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


What types of businesses could you buy which has less risk?

February 18th, 2009

Any business for sale which you purchase has a risk that the business will decrease under new ownership.  Some of the existing sales are from friends and relatives which may not continue in the future.  If the customer base if broad enough, the risk of losing all your business is lower however the business environment is out of your control and it can have a significant impact on your business.  If your customers cannot get loans from their banker, they can’t afford to pay you quickly or purchase as much as they normally purchase.  This means that your sales will decline and your receivables will take longer and longer to collect.  Is your banker understanding of the business environment or will they say that they will only finance receivables less than 90 days but if your receivables are 120 days, you may not be able to tap into your line of credit.

 

What businesses have less risk – that is the million dollar question.  Some retail stores are suffering significantly but specialty boutiques may be doing all right if they cater to the average consumer. McDonald’s is doing very well but high end restaurants are suffering.   At the moment, sales in the real estate industry, manufacturing for the automotive sector and those who are being hurt by competition from China may be declining.  Many companies has scaled back on overhead and are still able to maintain the same profitability as last year even though sales have dropped. 

 

Other than these specific industries mentioned above, many businesses may have suffered but if they have been well run, you may find many businesses that are still very profitable in a business which you did not suspect could be profitable.  It all depends on who their customers are.  The transportation industry is suffering because people are buying less therefore less goods need to be moved to the retailers.   I know of a company whose business is booming – why – because they have a customer who has grown 3 fold in revenue in the last five years and their suppliers have all benefited from the growth of a small company who now has sales of $1 billion. If your business helped one customer when they were struggling and now they have grown significantly, those customers tend to remember who helped them when they were small.


Filed under: Buying a business — Gary Landa @ 10:35 am


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