ARE YOU SEARCHING FOR A BUSINESS IDEA? >> Each section contains key Action Items located within the downloadable Action Guide >> Click to Download Action Guide.
2.1 Job Market Blues.
I thought we’re talking about business ownership, why are we discussing the job market?
Well, we are talking about business ownership. As it turns out, even though many have the entrepreneur spirit, only a select few are ready to quit their job to become an “entrepreneur.”
The biggest reason is “security.” The security of: getting a paycheck, benefits, knowing you have a place to go every day, the camaraderie of working with others, no headaches with employees, the list can go on.
In what’s now termed the “New Career Economy” or “NCE”, there is less security in the current job market than you may realize.
Better understanding the NCE, will benefit people like you who are exploring business ownership. You see it every day; the traditional career no longer exists. The American dream of long term employment, stable career, good income, and the ability to maintain your current lifestyle during retirement is quickly fading away. Perhaps you have firsthand experience with these changes.
Knowing this allows you to find the education, look over your options, learn more about your options and take control of your destiny!
Whether you’re ready right now to own a business or just looking at opportunities, it’s still the right time to educate yourself on what happens next in business ownership and give yourself permission to explore.
2.2 Self-employment reality.
I have an idea! Great! What happens next?
Start simple by identifying your product or service, so that it provides a “compelling value proposition” to the customer. Think about how and why your new product or service is desired by your target market. Does it solve a problem or create an opportunity for your target market? Define what you want to do with your product or service.
Now the questions start coming… It’s like a flood…
What’s a “target market?”
You’ll need a Business Plan, and a Sales and Marketing Plan, how do I get these?
How will you handle the Finance and Accounting? Will you need an Operations and Support department?
Management and Leadership training is a must, do you have this experience?
Where will you find the money?
Where will you find the time to do all this?
Getting practical education is key.
Start with the How to Start a Business – Action Guide. It will help you uncover the potential of your idea by leading you through a series of market research, competitive interviews and target market surveys.
You’ll then follow right through USCFE’s Step-by-Step Action Guides and continue with Business Plan Development.
Each USCFE industry expert author will provide detailed Action Guide Steps to get you moving towards success in each stage of your business.
But there’s more to discuss in business options and reducing risks, so let’s keep going.
2.3 Start up an independent business.
How’s your drive and stamina?
Be fully prepared because starting a business takes real initiative, courage and knowledge. Your risks are pretty high; the government reports that nearly 80% of business start-ups fail after three years of business. That means only 20% of startups survive. You might be better off taking your money to Las Vegas and gambling.
You can succeed if:
You identify a marketable product or service – as an “idea generator.”
You’re knowledgeable of how to start, market, and manage a business.
You have the ability to create and execute an operating plan.
You have access to capital and expertise.
You’re willing to completely go it alone.
And you’ve got the ability to economically and emotionally withstand the time it takes to build the business.
So, can you handle the pressure?
First of all, you MUST have clarity in your business plan and business model before leaving any employment behind.
ACTION ITEMS: Complete the Action Items in your Action Guide.
Begin now to write down answers to the following questions. Think about life in general to start.
What truly are your Passions?
List them right now. What are they?
What gets you excited about life?
What inspires you to get up in the morning?
What have you consistently had in your life since you were a child? As an adult?
What have you consistently done in your life since you were a child? As an adult?
What do others say you love to do?
Do you have records in your journal that might give you ideas?
What do you love to do with your family … friends … mate … other people?
Do you love to help other people?
What do you love to help them do?
You should be writing down some good ideas about your passions in life.
What truly are your Interests?
Are you a sports person?
What sports do you enjoy?
Do you like to play sports … attend sports games … watch sports games?
Do you love to read?
What do you love to read?
Do you love the outdoors?
Do you love to travel?
Where do you want to travel? Why do you want to travel?
Do you love to eat? What do you love to eat?
Do you love art?
What type of art do you love?
Do you like to create art? Do you love to promote art?
Are you a community person?
Do you like to help the community?
Keep thinking…this is where you begin to really uncover your interests in life.
What are they for you? Write more down right now.
What truly are your strengths? Write them down right now.
What are you the best at?
What is your number one strength?
How would you define your strength?
How would others define your strengths?
Keep thinking deeper and deeper about your strengths, passions and interests.
