what’s a good business to buy?

since Im not renovating houses lately, I thought I might get a job. but having been self employed for the last 11 yrs, working for a boss might not cut it. And if the recession begins to bite, any job might be hard to hold.

There are a lot of baby boomers looking to retire, sell their business & walk away over the next few years. Add to this the recession and it seems like there will be great businesses going cheap.

When I think back, talking to everyone I know who bought a business, they all seemed to be duds. Revenue was never what was claimed and they ended up losing a lot of money after busting their ass for a few years. I cant afford to become one of them.

What are the signs of a GOOD business? Strong cashflow, minimal debt. Track record of profitability and earnings growth. The best advice I can give is minimise costs as much as possible, particularly rent, which kills a lot of businesses. I always try to own the property that I run a business out of. When getting into business, the best advice I was given is calculate how much it will cost you to run that business if you do not make a sale for a month.

How do you value a business? It depends on the type of the business and also the strength of the business ie how long it has been in operation, balance sheet, profit and loss, etc. But it does depend on the type of business and the industry

A good example of this is I am providing finance to a person buying a Financial Planning company. These businesses earn "trail" or recurring income from their clients as well as commissions for the advice that they give. The business is then valued on what is called "multiples" of the income. A financial planning business may be valued at a multiple of 2 to 3.5 times earnings, so let's just say the business earns $100,000 per year, the business will be worth $200,000 to $350,000.

The lender I am putting them through will give them 100% finance on the value of the business, because of the strength of the business. Many other lenders will only give 75% of the value of the business and the rest needs to be secured against property or other assets, so I would sort out the finance before making any decision.

Retail businesses and franchises may be valued on the goodwill + SAV (stock at value). Be careful here though, that the previous owner does not have a mountain of old stock that they haven't been able to move for a long time! A very good example of this is say you bought a business that sold plasma TVs. The price of these items drops every week, so be careful what you pay for the stock.

Are there recession proof businesses? Although consumer confidence is a key issue in many businesses I believe it depends more on an individual business owner rather than what is happening on the market. I am in the home loan business and for instance there are around 50,000 home loan approvals written per month in Australia. Now even in a supposed "downturn" there are still around 47,000 loan approvals in a month – these customers have all still got to go somewhere! Even before the new FHOG Boost I had many first home buyers who had been saving for years so they were eventually going to buy real estate anyway, not to mention a heck of a lot of refinancing I am doing to improve people's cashflow and restructuring of their loans more efficiently.

Perhaps this is indicative of me being in a service industry, as opposed to retail? I'm of the opinion that these are by far more recession proof than retail businesses, although this is a massive generalisation.

What do people think of franchises? I am a big fan of franchises, on the condition that YOU are the franchisor!

All jokes aside, they are good for people who lack the experience and need systems and support. Personally I think that instead of spending $100k (or even up to $500k or more + stock) buying a business, you could spend that money developing your own business. I know a few people who are known as "super-franchisees" who own multiple outlets of the one franchise, such as Subway or even Outdoor Furniture Specialists and so on.

Depends on your needs and goals as well, at some stage I was looking to buy into a Subway franchise for about $180,000 completely set up in a high traffic location, however maybe put it down to ego, I eventually preferred to carve out my own brand and identity because you end up working hard to build your own brand not someone else's. These things are hard to quantify when you are in a franchise outfit ie the amount of value you are adding to someone else's brand.

Bottom line: DO YOUR RESEARCH. The biggest trap I have seen franchisees get into is not taking responsibility for their own business and hoping the franchisor will come along and save the day every time the road gets tough.

has anyone here had success / failure buying a business?