Here's a question that stumps many business opportunity buyers: "Are you planning to invest in a small business purchase or buy a job?"
The usual answer: "Gee, I’m not sure," reveals the facts that buyers don't understand the difference and that a number of businesses for sale could be both.
Buyers trying to determine what kind of business they want so they can focus their search can benefit by becoming aware of these options and knowing which description applies.
The three clues that can be used to help determine whether a for-sale offering belongs in the buying a job category or is a business opportunity with more to offer are:
1. The level of hands-on required: The difference between the job that keeps the employee working 50 hours or more every week and a business that keeps the owner working 50 hours or more every week is, well--there is not much difference. If the seller’s labor is needed to fill orders, serve customers, direct the staff, or manage other critical operating functions, the enterprise is more likely to fit into the “job” than the “business” description. Conversely, the organization would be considered a business opportunity if the owner is free to do other things during the company’s operating hours, such as work in a job for someone else.
2. Whether there is sufficient cash flow to permit absentee ownership: Suppose the employees handle enough of the work load so that the owner needn’t be involved in daily operations, but the payroll cost to accomplish this objective leaves the owner with no discretionary earnings at the end of the year. Technically, this might be considered a business rather than a “job,” but it’s not a very good business if the owner isn’t able to get a return on the money invested.
An enterprise that fits this profile might be able to produce some earnings for the owner, but only if he or she replaces some of the staff. In that event, the operation really is, for purposes of our discussion, much more of a job than a business.
To be considered a "business opportunity" rather than a job, a company needs to be able to operate without much involvement by the owner, and still produce a reasonable return on the investment.
3. Expandability: What if the business can be operated absentee, producing little or no discretionary earnings for the owner, but is growing in value?
Just because the seller has had to come to work every day to "earn" an income doesn’t necessarily mean the operation should be considered a "job."
There are a number of examples of this kind of operation purchased by a smart entrepreneur who sees a way to boost earnings by adding customers, eliminating unneeded expenses, or doing both.
In that case, what initially looks like a job--because the new owner is not “hands-on” but is receiving no income--may actually be, for our definition, a business opportunity investment.
In fact, the buyer who is planning and developing more locations or adding products or services to expand the customer base--but is not attending to the details of daily operation--may actually be in the process of converting what was a “job” into a business. There is no immediate financial gain because, unlike the seller, the new owner is not working “in” the business and taking out a salary, but is working “on” the business and adding to its value.
Clearly there can be subtle differences when attempting to define an enterprise for sale as a business opportunity or as a job. Many offerings defy easy categorization as one or the other. And an opportunity might have the potential to be either a job or a business, depending on what happens after the buyer takes over.
Although there are offerings difficult to categorize as either a business opportunity or a job, the prospective buyer needs to give this subject some thought as part of the process of defining purchase goals and learning how to buy a business opportunity.
About The Author: Peter Siegel, MBA is the Founder of BizBen.com and the Director of the BizBen Network. If you are searching to buy a California small business make sure you are a part of the BizBen Business Buyers Success Program. If you have questions about buying a business, getting SBA Loan pre-qualified or about the Business Buyers Success Program please feel free to phone Peter Siegel direct at: 866-270-6278.
|Helpful Resources To Assist In Selling And Buying California Businesses|
|Helen Yoo: Escrow & Bulk Sale Services - Southern California
New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.
|Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services
Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063.
|Elizabeth McGovern: Escrow Services - SF Bay Area
McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.
|Joe Sandbank, Esq. - Legal Services
I have provided legal counsel to business buyers, sellers and brokers for over 17 years. With prior experience as a business broker and SBA loan officer, Joe brings both a practical and legal approach to all aspects of the business acquisition process.
|Ranvir S. Sandhu, Esq. - Legal Services For Buyers And Sellers
I've worked at top Bay Area law firms and have extensive experience with business entity formation, mergers, dissolutions, conversions, employment matters, including experience in reviewing and negotiating transactional documents such as leases and purchase agreements.
|Brad Steinberg, Broker - Laundromat Specialists
PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.
|Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses
Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.
|Diane Boudreau-Tschetter: Escrow And Bulk Sale Services
California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.
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