Thinking of turning your dream of starting a business into reality?
You are in good company. According to a recent Yahoo Inc. poll, two-thirds of Americans have entrepreneurial aspirations.
The most-cited reasons given by aspiring entrepreneurs are the ability to do something they love and a desire to be their own boss. For would-be Texas entrepreneurs, there are plenty of businesses to buy.
Statistics from BizBuySell, an online business marketplace, suggest Texas is among the states with the most small businesses for sale, behind only Florida, California and New York. The company estimates that Texas accounts for 6 percent of businesses for sale in the country.
So, how much does it cost to buy a business in Texas? Knowing the average sale price for the type of business you are interested in should be your first step as you begin the buying process. Last year, according to BizBuySell sales data, small businesses in Texas sold for an average of $539,000. The price-to-revenues multiple averaged 0.6 and the price-to-cash-flow multiple averaged 2.6.
In other words, a Texas business with annual revenue of $600,000 would likely cost you $360,000. An alternative valuation might be arrived at using the company's cash flow information. For example, if the business had an annual cash flow of $350,000, the valuation would be $910,000.
Most buyers are more interested in cash flow numbers, rather than revenue numbers. After all, cash flow pays the bills, and ultimately it is cash flow, not revenue, that rewards owners for all their hard work.
The BizBuySell data suggests that Texas buyers are especially interested in purchasing retail and service shops. Retail establishments, such as restaurants, were the most popular business-for-sale transactions in Texas last year, going for an average sale price of $426,000. Service establishments, including auto repair shops and dry cleaners, constituted the second-most-frequent transactions, with an average sale price of $473,000.
Going into business for yourself will undoubtedly require large amounts of commitment and drive to overcome fear of the unknown, but keeping four critical factors in mind can help ensure success when investing time and money into a small business.
Use online resources to shop for opportunities. The easiest way to learn about your options is to do research via an online business marketplace. Newspaper classifieds include only a small portion of the businesses for sale in one area, while an online marketplace is more expansive.
This kind of site offers a database full of available businesses in any area, which means that you can search locally or anywhere in the country if you are considering a change in location. Online marketplaces also offer a number of tools buyers can use to find the perfect business.
Be savvy in dealing with sellers. Once you have located a business that interests you, contact the business owner or the representing broker -- whomever placed the ad. Make sure the ad has answered your biggest questions about the business, such as initial asking price, rent costs, length of lease, number of employees and past performance.