When you’re ready to make the leap into the world of small business ownership, one of the most important decisions you’ll make is what kind of business to buy. Whether you’re debating what industry you’ll dive into or if you want to open an independent business or a franchise, here are some factors you should consider when choosing the right business.
1. Identify Your Goals and Interests
A good starting point for anyone who is beginning their search for the perfect business is to define your goals as a business owner. Start by asking yourself these questions:
- Why am I going into business ownership?
- What are my lifestyle expectations for my new career?
- How often do I want to work?
- How important is being the final decision maker to me?
Equally important to defining your goals is to identify your likes and dislikes. Of course, you should choose a business in which the main product/service aligns with your strengths, but keep in mind that you should fall in love with the lifestyle of your new role, not solely what you’re selling. Look for businesses that will allow you to spend the majority of time on work that you love. For example, if you love interacting with customers, a brick-and-mortar store that depends on face-to-face communication with clients may suit you well.
On the flip side, it’s important to think about who will be responsible for the tasks you don’t like. Being a business owner should be engaging and exciting, but some of the more tedious responsibilities, such as bookkeeping and paperwork, will fall to you if no one else is designated. If you’re not interested in taking on those tasks, make sure your business model allows for you to either hire someone or contract the work out.
2. Research Different Business Models
Many people think becoming an entrepreneur means launching the next big tech start-up from your garage. It’s not a bad way to go if that’s your thing, but becoming a business owner can look different for everyone. Of the people who used Guidant’s services last year, only 25 percent funded an independent start-up, while 32 percent purchased a new franchise, 31 percent bought an existing business and 8 percent purchased an existing franchise.
Independent start-ups, franchises and existing businesses all have their own pros and cons, so it’s helpful to start by thinking about which will fit your personality best. If the thought of managing every aspect from the ground-up energizes you, a start-up may be a great fit. On the other hand, if you’re more comfortable working within an established business model, a franchise could be the right choice.
When you’re researching different types of businesses, take into consideration the cost. In general, franchising will cost you more up-front, but independent businesses will have more costs down the road.
3. Consult Available Resources
Beginning the search for your perfect business can be intimidating. Fortunately, there are several online resources available to help you narrow your search, as well as people who work in roles dedicated to matching businesses with the perfect owner.
Searching business directories allows you to view existing businesses that are for sale. For example, BizBuySell offers directories of both existing businesses and franchises for sale. Their search tool allows you to search by region, price, cash flow and other specifications.
If you prefer to work with a person rather than an online directory, business brokers can give you detailed information about the for-sale businesses they represent. Each broker usually represents between five and ten businesses at one time, so you may find it beneficial to work with more than one business broker.
A franchise consultant can be a great resource in helping you determine if a franchise is a right for you. Franchise consultants will ask you about your goals, project budget and aptitude for different business skills before presenting you with a few different options to choose from (usually three brands). You then have the power to decide which brand(s) you want to move forward with. The lifecycle of working with a franchise consultant is typically between three and six months.
4. Determine if You’ll Work with Family
Many business owners enjoy the benefit of working alongside family, but it’s not the right choice for everyone. If you’re thinking about adding the title of “business partner” to a family member, consider these steps in building a healthy working relationship.
- Define your roles early in the process.
- Designate one person as the final decision maker.
- Create a plan in case your personal relationship suffers.
- Analyze whether or not your personalities allow for working side-by-side every day.
Partnering in business with your family is a great way to incorporate family time into your new career, but the key to success is having a plan.
5. Calculate Your Project Budget
Just like you wouldn’t start searching for a house before you knew how much you could afford, you shouldn’t decide on your business until you’ve calculated a ballpark range for your business budget.
Start crafting your budget by determining whether or not you feel comfortable taking on debt. Traditional debt financing options, such as Small Business Administration (SBA) loans and unsecured business loans, can give you access to large amounts of capital, but they have varying interest rates and require a solid credit score to qualify. Getting a loan also means you’ll have to make monthly payments, so be sure you can afford it before you sign the dotted line. Equity financing, on the other hand, such as 401(k) business funding or portfolio loans, allows you to avoid debt by using your existing assets as funding, but you’re limited by the value of your investments.
Whether you choose equity financing, debt financing or a combination of both, the next step is to get pre-qualified for financing to see how much capital you’ll have access to. Guidant’s online pre-qualification tool, for example, will give you a list of all the debt and equity financing methods you’re eligible for, along with an estimate of your maximum funding amount. Just provide some basic information about your personal financing, and receive your results instantly. Pre-qualify online now.
No matter what type of business you decide is right for you, the journey to small business ownership is both exciting and challenging. Choose to do something you love, explore all of your options and work with professionals to guide you, and you’re sure to be on the path to success.