When the dream is owning your own business, you have a lot of questions.
A big one is “how much money do I need to buy a business?“
There’s an issue with this question. The issue is the answer – it depends.
It depends on what type of business would be right for you.
Many new business owners walk into the business market under the mistaken assumption that anyone can own and run any type of business. Nothing could ever be farther from the truth. To keep your new business profitable, you will need to be able to both navigate and compete in the market you are in. If you have little to no relevant experience in your business, there is likely no way for you to stay competitive. To avoid this pitfall you should look for businesses in industries where you have practical experience. By staying with what you know you will avoid the potentially catastrophic learning curve that comes with learning a new business and a new industry at the same time.
Every industry is going to have options in terms of price. There will be some larger, well-established – and thus highly priced businesses as wells as smaller, more affordable businesses with room for growth. Focus first on the type of business, then look at price.
It depends on how much capital you have available, and how you allocate that capital.
Do you have enough money ready and available to buy and run a business? You should really have at least 50% of a purchase price if a seller is offering seller financing, and all cash or third-party financing already in place if seller financing is off the table. You need to allow for not only the purchase price, but all of the other costs involved in a business sale – like fees for licensing and money available to keep the business running until you are able to start turning a profit at the helm.
Be honest with your business broker about how much capital you have available for your new venture and then listen to their advice about what you can reasonably afford.
It depends on what your goal for business ownership is.
Are you looking to invest almost all of your capital in order to buy a well-established, highly profitable business – or are you looking to hang onto more of your funds and buy a business that has lots of room for growth? You will likely have to work a bit harder in the second scenario, but you will have the benefit of having enough funds to ride out any issues that you come across.
You will have to decide what you want your day to day life to look like, and discuss those desires with you business broker.
The message here is there’s more to look at than just the price of a business. You need to figure out your goals, look for industries where you can be successful and then decide how you’d like to allocate the money you have available.
Are you thinking about buying a business? Do you have questions about seller financing and the best type of business for you? Ask us! Leave us a comment or question here, and we will be happy to help you on your business ownership journey.
5111 Ocean Boulevard, Suite E
Siesta Key, FL 34242