MBA969 Is Buying a Physical Business a Good Idea?

Hey. Oh. Welcome to the Hundred Dollar MBA show, the business podcast that knows the more you know, the more you grow. That's why we deliver daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of the Hundred Dollar MBA, a complete business training and community online over at 100 MBA. Getting started and you want to nail your business idea. You want to make sure that what you're providing customers, what you're about to launch is something that they actually want. Then you should definitely check out our free idea Validation course. This is a seven part video course and workbook that you can get access to for free. Make sure what you offer is actually what people want. Just go to 1000- MBA-NET to enroll for free. In today's episode you will learn Is buying a Physical business a Good Idea? There are opportunities everywhere for you to buy physical businesses, brick and mortar businesses around you. Whether it's a cafe, a restaurant, a massage parlor, a barber shop, a dollar store, whatever it may be. You can find these for sale everywhere in classified ads and Craigslist. And for some of us, maybe we just want to take over a business. We want to buy a business, something that's already been established. But what are some of the things you need to look for or consider before taking that plunge? Today, I want to share with you my five golden rules when it comes to looking to buy a physical business. These are five things you really need to consider do your homework on before you actually sign on the dotted line. We got lots to cover, so let's get into it. Let's get down to business. Today's episode is supported by Acer looking for a laptop that delivers on both performance and price. The Acer Swift 5 offers a powerful intel core processor, super slim design and more. Discover new possibilities with the Acer Swift 5. Go to acer.com, click on store and enter coupon code 100 MBA at checkout to receive 10% off plus free ground shipping on a Swift series laptop, including already discounted models. Offer valid through April 30, 2018 and limit to one per qualified order. Windows hello. The password is you. Windows 10. When it comes to buying a physical business, it might be a great option for you. You may be looking for a change in career, a change in the way you earn your money and you want to become an entrepreneur. And one of the quickest ways to do that is just to buy a business and take it over. And some of these physical Businesses that you'll see in classifieds around town are a pretty good investment. You'll see some as low as $20,000 and even well established cafes for 60 and $70,000, depending on your city. Now keep in mind this price usually means how much just to buy the business, to take over the business, to be the owner of the business. This does not include your running costs like rent and paying the wages of your employees and supply and utilities and all that stuff. Right. The day to day expenses to run the business is going to be on you. You're basically buying the cash flow, how much money the actual business makes every month. The business owner has already established this business has it running, it's making a certain amount of profit. And you go in knowing this stuff, taking over. Now, what are the five golden rules when it comes to buying a physical business? What are the things you need to consider? Here they are. And the first one might surprise you and it's interest. You actually have to be interested in the type of business you are buying. Now, many people might be thinking, hmm, I'm not sure about this, I'm just seeing this as an investment. Do I really have to care about laundry to take over a laundromat? Well, you have to care enough. You have to care enough about serving your customers, about delighting your customers. It may not be laundry that you're in love with, but you should be at least interested in the laundry business. Why do I say this? Because when you buy a business, you're taking it over. You should have some interest in improving the business and improving the profitability. You're buying it because you see there's potential or untapped potential. This business can do much better. So especially in the first year or so, you're going to have to kind of roll up your sleeves, understand the business, be interested in it, so you can find ways to improve it, whether it's hiring better managers or employees or getting better equipment or whatever it is. So you got to be interested in waking up in the morning and getting into that business. Otherwise you're just not going to enjoy it. You're just not going to make it. You're going to end up trying to sell the business a year from now. And if the business hasn't improved profitability in a significant way, you're probably going to lose money on this deal. So to make your investment in buying this business worth it, make sure you have some interest in that business beforehand. Again, you don't have to be completely in love with it, but you shouldn't open a cafe if you're not interested in conversating with people. You get the point. Golden rule number two, and that's skill. Every type of business, especially physical businesses, have some sort of skill, whether it's salesmanship, whether it's a skill of actually delivering that service, whether that is creating a great cup of coffee or having some sort of culinary skills. If you open up a restaurant, you need to have some skills in that business. Yes, you're going to have a staff and you're going to have a team to do the things you need to get done to have the business running. But you have to have some level of understanding of what they're doing. You need to be able to step in and do things if you have to. If you buy a fast food burger joint, you should know how to flip burgers or run the actual fry machine. Yes, these are skills. Whether you can learn these skills in a day or in a week, you need to know how to do these things. If you don't know already, then you should be willing to learn. Why is this important? Why is that important? Because you got to be able to step up. Sometimes there's only one or two people in your business that can actually do what you need to do to make the business work. What do those people get sick? What if people leave your business? Are you able to actually jump in there and help out? Are you able to train somebody on top of that? Your staff will respect you more if you understand their work. Now, you could say this applies to any kind of business, but it's particularly important in a physical business because you're going to see your employees a lot more face to face. And you should understand the nature of the work, especially if you're going to need to raise some funds so you can explain these things to investors or even putting together a sales campaign. And you want to show people the work that's involved in delivering your service. All right. Golden rule number three. The third thing you need to look out for when you're looking to buy a physical business is profitability cap. This is especially important with any physical business. Every physical business has a profitability cap. What that means is there there's only so much traffic you're going to get to your business and there's only so much money you can make. What's that cap? You have to do that math. So say, for example, this business is a taco shop in the mall. There's only so much traffic that that mall is going to get, meaning that there's A maximum number of customers that you can actually serve or have access to. And I'm talking about with all your efforts, all your marketing efforts, having a great product, having everything work for you. So you have the maximum potential in terms of sales. That's a cap. How many people you can actually get to your restaurant or get to your business. Then there's how much you can actually charge and how much you actually can make. So, say, for example, you estimate that I can get a maximum of 1000 people a day to my taco stand, and the average sale on my taco stand is about $6. So the maximum I can make a day is $6,000. Multiply that by 30. 