Free Advice

Business Ownership - 
Three Key Factors

 Know your options

Last month I had lunch with a friend who recently sold his restaurant. Bob lives in a small town and had owned and operated the restaurant for 20 years. The conversation shifted to the prospects in a small town. Bob said, "There aren't many opportunities to make any real money unless you own a business."

There are getting to be fewer and fewer opportunities outside of small towns too! There's been a lot of corporate cost slashing in the last year or so. What many don't realize is that the end of the nineties was no picnic either. Both 1998 and 1999 set records for middle management downsizing (Wall Street Journal). As it continued into the 21st century it got noticed more because those executives had a tougher time getting a new position.

I've always maintained there are four types of people (when it comes to business ownership). The extremes are serial entrepreneurs who would do nothing else and government employees who can't dream of taking the risk. In the middle are those who are forced into it and those who stumble into it (and a combination of the two).

For anyone considering business ownership it's important they know their options. They need to ask themselves questions like: 

Where else will I earn as much money as I can if I own a business? 
What about increasing my net worth at the same time? 
Can I have as much fun working for someone else?
What is my best option to get into business?

Stay in your element

The last weekend of October we visited my son who attends Montana State University (in Bozeman). On a whim, my wife, my son and I decided to do a charity 5K "fun-run" on Saturday morning. We don't run as much as we used to, but it still seemed like a fun way to start the day. Seattle is basically at sea level. Bozeman is at 5,000 feet elevation. That became quite evident around the third kilometer. 

There are four ways to get into business for yourself. You can buy an established company, start something, invest in a franchise (similar to starting) or consult in your area of expertise. The key is to not be at the 5,000 foot level when you're best suited for being at sea level.

What I mean by this is if you're a good manager but not creative when it comes to seeing new opportunities, don't start a firm, buy one. If you don't have much cash to use as a down payment but your spouse provides the family enough income to get by on, consider a franchise or a start-up.

For most people, buying a business is the best option --- if done right. You take over an operation with cash flow, customers, proven employees, a plan and more. The key is to do it right and buy a profitable firm with a future.

Doing it right means determining your acquisition criteria, implementing a thorough search system, building a relationship with the seller, asking the right questions and taking action (make an offer, propose deal structures, etc.). This last point means don't get caught up in the "thrill of the hunt."

Timing

On October 25 the Wall Street Journal had an article on business ownership. One of the people they quoted made three interesting points. First, that it's a good time to buy a business (very true). Second, that it is better to buy a business than to start one (also true).

Finally, one reason it's a good time to buy is that sellers will sell at a lower price because of the tough economy. No, this is not true. Coincidentally, about the same time, a business appraiser friend and I had a discussion about pricing. He told me that statistics from the Institute of Business Appraisers and other sources confirm that in good times or bad, companies sell for similar multiples of earnings. 

So if a firm's profits are down, yes the price will be lower. But if a company has remained strong during the last two tumultuous years, you may pay at the higher end of the fair range to get that "recession proof" business.

Do something

The bottom line, there are always good businesses to buy, niches to fill (by starting a business) and other opportunities for self employment. The key is to not sit back and dream about it, but if it's your passion to own your own business, take some action and make it happen.

© Copyright John Martinka 2002. All rights reserved.