How should you go about launching your own business?
In my last column I started out by stating that entrepreneurism is on the rise across America. According to the United States Census Bureau, Americans registered 4.3 million new businesses in 2021 — a 24% increase from 2019. This is supported by my observations that our requests continue strong for help about “going into business”. Therefore, I wrote about Help For Starting a Business in 2022 in that last column.
You want to start your own business and be your own boss. But how should you go about it? Should you launch your own business from scratch, buy an existing company or purchase a franchise opportunity? So let us take a closer look at these options to help you decide. I suggest several considerations which could save you some time and heartaches. My first suggestion is to seek out a mentor and have a chat about it.
Do you already have a business idea that you’re passionate about? Perhaps you have a plan for doing something in a way it’s never been done before, “disrupting” an industry or bringing a new invention to market. Maybe you don’t like being told what to do and want to handle every aspect of your new business your way.
If so, starting your business from scratch is likely the best way to go. If your business is truly groundbreaking, you probably can’t find an existing business or franchise opportunity exactly like the one you envision. If you don’t like following rules, you’ll chafe at the restrictions of franchising even if you do find an opportunity similar to your idea. And if you enjoy building things from the ground up, you probably won’t want to deal with someone else’s existing business.
Starting from scratch is also a good option if you’re on a limited budget. You can shape your new business to fit your available capital, such as by operating from home or part-time, as opposed to meeting the financial requirements of buying a franchise or a going business.
On the other hand, maybe buying an existing business is a path forward for you. Perhaps you want to be your own boss, but don’t relish all the groundwork involved in getting a new business off the ground. You’d rather step right into the leadership role, taking charge of a business that’s already thriving. Or maybe you know you could excel at turning around a struggling business or expanding a smaller company into a big name. If this is you, buying an existing business could be just the ticket?
My observation is that visiting with a SCORE mentor can clear your path for making a good decision. Also, one of SCORE’s valuable resources is the many content partners that share their experience and write pieces about various topics. Rieva Lesonsky is one such example. She is president and CEO of GrowBiz Media, a custom content and media company focusing on small business and entrepreneurship, and the blog SmallBusinessCurrents.com. I will share one of her recent contributions.
According to the BizBuySell Insight Report for Q4 2021, the business for sale market has shown “slow, yet steady growth” for the year, “particularly in terms of buyer demand for financially-healthy businesses.”
If you’re in the market for a small business, you’re likely going to have to contend with rising prices. Median sales prices rose about 30% in 2021, “finishing the year at $324,500 in the fourth quarter.”
What are buyers looking for? According to the BizBuySell Small Business Survey, 60% of buyers say profitability and strong financials are a purchase requirement, followed by trained and skilled employees (37%). Of the financials are subpar, 18% want a discount on the sales price.
Most in-demand types of businesses were: the service sector (37%), restaurants (26%), and wholesale distributors (25%). Specifically, buyers were looking for “pandemic-resistant businesses,” such as liquor stores, gas stations, auto repair shops, and e-commerce.
Why are owners selling? Several factors are contributing to business owners putting their companies up for sale.
The most common reasons given are “retirement and general burnout.” But running a business through two years of a pandemic has taken a toll—43% said “pandemic fatigue was moderately to extremely motivating” for them to consider selling their businesses. Plus, one business broker noted that “the challenge of finding and keeping employees is a deciding factor to sell now.”
As unfortunate as that is, it’s good news for people looking to buy a business. More than 78% of business brokers surveyed expect more sellers to enter the market in 2022, with 25% saying they expect significantly more sellers.
Many baby boomer business owners are seeking to exit their companies as well, opening up more opportunities for business buyers, many of whom are entering the market after quitting their jobs. BizBuySell reports that 21% of business buyers identified themselves as being part of the Great Resignation. And 73% of business brokers say they expect an increase in the number of buyers hitting the business-for-sale market in 2022.
In my next column, I will focus on the process and considerations of how to buy a business.