The most important decision in the entire acquisition process is selecting the business opportunity that’s right for you.
Where do you begin? The first place to start is with you. You are the one most important factor in selecting the “right” business. Certainly, you want to select a business that will be successful and provide the income you need to support you and your family, but just as important, you will also want a business that suits your interests, needs and objectives.
You must also understand what you can bring to the business, because for the business to be successful it will need an owner who can provide management, capital and perhaps most important – enthusiasm.
Some people are particularly well suited to owning their own business but for a variety of reasons buy the wrong business for them. Usually these people select a business for its profit potential alone and never consider whether it’s the business they would be most comfortable operating.
When is a business right for you?
When you can enjoy the business.
When you can manage the business.
When you can earn sufficient income from the business.
When you can afford the business.
Can you enjoy the business?
Motivation and enjoyment in operating the business are essential in the selection process. It simply makes no sense to buy a business you will dislike running when there are so many opportunities that can excite you.
In buying a business you may also be starting a new career – a totally different occupation from the past.
The work content is the primary item to consider. For example, if the business involves selling, then a strong sales aptitude is a criterion. Some people call this the “chemistry test”, suggesting your aptitudes should not only be compatible with the business but the business should provide a comfortable feeling.
There are many factors that can make a business more enjoyable or less enjoyable and each plays a role in defining your right opportunity. A franchise, for example, will give you less control or a partner may intrude on your decision making showing how relationships can influence your enjoyment of the business. Location, travel requirements and working hours must also be considered. Before you decide how happy you’ll be with your business choice, look carefully at the work you’ll be doing, with whom you’ll be working and where.
How do you decide on the type business you’d enjoy? It may be work you’re presently involved in. In addition to work-related activities consider social, hobby and even educational involvements. You’ll see a pattern emerge. Don’t speculate on whether you’ll enjoy a particular business. The perception can be far different than the reality. Try working a similar business first, even if its on a part-time basis.
Can you manage the business?
Anyone can manage a business – provided it’s the right business. However, very few people can effectively manage any business. The objective then is to find the business you can properly manage.
What is your experience in the business you are considering? Even the simplest business has its tricks of the trade which can spell the difference between failure and success. Even if you have experience in the business you may have only the narrow-limited experience your job demanded. Ownership, on the other hand, will require management skills that cover all areas of operation.
Your management skills can also be decisive in determining the condition of the business you want. For example, a financially troubled company will require turnaround skills not required in the profitable business.
Be objective in measuring your management capabilities. Decide before hand whether you need more experience, a partner to supplement your abilities, or a seller who will remain and teach you the business. Statistics prove that buyers who attempt to learn the business after they buy have a far greater failure rate compared to experienced buyers. Learn the tricks of the trade at someone else’s expense. Your new business may not be able to afford expensive on the job training.
Can you earn sufficient income from the business?
Test the earning power of the business you have in mind. Start by asking yourself about the earnings you require. If you need $50,000.00 per year, it will be necessary to define the business that can provide that income. Consider earnings potential in the earliest years when you will have note payments to make and re-invest capital may be needed for growth.
A most common error is to draw an excess salary from a newly acquired business that cannot afford it. First-time buyers, exposed to large cash flows may lack personal discipline to limit their salary to what the business can safely afford.
The question of earnings helps define the size business rather than the type business. However, don’t blindly assume you can rapidly build a business to provide income you need. Usually buyers discover it doesn’t happen as rapidly or easily as they hoped, leaving them with an income gap. Also keep in mind if you will have partners or investors involved. They will have their own minimum income expectations from the business.
Can you afford the business?
What you want and what can you afford may be two different things. Many buyers set their sights too high and look for too large or expensive a business in relation to their down payment or financial strength. Unable to find a leveraged takeover they never buy.
What can you afford will depend on many variables: down payment, available financing and negotiating ability to name three.
Your first step is to calculate the down payment you can raise from personal assets. Keep some capital in reserve for personal needs and define not only what you can invest but what you feel comfortable investing. Next, determine the price and down payment requirements for the type of business you’re interested in by testing the market. You’ll soon have a sense of what you can realistically afford. Don’t hesitate to lower your sights to a more modest business if that’s all you can initially afford; provided it can satisfy at least your minimum income needs. Once the business is paid for you can always use it as a springboard to one that does match your goals Besides, as a first-time buyer, starting on a smaller scale will give you a more cautious chance to prove your management abilities.