What else can you think of that is important to you?
Do you like to communicate with others?
Are you a leader?
Do you like to plan?
Do you like to organize?
Do you like to communicate your vision with others?
Are you a reader?
Are you a brainstormer?
Are you Internet savvy?
Who are you? Clearly describe yourself. Write down your answers right now.
A very important characteristic of successful people is that they utilize their strengths and outsource their weaknesses.
What are your weaknesses?
Is it hard for you to comprehend financial reports?
Does accounting seem difficult for you?
Could you use help with your organizational skills?
Is public speaking tough for you?
Do you find it difficult to work with others?
Do you find it difficult to manage yourself?
Do you have a hard time finishing your projects?
Are you a procrastinator?
Do you prefer to do everything yourself, so you know it’s done perfectly?
Do you find talking on the phone is a challenge for you?
Do you find writing to be a challenge for you?
Write down your major weaknesses right now.
Understanding who you are is just the beginning of uncovering your passion.
I highly recommend purchasing a copy of “Think and Grow Rich” by Napoleon Hill. The little white paperback book with green letters will do just fine since there are numerous versions. While the book may seem to focus solely on building wealth, the fact is that the book will get you to truly focus on your inner desires and help you to refine your interests. The purple Think and Grow Rich Workbook will also provide numerous examples and exercises to get you thinking and acting on your desires. Pick up a copy today.
Some people take their entire life to uncover their passion and you now have the opportunity to begin today! Keep working on finding your passion, as this is one of the keys to success!
New Business Ideas
The goal of the previous exercise is to uncover areas of interest that might lead you to a new business idea.
ACTION ITEMS: Complete the Action Items in your Action Guide.
Take time right now to summarize and list your top five major interest/passion areas.
Now relax and visualize the town, city or region where you currently live. Think about where businesses are located and whom they serve with their product or service.
Do any of them match one of your interests above?
Could you go work for them to see if you really like the business before starting your own similar business? Imagine the joy of learning that you went to work for someone and realized it’s not the business you want to be in at all! You could save yourself thousands and thousands of dollars and years of hard work.
Now imagine that you loved your experience and you learned all about the business while you made money! You’ll be steps ahead of your competition by already knowing your market when you decide to get a similar business off the ground. You may even find that the current owner wants to sell their business and you now have the knowledge to buy it from them.
Anything is possible.
Do you get on the Internet a lot? Could any of your interests from the list above become an Internet website that sells products or services related to your interests?
Have you ever considered calling a business owner that has a business in one of your “interest” areas? Individuals love to help other people and often times you may just find someone who will tell you everything you want and need to know.
Start by determining whom you want to call. Compare and contrast your top five interest areas with nearby businesses and those within an hour or two drive of your home.
Track down the business owner’s name via the company’s website or via a Google search for their business. You’ll be surprised at how much you can learn via your Internet research.
Then, buy a pack of basic greeting cards at your local drug store and write a simple note.
“Dear Mr./Mrs. _____, my name is (first/last name) and I live nearby in (your town). One of my passions has always been the (company’s industry) market and I would like to learn more about the industry. Would you be willing to meet briefly with me, so that I could ask you a few questions? I will call your assistant to see if he or she can find fifteen minutes on your calendar for a brief meeting. My best, _____”
After you send your note card, MAKE SURE to follow up within one (1) to three (3) days after the date that you think the card should have arrived.
When you call, ask directly for the person that will be receiving your note. LISTEN carefully and record the name of his/her assistant and say confidently, “Hi Ms./Mr. __________, is Mr./Mrs. ____ available?”
When the assistant replies, “Is he/she expecting your call?”
You reply, “Yes, in fact, I’m calling to schedule a time to meet briefly with Mr./Ms. ___. Is that something that you can do for us right now?”
Depending on their reply, you may have to speak directly with the person.
Honesty is the best policy.
You may find asking them questions right then over the phone will save time for both of you.
They may ask specifically why you want to meet with them and they may suggest doing it over the phone.
Surveys are great for uncovering pains, challenges and weaknesses in every industry. You can develop questions similar to the ones below for your Informational Interviews and for general surveys to people in your top five “interest” areas.
If you uncover pain, challenges or weak spots, you may then have a new business opportunity to begin researching.
ACTION ITEMS: Complete the Action Items in your Action Guide.
