When you decide that the next step in your career is to buy a business and try your hand at entrepreneurship, there will be many decisions ahead of you. Possibly the most important decision will be what business would be right for you.
Yes, we know. Everyone who’s ever dreamed of owning their own business has a dream business in mind – but focusing on that business alone, without some careful thought, can lead to disaster down the road.
Why? Dreaming about owning a business and actually owning that business are two completely different animals.
Long before you look at listings, you need to ask yourself the following four questions so you can focus your energy on the right business – not a dream business.
1. What would you love to do?
Business ownership is a life-encompassing affair. You are going to work long hours, probably take less vacations and you will be on-call 24/7. The only way to mentally survive such a grueling schedule is to have a real passion for what you do. It has to get you out of bed every morning and push you through late nights. This is where the dream-business can be of some use. Why is it your dream business? If you’ve always dreamed of owning a cafe, but in those daydreams you aren’t making coffee – you’re sitting at a table going over numbers, this can tell you volumes about what kind of business you would actually enjoy (hint, it’s not a cafe).
2. What have you done before?
The learning curve of business ownership is a steep one, mostly because any mistakes can cause a severe change in your bottom line. Many budding entrepreneurs make the mistake of buying a business they know almost nothing about – and are then stuck both learning a brand new industry and learning how to be a business owner at the same time. You need to stick to your knowledge base and the skill set you already have if you want to be successful. Hate what you’ve done for work in the past? If escaping your current industry is the reason you are considering business ownership, then think more broadly about what your skill set includes. If you’ve spent the last decade working as a mechanic for an auto dealership, but you have a gaggle of old cars at home that you love to restore in your spare time – then perhaps an auto restoration business and not a standard garage would be for you.
3. How much money do you have?
Business prices can fall anywhere on the map, but there are some industries and some business sizes that will be off your list for financial reasons right out of the gate. You need to get your capital in line before you start seriously looking at businesses because the amount of money you have to spend will determine what you even get to look at. You also need to be honest with yourself at this stage and realize that a traditional loan is probably not going to happen, and even if seller financing is a possibility you will have to bring a substantial down payment to the table to get a deal done.
4. What would your local market support?
Although an extreme example, you wouldn’t start a water skiing business a hundred miles from the nearest body of water – but you get the idea. Some local markets just won’t support some types of businesses. You need to look at the local business market and do a bit of research on the industry you are considering. Is the industry growing? Have a large number of businesses in that industry gone out of business recently, or are they thriving? If your plan is to buy a business and change it to a different market, is that market already saturated or is there room to grow? Say your plan is to buy any small restaurant and convert it into a homemade donut place, but the town you are considering has ten Dunkin Donuts and five Krispy Kremes. Probably not the best market.
When you’ve asked yourself these questions and have a fair grasp on the answers, your next step would be to have a conversation about the right business for you with an experienced business broker. A good broker has been down this road many times, and can give you great advice on what the local market will support and ideas of businesses that would fit your skills and goals that you may not have considered. They can then show you the businesses currently for sale that would meet your criteria and you can find the business that is right for you.
Are you thinking about buying a business, but after reading this think that your “dream” business may not be right for you? Do you have questions about what industries your current skill set would apply to? Ask us! Feel free to leave us a comment or question here.
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