30 days in a month, that's $180,000. That's the max revenue you can make. But then you have your expenses, your rent, your employees, your utilities, your supplies, all that stuff. How much is all that, given the revenue numbers? You know, obviously if you're serving X amount of customers, you have X amount of expenses. So find how much your expenses are, then subtract it from your total actual revenue number. That 180 we gave as an example, 180,000. That's your profitability cap. After you do the math, you'll know this is the maximum amount of money I can actually make every month with this business. It's just important for you to know that, to know what is the ceiling with this business and am I comfortable with that? Maybe for one business, the profitability cap is $22,000 a month. And maybe for you, that's great. If I can take home $22,000 a month in profit, I'll reinvest some. I'll take some home. I'll put some in savings. That's good for me, maybe for others, you're like, no, it's not worth it for me to buy the business for X amount of dollars. If this is all it's going to make, maximum, it's going to make every month. All right, number four, is the business future proof. Now, not every business in the world can be future proof, but you have to be somewhat future proof, because with a physical business, you're buying physical things to make the business run. For example, if you bought a video arcade in the early 90s, that business is not such a great investment because you already see the emergence of home consoles for video games. People are not really going to arcades that much, and within 10 years, you're probably going to be out of business. The same thing with a video or DVD store. You're Investing a lot of money in buying these DVDs and buying the shelving and making sure you're catering to that type of business. With the arcade, you're buying these really expensive big arcade machines. So before you look into this business, is this something that's going to fade away later on? Is there anything on the horizon that can replace my business, my service, my product? This is why a lot of people, they open up restaurants or cafes because they say, hey, everybody's got to eat, right? But that's not always the case. You know, there's a lot of mom and pop cafes that struggle because they don't make the fancy lattes that everybody's looking for. They can get easily at Starbucks or even at McDonald's now. So take a look at the business you're buying. Is it future proof? If not, can you adapt? Can you change? Can you make those lattes? Guys, I got one more golden rule that you need to consider before you buy a physical business. But before that, let me give love to today's sponsor. Namely, when was the last time you checked your pay stub or picked benefits at work? Chances are it wasn't easy. HR software has been clunky and hard to use since, well, HR has been a thing. One technology company takes a different approach. Namely. Namely is the only all in one HR payroll and benefits software employees love to use. Ready to clock in, no problem. Need to write a performance review? You can do that. Want to schedule some vacation time? Namely makes it easy to do even from your phone. Namely also has a social news feed like Facebook where employees can share updates, celebrate birthdays and give shoutouts for a job well done. Namely doesn't just make work easier, it actually makes it a little bit more Fun too. Over 1,000 companies use Namely every day. If you're in HR or running your own business, it's time to see Namely in action. Get a free demo by visiting Namely.com MBA one more time. That's Namely.com MBA. See how you can build a better workplace with Namely. Alright, number five. Fifth golden rule to consider when buying a physical business. Is it sellable? This is something you need to consider regardless if you think you're going to sell the business or not. In the future, you may want to just leave it for your children or a family member or whatever. But you might need to sell the business in the future and you need to ask yourself, will this business be easy to sell? And one of the things to consider is that can you hand the reins easily with this business? Are you able to tell the new owner, hey, this is how you take over. And the business kind of runs itself. It's got its own system. And you should know this because you're going through this now with buying a business. Is it easy for you to take over that business? If not, are there some systems in place that you can put in that can make it easier? Some business owners are just disorganized and they just make it harder than it has to be. Maybe you can improve upon it. Maybe you're an organized person who loves procedures. Can somebody jump in and become the new owner with relative ease? Is it an attractive business? Is it profitable? Is the cash flow alluring to people? Will it be easy for you to sell this business later on? All right, there you have it. Let's recap. What are the five things you need to consider when you buy a physical business? Number one, do you have interest in this business? Is it something that you're interested in? Number two, do you have the skills or can you gain the skills that are required to actually make this business work or to implement the actual core product or service? Number three, figure out the profitability cap of that business? Number four, is it future proof? And number five, is it sellable? Well, there you have it, guys. That wraps up today's lesson. If you loved today's episode or any of our episodes, let us know in an itunes rating and review. We would love to hear from you. I read every single review. It helps us know what you love about the show. It also tells other people who what you love about the show and encourages them to subscribe. So thank you in advance for that. And don't forget, everybody who leaves us an itunes rating and review enters our weekly random draw we call Free Ride Friday. You can win a free ride, free membership to one of our courses. This month we're giving away easy course, our $500 course on how to build an online course. By leaving us a rating and review. You enter that draw every single week until you win. Just tune in on Fridays to see if you won't. Alright, that's it for me today, guys. But before I go, I want to leave you with this. Physical businesses are not just for people that don't want to do anything with technology or are afraid of the Internet. You're listening to a podcast. I doubt you're one of those people. In fact, the Internet, SEO, your website, all that stuff has even more of an impact now than ever. If you have a physical business, it's a great way to market locally and for a lot of types of businesses, like an electronic store or a clothing shop. It could be an hq, a headquarters for selling their products online across the world. Just something to consider. But in any business, you're going to need to make some hiring decisions. And in tomorrow's episode, which is a Q and A Wednesday, a listener asks the question, should I hire a family member? I answer that question and give my insights when it comes to that topic in tomorrow's episode. So make sure you hit subscribe so you don't miss it. Until then, take care. Of.