Imagine you are now on the phone or meeting in person with the business owner of a company that has products or services within your top five “interest” areas.
Develop a list of questions to ask them.
What do you want to know from them?
How did you get involved in this market?
What do you like about your market?
What do you dislike about your market?
What’s the biggest challenge that you face in your market?
What’s the biggest success story that you have had in your industry?
What’s your biggest failure?
What do customers like about your company?
Why is your company better than your competitors?
If you were to start your company all over again from the ground up, what would you do differently now?
The informational interview will provide answers to you that may not have ever crossed your mind before speaking with them.
Learn more about creating and conducting surveys in Section 4.5 of How to Start a Business.
Searching for Answers and Ideas
Your goal is to uncover problems, challenges, opportunities and ideas that might lead to new products or services with compelling value propositions in your desired market.
Defining your interests and passions will bring you closer to business opportunities that you may have never considered.
Now that you have interviewed business owners, your next step is to begin interviewing customers in the market and industry that most closely align with your top interest areas.
Start by typing in your “interest area” combined with “customer challenges” in Google and see what appears. You may find that numerous customers are looking for a new product or service offering that solves a current challenge for them.
Next, visit local stores that relate to your top interest areas and observe the customers who frequent the store. Listen to the questions that they ask in the store.
Conduct informal interviews with the sales and customer service staff.
Ask them what the number one best selling product is in their store. Now ask them, “What do customers always ask for that your store does not carry?” or ask them, “Do your customers ever provide suggestions on how your products could be improved? If so, what do they suggest for improvements?”
Again, you’re trying to uncover demand for a product that may not exist or for one that is most popular that might create a new opportunity for you.
Keep searching and new business ideas that align with your passion and interests will begin to appear for you.
2.4 Purchase an independent business.
Okay, maybe you’ve determined that it takes too much time to create an idea, build a business around it, and grow a business from the ground up. In fact, perhaps it’s important for you to have an income right away. So, looking for an existing business may be the right path for you.
All the rules apply in buying and operating an existing independent business as starting an independent business. So, you might want to go back and read section 2.3 again.
Searching for a Business
Where do you start? Review your top five major business areas of interests from section 2.3 and begin connecting examples of business types or variations of the business to explore.
ACTION ITEMS: Complete the Action Items in your Action Guide.
List five types for each example.
Here are a few ideas:
Restaurants – cuisine, hours of operation, fine dining, sub shop, liquor, location type, etc.
Home Improvements – handyman, plumbing, painting, carpentry, electrical, tile, etc.
Now circle your Top Two choices above.
Once you identify business models that you are ready to explore, contacting a business broker to help you focus on the listings is much easier. Setting an importance factor of which business example to look at first, allows you to interact more closely with the broker. It’s possible that your first choice is not for sale in your area and having a backup plan helps both you and your broker remain engaged.
Buying a Recession Proof Business
During recessions, business revenue security becomes the number one priority as entrepreneurs flock toward so-called recession-proof businesses. Recession-proof businesses are traditionally defined as industries that either thrive during poor economic times or at least survive unscathed. These are the businesses that will thrive no matter what the economy is doing, quite simply because they provide services that society in general cannot go long without.
Health Care: Health services including medical staffing, home health aids for the elderly, physical therapy using exercise and stress relief at spas.
Education: Learning centers are generally immune to a shaky economy, particularly if you’re helping students prepare for higher education and in areas with a high economic growth.
Energy: Anything related to alternative fuel sources like solar and wind power, or oil and gas and other energy sources will likely flourish.
Environmental: Businesses that use or introduce “green” has sustainability and will be in demand.
Security: Protecting our assets, homes, cars, families, and businesses, will be in need even if the economy turns for the better there is always a need to feel secure.
These are examples to consider and your community or city may have other concerns.
It’s been said that the tavern businesses are good investments during a recession because individuals want to forget about the troubles they’re in.
ACTION ITEMS: Complete the Action Items in your Action Guide.
What else do people feel they can’t live without?
Name three more industries:
An existing business offers the buyer a lower risk because there is already an established track record and reputation, an existing customer base, immediate cash flow, and a direction to follow. These are all good features, but are there more variables to keep in mind?
