As long standing professional San Diego business brokers, we are often asked what the hottest types of businesses to buy are. Here is a brief overview of the most requested types of business acquisitions and what drives their value. These are the top 5 categories of business to buy.
Buy a Manufacturing Business
Everyone loves the idea of buying a manufacturing business. You are creating a product that you control, you can set your production hours, and often there is intellectual property that insulates the business from competition. In no particular order, here are some key value drivers that make your manufacturing business easier to sell, or worth more:
- Patents, trademarks or other intellectual property
- Diverse customer and supplier base
- Low inventory and low accounts receivables
Buy a Distribution Business
Distribution businesses are always in demand. Often distribution businesses buy products from a manufacturer in bulk, inventory them, then sell them retail or wholesale to smaller customers that cannot or do not want to buy directly from the manufacturer. Often business hours are very reasonable, and your employees might not need to be as skilled as in a manufacturing business. Business buyers’ key considerations when evaluating a distribution business are:
- Type of product, shelf life of the product, and the future of the product
- If the business is an authorized distributor or has exclusive territories
- Don’t need to carry lots of inventory, or you can drop ship from the manufacturer
Buy a Service Business
There are many types of businesses within the service category including HVAC contractors, delivery service routes, equipment maintenance companies, or even services that deliver the airlines delayed luggage to the passengers home or hotel. Service businesses are often attractive because little to no inventory is required, and the businesses don’t require a large leased space, and can sometimes be home-based. A few of the key things business buyers look for in service businesses are:
- Several trained employees, so that the owner doesn’t have to perform the service themselves but can instead focus on the management of the business
- Repeat customers and a strong recurring revenue stream that is not tied to a single or a few customers
- The service performed is not overly technical, but also not so easy that the customers could easily do the job themselves, e.g. septic tank cleanings or pipe/plumbing leak detection
Buy a Retail Business
Retail typically involves a storefront business, open to the public, selling some type of product. These are main street types of businesses where product is purchased from a distributor or manufacturer, then resold to the public at a higher retail price. There are many franchised businesses in the retail sector including The UPS Store, GNC Vitamins, etc. While many San Diego business buyers find retail interesting, the best retail business opportunities will have the following characteristics:
- A great high traffic location. Retail stores rely upon their close proximity to their customers, which is why the neighborhood shopping centers exist near clusters of homes. Visibility within the shopping center is also key.
- A product that offers a high gross profit margin. Because retail space in shopping centers is expensive, and staffing the store adds to that cost, it is important to have a product that produces a higher than average profit margin.
- Retail stores often come with long hours and they are often open 7 days a week. So business buyers seek out those retail opportunities that might offer one day a week that the business is closed, or shorter hours each day. A retail store open 6 days a week from 10am until 6pm, is much easier to run and staff than one located in a mall, and open 7 days a week 9am until 9pm.
Buy Restaurants and Food Businesses
Many business buyers will specifically exclude restaurants or food related businesses. But for many with a background in these industries, and for many multi-unit operators or professional buyers, business brokers see a consistent demand for these types of businesses. Because many of these business buyers have a lot of experience in these areas, these are the most common things they look for:
- Location, location, location. An okay restaurant in a great location is often more desirable than a great restaurant in an okay location. And the lease amounts, CAM charges, and remaining term on the lease are equally important.
- Procedures and systems. These include sophisticated POS systems, menu and inventory management, and standardized and published recipes and operating procedures.
- A well-managed facility with tenured staff in place, and ideally a general manager in place that is paid at or above the industry standard.
Contact Vanguard Resource Group, your professional San Diego Business brokers, for help buying a business in San Diego.
Call us today! 858-716-0484