This article are provided for information purposes only, and are not intended as legal advice.


Buying a business, what is the best type of business to buy?

January 18th, 2010

Making a decision to buy a business is tough but deciding on what is the best business for you is a more difficult decision to make.  Remember, the best business to buy is the one that you will enjoy owning the business, the one where you will enjoy going to work everyday, the one where you have no regrets of making and hopefully the one that makes lots of money for you as well. 

 

Remember, the best business for you may not be the best business for someone else.  Everyone has a different background, a different set of experience which can then be used in your new business venture.  If you do not use what you have learned in the past, you may be wasting your talents and you may be making things more difficult for you because now you have to learn something totally new however if you took another route, you may have had a faster learning curve.    You  could be having a mid life crisis and want something totally different than what you have been doing before.  This happens more often than people want to believe.

 

Firstly, you need to strategize and determine what are you good at, what do you like.  Do you like people, do you want to be in retail, do you want guidance of someone therefore you may want to look at buying a franchise.  If you like independence and believe that you thrive in a different environment, then you need to decide do you want to be in the service business, do you want to be in wholesale, do you want to be in manufacturing etc.  Another approach would be to state that I want to be in a certain industry such as food, what is available.  This could include manufacturing, distribution or retail.   Your search should be as open as possible, don’t restrict yourself to buying a particular business becuase this type of business may not be available for purchase in your area.  The narrower your focus, the less likelihood that you will be successful in your search unless there is lots of that type of business around.  If you say restaurant, there are lots available but if you say restaurant of a certain nationality within a 3 block area of downtown in a particular city, you may find that there are two restaurants which meet this criteria and none are for sale.

 

Determine what you are good at, are you a people person, are you an idea person, are you innovative or just looking for a business which will generate cash flow without having to be innovative.  Distributors do not need to innovate however manufacturers needs to develop new products.

 

Lastly, do you have enough capital to buy the business that you are looking for.  If you need $4 million to buy a manufacturing business but only have equity of $100,000, then your expectations are out of line of what you are able to afford.  Sit down with your banker or accountant and determine what they think you can afford.  There is always a tendency to look at things you cannot afford.  When you look at a house, most real estate agents take you to places that are more expensive than your budget.  When looking for a business, it is more difficult, every business has a different profit and different sales.  You can have what looks like two identical businesses but they have different revenue and profits. As a result, the price could be significantly different.  One business could be worth $100,000 and the other $1 million but they may both do the same thing, one has more business and more profits than the other.  If you are looking for a house, all houses in a certain neighbourhood may be in the same general price bracket.  When you go down the street and look at businesses, everyone could be significantly different in price.  No one said that looking for the perfect business would be easy.


Filed under: Buying a business — Gary Landa @ 11:33 am


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