What Business Makes the Best Investment?
You may know that you want to invest in a business and the exact kind of business that interests you. However, if you are not clear about it or want to make sure before making your purchase, pay attention to this list of essentials to consider when making your acquisition decision.
Some people venture into entrepreneurship knowing what industry they want to conquer and what type of business they want to acquire. However, for many other entrepreneurs, it can be difficult to figure out what type of business is the best option and what information to rely on to find out. It’s hard to find the perfect deal.
Undoubtedly, you must focus on those businesses that are scalable and that do not involve mortgaging all your capital. For this, there are solutions in the market that offer to financing for this type of acquisition, specialize in business analysis, and function as a partner for the buyer throughout the acquisition process.
Google search results for “the best business to invest in” brings several articles offering a list of the best sectors in which to position yourself. However, we want to go a step further and offer you a series of key points on which to base your decision. If you’re still not sure, you can always turn to an expert who identifies the best deals based on your needs and expectations.
Key Points to Consider When Buying a Business
As we have already mentioned, determining the best business to invest in is not an easy task. To make this decision easier, we will explain some aspects to consider when selecting the perfect business for you. These key points will help you identify the best business to invest in now.
What kind of business is the best Investment?
Based on our experience, the best investment option is those businesses that have their own brand and strong market position. This includes businesses with their own marketplace (Shopify or Whatever) and those that sell exclusively on Amazon. Brand and positioning are two key aspects. Customers often choose brands they trust and are highly sensitive to the reviews and recommendations of other customers. Without customer loyalty, you will never get the regular traffic necessary to maintain an online business.
On the other hand, it is important to identify which businesses to avoid when acquiring. Our experience shows us that there are models that, although may seem enticing, have a series of barriers that hinder their growth and profitability.
To illustrate this point, we are going to focus on two categories: resellers and dropshippers.
What is a Reseller Company?
A reseller is a company that purchases services or goods for resale rather than consumption. Resellers might simply mark up the goods they resell, or they could add value through combining related products or repackaging. Reselling is a simple way to start a business for the following reasons:
- It is more economical than other types of businesses. No website is required and most of the resellers are sell on social media, sales channels, and the marketplaces.
- No inventory is required. Resellers must buy an amount of product for sale just keeping in mind which niche they want to focus on.
- There are lots of sources for acquiring their products: AliExpress, Oberlo, Sprocket, Doba, Salehoo, Wholesale2B, etc.
However, resellers don’t have an associated brand and have little to no market position.
What about Dropshipping?
Starting a dropshipping business requires very little capital and, in many cases, that low barrier to entry means a lot of competition. Smaller companies need to be competitive in price and that leads them to cut profit, which ends up being unsustainable in the long term.
In addition, these types of companies do not have their own inventory. This can lead to numerous problems related to suppliers and supply chain. Dropshipping companies typically do not usually have exclusive deals with their suppliers, so their competitors are often selling the exact same products. Additionally, these competitors may have the ability to lower their prices given their experience and resources … Why would a customer buy a product from you that someone else is selling cheaper?
Delivery times and return policies are other problems to deal with … By depending on a supplier, times are increased, and communication is delayed in time, and this can lead your customer to a competitor.
Which Niches are the Most Interesting?
We have already identified that the best business to invest in will be the one that has its own brand and a certain position in the market to guarantee its scalability. Now is the time to focus on the sector. In which sector should you invest?
Based on our expertise, the most interesting sectors to invest in are usually Sports and Home. We have found great deals from companies that sell a very specific product aimed at a very, very specific target. The targeted niche usually means that the business has very little competition.
In which sectors should you not invest? If you have already decided on one of the sectors that we are going to mention, go ahead, but here are some aspects to consider (they are only recommendations).
Low value-added electronics are usually not a good option if you are considering acquiring a business. Why? Basically, because it is one of the most competitive sectors, especially if we consider the primacy of the Chinese market in this niche.
Businesses selling apparel accessories or jewelry typically do not make good investments either. In this case, it is not so much because of the competition but because of the knowledge and experience required. If you don’t have experience in this niche, it will be difficult to scale the business properly.
What is better: a big or a small company?
A business’s size is another important factor in the investment decision. Let’s start with the obvious … Businesses with less than $100k USD in turnover are typically not good investment candidates.
From there, the preference for bigger or smaller businesses will depend on your own strategy. A smaller business is going to have a lower sales multiple but will likely have a worse market position. If you opt for bigger a business, the sales multiple will be higher, but it will be better positioned in the market.
Where Should the Business be Located?
If we consider the geographical features, it should be noted that Amazon’s largest markets are the US, Germany, and the rest of Europe. However, digitization and connectivity make it possible to acquire and run a business from anywhere in the world.
Partner for your business acquisition
In summation, if you are thinking of acquiring a business, it is important that you focus on those that have their own brand and good positioning and avoid business models such as reseller and dropshipping. As for niches, it is very important to consider the knowledge and experience you have in the specific sector that interests you. If not, our recommendation is to choose sectors with a lot of recurrence or companies that do something very specific for a very specific target market.
Other aspects such as the size of the company or its location will depend more on your personal criteria. Deciding on a bigger or smaller company will basically depend on the multiple you are willing to pay and the position you want to find. The hyper-connected world in which we operate means that location is rarely a problem.
One final tip: you can always count on help to identify the best deal. If you can have pre-approved financing for the acquisition of this business, better, right? Our partner Boopos can offer financing for business acquisitions. Their goal is to help people who want to buy their own business and scale it up. They are also an analysis partner that can help you find the deal that best suits your need.