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When I Grow Up I Want to Own a Business

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Often I am asked to recommend to prospective business owners the best business for them to buy. While my tongue and cheek answer is a business that makes money, the real answer is any business you will be willing to run as a business. In other words, it’s not the type of business that makes the difference; it’s the person running it that does. This includes the decisions made on a day to day basis and how the business is structured. However, there are some areas to pay attention to that will help while you consider which business to buy or start up.

Before you take the plunge and become a business owner, there are some matters to consider. One of the first things to consider is whether you already possess something of value that you could exploit. For example, you may already own assets such as machinery, or have expertise in a particular area that can be used to gain an advantage over other competitors. You may also have some expertise in one area no one else has, or is not found in this region. In Prince George we tend to see this with firms that operate out of Vancouver, Edmonton or Calgary. Often they have left the door open for a local entrepreneur to start their own business due to the lack of service or quick response. The warning here is that you may be viewed as providing an inferior product or service because you are from Prince George. For some reason Prince George in general tends to believe that local products and services are sub par when compared to those from larger urban centers. This means that any business that decides to start up in the Prince George area will not only have to spend a great deal of time and resources marketing themselves, but they must be prepared to work harder than their urban competition. Unfortunately, this issue has been evident in Prince George in areas such as multi-media, computer programming and consulting. However, there are many success stories out there, so don’t be dismayed. 

Another issue to pay attention to is around areas that show potential for growth or expansion, both in the short term and long term. If your venture is going to be successful it will need to continue to increase sales and revenue. For this reason it is important to choose a sector that is either under serviced or is expected to see growth over the next two to five years. While this growth attainment may be as simple as expanding into other markets, such as other provinces or supplying other services, the absence of that potential is a warning signal telling you to find a different business opportunity. 

For those prospective business owners who are looking to purchase an existing business, don’t fall into the trap of assuming that the previous sales recorded by a firm are going to continue. Too often new business owner find out too late that those healthy sales numbers were due to other reasons, such as friends and relatives selling and buying from each other. This is scenario that is not likely to be repeated when you take over. Another reason for inflated sales may revolve around specific sales people who have been responsible for a significant part of the sales and have now left the firm or changed jobs within, or are themselves selling to friends or relatives. Finally, you need to be aware of firms that have inflated their sales volumes over the last year or two. This may have been done by shifting sales revenue from one year to another, or the firm may have been selling at below cost or reduced their margins to increase sales. Two words of advice should be followed here. Have your accountant look over the financials, and make sure you can get at least three years of financial records, five years is preferable.

If you are going to require financing assistance, you may want to concentrate on sectors that are looked at positively by your local banker. Unfortunately, Prince George is not always considered to be the best place to lend to by some financial institutions, even when the economy is good, such as we are now finding. On top of this, certain industries or sectors have always been considered to be more risky by lenders than others. This was particularly true in the late 1990’s when the forest industry was not the industry of choice for a number of lenders in town. I would suggest that any prospective business or business purchasers have a talk with a number of lenders in Prince George to ascertain which industries they are lending to and those they are not.

Added to the issue of financing and funding your new venture is the issue of establishing a positive cash flow. To be successful, you need to look at business opportunities where you will quickly be able to establish cash flow and will not have to wait for more than a few months before you begin to see payments arriving at your doorstep. Lack of cash flow is the main reason why businesses fail, so it is imperative that you ensure your business is capable of either surviving without an injection of cash in the short term, or you are able to institute a consistent collection of accounts receivables. When buying or starting a new business, make sure cash flow is part of the business plan.

While this is not meant to be an all encompassing list of hints for new business owners to consider, it will certainly go a long way to ensuring you have made the best choice possible based on the information you were able to obtain. Which business to buy or start is a decision made easier when you have done your homework and identified the areas of concern, uncertainty, and potential. 

-Myron Gordon owns TMSG Management Services Group, which provides management and financial services to growing businesses.

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