Could there be more risks? Is the value or equity in the business at its peak? Are you seeing the whole story, are there two sets of books? Is the current owner so heavily involved with the customers that the goodwill and loyalty of the customers leave with the previous business owner? It may be hard to determine the real value of the business and you might be paying more than it’s worth. Typically, an existing business will cost you more and sometimes as much as 2x, 3x, 5x, 10x, or more, than the business’ annual revenue.
You’ve also got to ask some questions regarding why the business is for sale. Could the market be tapped and is now heading on a downward trend for revenues? Was the business mismanaged and the owner is looking for a way out? The owner may have personal issues, an illness, tragedy, death or divorce. Having an outside firm survey the business for you can uncover areas of concern and areas of value that might be important for you to consider.
Buying an existing business can be a solid investment and a good decision, however, buyer beware and make sure to perform your thorough due diligence.
A business broker works with the business owner to help list their business for sale.
As business intermediaries, business brokers facilitate the successful sale of a business. They advise the seller on valuing their business and structuring the sale so it’s effective for both the seller and buyer. They can look for the right buyer for a business and work with the seller and the buyer on all transaction details until the closing.
A business broker can help you make the right buying decision by providing everything you need to fully understand a prospective business. That includes examining the price, terms, income, cash flow, and location to be sure a given business is a good fit with your financial needs. They can also arrange a visit to a business to allow you to assess the ambiance and get a sense if it’s properly cared for and well managed.
Begin researching business brokers in your area to gain information about their services.
There are many business brokers, before settling on one, interview them to make sure they will provide the support you desire and have the characteristics to help you. The “owner or seller” of the business usually pays a business broker a commission or percentage of the selling price just like a real estate transaction.
Business brokers typically get paid when a business sells. If a broker requires an upfront fee in a normal business sales transaction, consider looking for another broker. Check them out, as some may charge you for business due diligence and some will not perform a due diligence survey before listing or showing you a business at all.
Reputation, trust and integrity are key. You also want an experienced broker, one who relies on a process and one with a strong marketing reach. Use a business broker to help you reduce any risks. You can’t eliminate risk, but learn what’s there and learn how the risk needs to be managed.
Interviewing Business Owners
Don’t go alone.
Your business broker should be there and introduce you to the seller. They should take you to businesses that meet your needs and will listen carefully to your thoughts and questions.
You might consider asking some of the questions below:
Provide a general (short) description of the business.
When was the company originally formed and by whom?
Provide a brief history of the business.
List any major accomplishments for the business, or setbacks.
Is there any pending or threatened litigation? If so, provide details.
Provide a general description of each of the company’s products and services.
Provide a breakdown of sales for each product and service.
Are any of the products/services seasonal? If so, what and why?
What future products/services do you plan to offer?
How do your products/services compare to the competition?
Does the company have any copyrights, trademarks or patents?
Provide a general description of the market?
What is the typical customer profile?
What geographic market is the company servicing?
Who are your top 10 customers and what percentage of your sales do they comprise?
Who are the major players in the industry?
Provide a general description of the competition.
How important is pricing and are there any price pressures?
List your top 3 direct competitors and give a brief description of each.
On what basis do you compete with your competitors (price, service, etc.)?
What are your competitive advantages over the competition?
What are your weaknesses vs. the competition?
Is your industry facing any changes?
Describe the company’s general marketing plan.
Does the company have an Internet presence?
Are there any key sales people? If so, is there an employee contract or non-compete?
How many part-time, contract and full-time employees are with the company?
What is the salary range and available benefits for each type of employee?
Describe the importance of any key employees.
What is the general morale of the employees?
Provide a current organization chart.
Do the owner(s) actively manage the business? If yes, please list primary duties and hours worked per week?
What is the owner(s) reason for selling?
List the company’s strengths.
List the company’s weaknesses.
List the opportunities that the company should explore.
It’s best to come prepared by creating a printed list of your business owner questions.
By doing so, you’re able to remember the questions to ask, you can write down the responses, and you can consistently ask the same questions to all the business owners you interview. You might add or decide not to ask certain questions during each interview. What you gain by including each question is an opportunity to compare results, which may become important if a couple of businesses are closely matched.
Coming to the table with written questions also displays a well thought out plan that should impress the business owner and your broker. Keep in mind, before a business owner sells, they’ll want to feel comfortable that you’ll be a good owner. Remember, they don’t always have to sell and likewise you don’t have to buy. Maintain good, professional, relations.
