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Notes on Choosing a Business

Which business is right for you? There are two other questions to ask before you start to look for the answer to that one...

1. Do you want to be in business?

Even when you own your own business the boss won't always treat you well. Stress and unpredictable income are givens, especially at the start. Many people, including bankers, will be less-than-sympathetic about your problems. A friend once told me the banks wouldn't give him a mortgage loan because of the unpredictability of his business revenue, but they would loan money to any of his employees. Even though their income came from his unpredictable business this almost makes sense. His employees get a regular paycheck even if he's losing money, and then move on to another job if his business fails. There are some good things about being an employee. But then an employee's income has some pretty definite limits.

2. Do you want to buy or start a business?

If you are entrepreneurial you'll probably want to risk starting a business. If you are more of a manager it makes sense to buy into an existing revenue stream. But those are just general guidelines. You have to also take into account the nature of the business. I'm more managerial than entrepreneurial, so I would prefer to buy an existing vending route than go out there and try to build one myself. But on the other hand, my wife and I started our successful online business ourselves because it took only a few hundred dollars, which certainly lowers the stress associated with the "risk" we took.

There are definitely advantages and disadvantages to buying or building a business. Buying means you buy into an existing income stream and a proven system (at least if you do your due diligence). If I wanted to be a restaurant owner (I don't), I could buy a small place here in Naples, Florida for under $100,000 and instantly have an income of somewhere between $40,000 and $80,000 (the options come and go). I could buy a restaurant that has been around for at least five years and has had higher sales each year. Of course you risk more when starting on your own business, but you have more potential. After all, you might build a restaurant into a $50 million chain. If you let someone else do that you probably can't buy the business.

More Questions

Give some thought to the two questions above. If you still want to be a business owner, and you have determined whether your personality is more entrepreneurial or managerial, here are some more questions to consider. These will help you narrow down your options.

Do You Have the Necessary Skills and Knowledge?

If you don't know anything about the business, you can learn. If you need certain skills, you can develop them. But starting before you do these things is not a good idea. One of the best ways to get the knowledge and skills needed is to work in the business you are interested in. Starting at a pizza parlor, for example, you can often work your way up to assistant manager in a few months, and so learn much of what you need to know to start your own pizzeria.

Is It a Great Product or Service?

High-quality is easier to sell, but this isn't the only thing to consider here. You also want to note whether it is unique enough in some way, so you don't have a dozen other's undercutting your price and driving down margins. Fortunately, even a common product or service can sometimes be sold in a new way. A mobile pet-grooming service that goes to the pet-owners home, for example, can probably charge more than all the other location-based services.

Is the Business Resistant to Employee Problems?

It is nice to have no employees because that means having no employee problems. This isn't possible in all businesses of course, but there are other things to consider as well. Are the positions you'll be offering easy to fill? Can you afford to pay the going rate?

How Much Do You Need to Invest?

Look at the money and time you'll be putting in at the start. Ideal would be fifty dollars and five hours a week invested. There really are businesses like this, and many which can be started part-time for less than a thousand dollars. If you risk more, you should have a good reason too, like higher returns, or a business more in line with your passions.

What Kind of Return Can You Expect?

Consider the likely profits you'll be able to make, but also how soon they'll come. It's great to generate a decent income at some point, but if it takes three years you have to somehow survive in the meantime.

Is It In Line With Current Trends?

This probably isn't the time to start a business selling typewriters. You want whatever service or product you're going to offer to be saleable for the foreseeable future. Selling solar panels, for example, could be a good bet, since the trend is towards more use of alternative energy sources.

Does Is Create Residual Income?

Residual means income which continues after you stop working in the business. Rental income from an apartment building, for example, comes in even if you don't look at the building for years (if you have a manager). We have advertising revenue from web sites we haven't seen in months. You may have to work hard at first, but will you be able to step aside within a reasonable time (perhaps three years) and still have a stream of income? This isn't a necessity, but if you have a business that will always rely on your own labor you bought a job as much as a business.

Does It Provide Something Needed Regularly?

It is best if people need your product or service every day. Food, for example, fits this ideal. Any necessity which is needed at regular intervals is a safer bet than faddish products. People will stop going to the laser-tag fun center when times are tough, but they'll still eat, clean their homes, and drive their cars.

Does It Get You Excited?

This may be one of the most important questions to ask. It's always going to be more difficult to succeed at a business that doesn't inspire you. It doesn't have to be the thing you've always wanted to do, but I can tell you from experience that it's a lot easier to get up and do the work necessary when it is at least interesting.

The above isn't meant to be a "test." If it was almost any business you consider starting or buying would fail on several of the questions. On the other hand, this list can help you narrow down the options, so you can find a lower-risk, higher-return venture. Or a high-risk easy and exciting one; choosing a business will always involve unique personal criteria.

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For more on choosing a business, see the following list of pages:

Good Businesses