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Discussions > Is Buying A Service Based Business A Good Choice These Days?
Is Buying A Service Based Business A Good Choice These Days?
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Posted By: Christina Lazuric 
I've been selling small businesses a long time and I get many call from business buyers who are open to buying something but aren't sure what would be a good investment. I'll get asked what I would buy if I was them and my answer is always the same, "a service-based business". I explain why here.
Topics: Buying A Business Tags: buying a business
I've been selling small businesses a long time and I get many call from business buyers who are open to buying something but aren't sure what would be a good investment. I'll get asked what I would buy if I was them and my answer is always the same, "a service-based business". I explain why here.
Topics: Buying A Business Tags: buying a business
Contributor: Christina Lazuric: Business Broker, Orange County
I've been selling businesses a long time and I get many call from buyers who are open to buying something but aren't sure what would be a good investment. I'll get asked what I would buy if I was them and my answer is always the same, "a service-based business".
There are plenty of reasons for my choice but the most compelling is my aversion to risk. While its true that service businesses typically come with fewer assets than the average business I say, who cares. Maybe it makes some people feel better to walk into a business that has office equipment, machines, people doing things with the machines. I just see liability. Over the course of my professional life I have seen business equipment sell for pennies on the dollar, so I feel that if you're thinking that these assets are going to save you in a worst-case scenario then think again, that's a false sense of security. Capital equipment is a different story, but few businesses come with equipment values over a few hundred thousand dollars.
I believe in pure cash flow without the drain of appendages. When I first got into business brokering I couldn't give a virtual business away now 13 years later, I just closed a sale of a 6-million-dollar business that came with 2 laptops. Service can even be retail if you aren't responsible for a lease of space, furnishings inside, employees to run it, and sitting on inventory, thank you Amazon. The less responsibility the business has to bear the better it is. Also, the more flexible a business can be the better it is. Businesses try to control sales by doing their part, marketing sales calls etc. What about the unforeseen market circumstances that no one saw coming that have a real affect on some businesses? In a service business that doesn't have an expensive monthly lease or many W2 employees to feed, you can streamline to adjust for the change but if you're trapped in many fixed monthly expenses then you won't weather a long drought.
A service business isn't for everyone of course. If you're a machinist, then you are a machinist and that's not virtual unless you contract another machinist to do all your work for you. The point is that we need some businesses to have a storefront and warehouse, that's just how they operate. If you have a choice though and you're thinking about it, just focus on the highest cash flow and least liability.
There are plenty of reasons for my choice but the most compelling is my aversion to risk. While its true that service businesses typically come with fewer assets than the average business I say, who cares. Maybe it makes some people feel better to walk into a business that has office equipment, machines, people doing things with the machines. I just see liability. Over the course of my professional life I have seen business equipment sell for pennies on the dollar, so I feel that if you're thinking that these assets are going to save you in a worst-case scenario then think again, that's a false sense of security. Capital equipment is a different story, but few businesses come with equipment values over a few hundred thousand dollars.
I believe in pure cash flow without the drain of appendages. When I first got into business brokering I couldn't give a virtual business away now 13 years later, I just closed a sale of a 6-million-dollar business that came with 2 laptops. Service can even be retail if you aren't responsible for a lease of space, furnishings inside, employees to run it, and sitting on inventory, thank you Amazon. The less responsibility the business has to bear the better it is. Also, the more flexible a business can be the better it is. Businesses try to control sales by doing their part, marketing sales calls etc. What about the unforeseen market circumstances that no one saw coming that have a real affect on some businesses? In a service business that doesn't have an expensive monthly lease or many W2 employees to feed, you can streamline to adjust for the change but if you're trapped in many fixed monthly expenses then you won't weather a long drought.
A service business isn't for everyone of course. If you're a machinist, then you are a machinist and that's not virtual unless you contract another machinist to do all your work for you. The point is that we need some businesses to have a storefront and warehouse, that's just how they operate. If you have a choice though and you're thinking about it, just focus on the highest cash flow and least liability.
Aside from poor management, one of the ways most businesses fail is insufficient capital, because they either misjudge how much their sales will be or they spend to much building the business with investments in equipment or splurge too much on tenant improvements. Many business owners will overestimate their sales and underestimate how long it will take to get the business off the ground, and end up having a failure on their hands. A "service-based business" is good, but like with any business, and in any industry, I recommend to my clients to view each business on a case-by-case basis and not just be following a trend - they should always look and analyze the numbers, and be conservative with what future sales will be and mind their expenses, so they don't end up running too low on capital.
| Helpful Resources To Assist In Selling And Buying California Businesses |
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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. |
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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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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. |
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Shalonda Chappel-Pilgram: Escrow Services - Southern CA Escrow services to brokers & agents, owner/sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services. |
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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. |
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Mike Hurrell, Broker: Coin & Card Laundry Specialist Brokerage Providencia Properties Inc in association with Golden State Laundry Systems is a full service Coin Laundry Real Estate Broker. At GSLS you will receive personalized attention from our professional staff of coin laundry experts. To sell or buy a Southern CA laundromat call Mike at 310-223-2240 X209. |
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Mike Brewer: Liquor License Brokers, ABC Consulting Services Liquor license brokerage and consulting services. We provide: Alcohol License Transfers Application Consulting & Processing, Liquor License Purchases & Sales, City Zoning Permits & Land Use Entitlements, Public Convenience or Necessity Findings and Letters. Phone Mike Brewer direct at 800-437-1100. |
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Christina Lazuric, CBI, Business Broker - Orange County California's Premier Brokerage for Selling Orange County Service Based Businesses since 2005! C.B.B. provides a step by step approach to Business Brokerage, Mergers & Acquisitions, Business Consulting and Valuations. We work on creating the best possible presentation for your business! |
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