees who understand how the business functions, and will stay on after the business sale. Their internal knowledge is a huge asset when you’re trying to improve things.
• Long-term customers and suppliers – having stable relationships in place means your business will function straight away, even if it’s not hugely profitable yet. Finding steady customers and suppliers takes time…and time is money.
• Low levels of debt – you might need to invest in the business in order to get it running more smoothly. That becomes hard when you have debts to pay off.
• Capacity to evolve – in a fast-changing and digital world, your business is much more resilient and valuable if it can cope with changes and move with the times. A good question to start off with is: how easily can this business sell products or services online?
• A stable operating environment and supportive community – if the business has a steady customer base and its industry or community isn’t facing huge change or challenges, you’re off to a good start.

Though it might not be making waves, a business that fits the above criteria will already have some goodwill.

“The word loyalty will be used a lot to describe it. It will have long term employees who love the business and have a respectful relationship with the owner,” Clayton says.

Once you’ve found a business like this, then there’s a big question left to answer: what can YOU do to make this gem sparkle?

How one buyer identified the right business opportunity

Tom White has bought and successfully sold numerous businesses. His background in digital marketing means he looks for businesses he can whip into shape with the right products, website, and online sales funnel.

“When I purchased my mobility aid business, it needed some love…there were outdated products, the website was old fashioned, customer service was poor and the business relied on Google ads for sales,” says Tom.

To improve the business’s profitability, here’s what he did:

• Updated the website – the existing website wasn’t very user-friendly. By improving the user experience, he increased conversions significantly.
• Improved Google rankings – people searching for mobility aids didn’t find the website unless he paid through the nose for advertising. Tom improved the business’s unpaid (‘earned’) Google rankings by hiring freelancers to create content. His marketing costs plummeted, but website hits stayed steady.
• Put processes in place – admin and customer service wasn’t particularly slick. Tom set up clear processes to ensure things were run efficiently and consistently.
• Expanded product range – Tom realised many potential buyers couldn’t find what they were looking for on his website. So he began ‘dropshipping,’ advertising products for 3rd party sellers without holding the products himself. “I worked directly with suppliers in China. They’d often deal with shipping, I just had to connect the customer and process the transaction.”

None of Tom’s strategies involved highly complicated manoeuvres or dramatic interventions.

But by using his professional skills and leveraging the business’s existing strengths, Tom turned a rough diamond into an organised, profitable business.

With the right opportunity, you could do the same, just like Tom and first time buyer Steph.

Steph’s crafty business buy: Advice from a first time business buyer

Stephanie Sevastas hadn’t owned a business before she purchased PeekyMe in January 2020. But as a primary teacher, she could see plenty of potential to increase the scope and range of its kids craft boxes…and of course, increase sales.

While she didn’t have lots of business experience, she’d seen most of her family involved in one. Here’s how Steph grew PeekyMe into a thriving little side-hustle…that thrived so much she sold it because it needed more time than she had available!

• Expanded the range of craft boxes available online, which increased orders.
• Adapted the subscription offering by choosing different themes, helping her win repeat customers.
• Collaborated with other small businesses and influencers to make connections and expand brand reach and awareness, including other brands’ products in limited-run craft boxes.
• Proactively grew followers on Facebook and Instagram, increasing her audience from 500 to around 10,000.
• Undertook professional learning from ‘Socially Em’, learning how to engage online with other businesses and their followers.
• Built an email database to re-market to – previously, the business didn’t have one.

At the beginning of 2022, with a second child on the way, Steph realised the business had grown larger than her capacity to manage it. So, two years after she bought it, she sold it for a 50% profit.

About her initial business purchase, Steph says, “I think the price point was pretty good considering the successful years we’ve had. There is still so much potential for it to grow and different avenues to take it down. That makes this type of business pretty attractive.”

Where to find ‘hidden gems’

COVID has changed the business landscape, and a lot of new opportunities have emerged. Here are some industries you might want to consider to find great ‘hidden gems.’

Bear in mind that businesses within these sectors can vary hugely in price, and consequently in potential profitability.

• Service based businesses: lawyers, accountants, human services: Many of these businesses don’t have a huge profile, or an illustrious reputation. However, there’s a good chance they’ll have enduring relationships within the community they serve. They might even have a large database of previous customers. Overheads can also be low, too. With the right marketing, connections, or simply a bit of street-smarts, businesses like these can turn into effective and highly profitable operations.
• Online tutoring and education: The pandemic completely changed the way parts of the education sector operate. It also led to a proliferation in homeschooling – some kids simply didn’t go back, and parents wished to access additional educational support for their kids. This accelerated a trend that was well established before COVID. An online education business isn’t limited to Australia either, with thousands of international students eager to learn. Governments, alongside education providers, are reconsidering ways to deliver education, and whether technology and online forums have a bigger role to play. There is huge potential here, and many education and tutoring businesses haven’t yet maximised their online potential.
• Fast food: It might seem obvious, but this sector is growing rapidly. Aussies consumption habits continued to change during COVID. Many now expect to easily order food with a few phone swipes. A large number of fast food businesses are seeing increasing profits and high levels of growth, courtesy of this trend. That’s true for both local takeaway joints and large, established franchises. If you’re looking for a hidden gem here, look for a business with good bones and the potential to increase its revenue via online or app-based orders. Both franchises and independent businesses can fall into this category.
• Health and medical/disability assistance: This was a growth area prior to COVID, and the trend has only accelerated since. Broadly speaking, the pandemic continues to make people more aware of their physical and mental health. That’s translated into an increased interest in healthcare products. In addition, there’s an unstoppable force driving the rise in the health and medical industry: demographics. Put simply, Australians are getting older. And it’s an unfortunate reality that our medical needs increase as we age. That means more of us need health and disability support.

The bottom line

The industries above might conceal plenty of underperforming businesses that, in the right hands, could turn into winners.

But ‘hidden gems’ exist in every industry. With the right skills, vision, and commitment, you could turn an unremarkable-looking prospect into a flourishing, successful business.

Don’t take our word for it, though. Search businesses for sale now, and find your own gem.