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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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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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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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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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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. |
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Steve Erlinger: Laundry Broker, Consultant - Southern California I specialize in the laundry industry broker and consultant in Southern California. I assist buyers navigate the many facets of finding, evaluating, and operating a laundry business. I also help current laundry owners find additional stores, sell, evaluate an existing laundromat. |
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Lee Petsas, Business Broker - Orange, San Diego Counties, Inland Empire UBI Business Brokers has been successfully selling businesses in Southern California since 1965. Our Agents have over 100 years of experience in selling small to medium size businesses throughout Southern California. We service Orange County, Inland Empire, San Diego. Phone Lee at 714-363-0440. |
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Jack Oh, Business Broker - LA, Orange Counties Business broker and real estate services in the Los Angeles and Orange County areas. 10 years experience with great negotiating skills. To sell a business or buy a business in the LA or Orange County Areas phone Jack and his team at 562-787-4989. |
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Ryan Clark, Business Broker, Southern California The Veld Group provides a refreshing approach to Business Brokerage, Mergers & Acquisitions and Business Consulting and Valuations. From Your Street to Wall Street, we cater to Main Street Businesses as well as more complex Strategic Firms and Start-Ups. Phone Ryan at 310-652-8353. |
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