Getting the Most Out of Your Business Broker
Having a professional business broker on your side will increase your success rate in purchasing a profitable business for the future. Interview prospective business brokers to find out what their objectives will be, is it all about finding you a business fast and using all your money? Or, is the broker spending time to ask you questions that relate to your future and what you want? The broker should be concerned for you, not themselves.
Guess what… in some states a commercial real estate license is all you need to be a business broker. You should take time to know your broker, identify what makes them a good broker, experience, education, have they been a business owner? Ask to talk with several clients they’ve helped in the past, ask for referrals. Look for track records with satisfied customers and clients.
You should expect a broker to help you with the following:
No fees – the seller compensates the broker.
Conduct confidential searches for appropriate opportunities.
Locate well-established, profitable businesses that will perform.
Perform an analysis and appraisal of the business.
Provide demographics related to the business of interest.
Locate businesses that aren’t necessarily for sale yet.
Ask you about your goals and needs in business ownership.
Focus on the quality of the business deal, not the money they’ll make.
Help you market yourself as a good prospective business owner.
Introduce you to the business owner.
Examine the business financials and help assemble a professional team to help you. (CPA, attorney, banker, etc.)
Help you prepare an offer.
Help you determine a realistic value range and guide you through the negotiation process.
Due Diligence is the term used in business acquisitions to describe the investigation process and the attention and care needed to protect the parties. It is the process of proving to the buyer that there is “really something to buy.”
Due Diligence involves reviewing the accounting records to determine the numbers are as stated in the offering documents. This may involve reviewing tax returns, invoices, receipts, payroll and other financial documentation. Due Diligence will also entail an investigation of all factual information mentioned in the offering document as well as a review of identified business issues not fully discussed.
Again, don’t do this alone unless you’re experienced in business acquisitions.
Build a team of experts around you. If you are experienced in business acquisitions, then you already know the importance of building this team of experts:
Certified Public Account (CPA)
When you decide to work with a business broker, find out what due diligence has been done and why they decided to list the business. Some brokers, not all, will pre-qualify a business before listing it for sale.
For example, Bill Burnham of Florida Business Acquisitions, says, “Our core philosophy is that we will not sell a business that we would not buy ourselves under the terms we offer to prospective buyers.”
In other words, they won’t list a business unless after their due diligence is complete, it makes sense for the business to be sold and they can be confident that their reputation can be held in high standing.
Buying a business takes planning, determination and dedication.
There are a lot of potential opportunities and without a structured approach; it’s easy to get frustrated. Creating a buyer questionnaire as mentioned above in the “Interviewing Business Owners” section, will get you started.
It’s highly recommend that buyers update their resume, not only to help you evaluate your skills, but also to demonstrate your abilities to the sellers. Preparing a personal financial statement is also another key component of searching for a business. Begin marketing yourself as a viable, capable, business owner prospect.
The U.S. Center for Entrepreneurship has excellent Action Guides to increase your knowledge and can be extremely helpful before buying a business.
2.5 Working on the money!
This can be a big stumbling block for emerging entrepreneurs.
You finally settle on a business idea, you’re putting your business and marketing plans together and you need to fund the business. So, where can you go?
Congratulations, you’re independently wealthy and you can fund the business yourself!
Banks or Credit Unions
Borrow on your 401k
Home Equity Line of Credit
Angel Investor / Private Investor
Find a business partner
If you’re buying an existing business, is the seller willing to provide owner financing?
Do you have family or friends that would invest in you?
Apply for a grant – but don’t hold your breath as they are very hard to secure.
Bottom line, what’s your best option? Where ever you can find the money!
You may need to use more than one resource and combine the money needed to fund your business. Remember to be conservative when financially planning your business income and make sure you use responsible numbers when planning your expenses, including any loans.
Learn more about investment capital by reading USCFE’s Action Guide – Funding a Business.
Another concern is to set up and build your business credit. Using your personal credit could jeopardize your ability to buy a car or home. Make sure you separate the two. Use your banker, CPA, or financial planner to help with this.
If you’re a little intimidated or afraid, it’s all right, in fact that’s a good sign. You’re no different than anyone else. Remember FEAR. When dealing with fear, dispel it by finding facts.