Best businesses to buy; best to start

[netnet]

Following this topic about local businesses, here: http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/local-businesses/

 

What would be the best small business to buy.  Being able to sell quickly is not a concern if I am making 20% return unlevered.  Coin operated laundry in a decent neighborhood seem to be pretty good. Or websites with traffic that are relatively easily improvable and are not about to be destroyed by Amazon.  My short list of requirements are

• Little cap maintenance
  
• Can run without close supervision
  
• Good cash cycle
  
• Some sort of moat
  
• Good cash on cash return
   
   
   
   
  

[beerbaron]

I would add high operating leverage (software business, money management, etc...)

 

BeerBaron

[DTEJD1997]

I would add a business that needs no or few employees.  Businesses with employees adds headache, complexity, costs.

 

I know two coin laundromat owners.  One does very well.  He bought his laundromat "used" and made some improvements to it.  He is also very mechanically inclined and can do a lot of the repairs and improvements himself.

 

The other owner does not do so well.  He built his brand new, according to his plans.  He never owned one before.  His major problem is that he built it too small and does not get enough business/scale.  He also put in some self storage units.  I think it would have been better to skip the storage units and use the space for more washers/dryers.

 

A vending machine route is also a good option.  I know an owner of one of those that does pretty well.  He claims his best locations are retirement homes.  At retirement homes the residents use the machines, along with the workers AND visitors.  He says car dealerships are also good locations.

 

A bad location?  Schools!  Too many restrictions on product and too many restrictions on refilling/servicing.

 

A lot of vending machines are high tech and web enabled.  They can take credit cards.  The owner can check inventory levels remotely and can also enable dynamic pricing.

 

So those are my suggestions...

[shalab]

Some other things worthwhile:

 

1. Working for someone else - low risk and no capital is needed.

2. In the above, government job is the best with limited hours and pension/health benefits

    Also - in many places you can retire at 50 with full benefits and pension

3. Local newspaper delivery

4. Pizza shop

5. Restaurant

6. Handyman if you are mechanically inclined

7. Writing blogs - better yet, moderate one and have others write

 

There are many others money mustache recommends:

 

http://www.mrmoneymustache.com/2013/07/25/50-jobs-over-50000-without-a-degree-part-1/

http://www.mrmoneymustache.com/2013/08/05/50-jobs-over-50000-without-a-degree-part-2/

 

 

[Uccmal]

Some other things worthwhile:

 

1. Working for someone else - low risk and no capital is needed.

2. In the above, government job is the best with limited hours and pension/health benefits

    Also - in many places you can retire at 50 with full benefits and pension

3. Local newspaper delivery

4. Pizza shop

5. Restaurant

6. Handyman if you are mechanically inclined

7. Writing blogs - better yet, moderate one and have others write

 

There are many others money mustache recommends:

 

http://www.mrmoneymustache.com/2013/07/25/50-jobs-over-50000-without-a-degree-part-1/

http://www.mrmoneymustache.com/2013/08/05/50-jobs-over-50000-without-a-degree-part-2/

 

 

 

2) For the independently minded this option resembles hell.  I have some experience with this option.

 

4) Just dont try to operate an existing franchise (Pizza Pizza, Dominoes).  Franchisees  with Pizza Pizza make less than minimum wages.

 

5) Restaurant, Terrible hours, work load, profit margins, labour problems etc. unless you have vietnamese and chinese family members who are working for nothing.

 

6) Handyman - very good.  Hard work but lots of money to make if you are good.  I know a guy who has done this for year.  Never, ever, out of work. 

[oddballstocks]

I would add high operating leverage (software business, money management, etc...)

 

BeerBaron

 

I'd second this.  Software is excellent, build a product and then continually resell it.  There is an initial capital requirement, but ongoing is minimal if you want.  Even better, learn how to program so you don't need to hire anyone.

[tede02]

This is an interesting discussion.  Munger also always says "invert."  Some have already done this a bit, but what would be the worst business to buy?

 

I would say the majority of small white collar and blue collar service firms are basically worthless (lawyers, chiropractors, accountants, plumbers, electricians, etc.).  The reason is that virtually all of the value in these small companies rests in the relationships the owner(s) have with customers, suppliers, etc.  Clearly that's why so many of these companies can be bought for the net assets on the balance sheet (and this may be over-paying). 

 

I've also worked in both retail and food service.  The hours and margins of these businesses always suck. 

[tede02]

One thing I should probably mention however is that even though many small service firms have no marketable value, they can be extremely profitable nonetheless.  What's also nice is they typically take minimal capital to start.  To be a lawyer for example, you basically need a computer, phone and an office.  Even a lot of the trades require little more than a truck or van and a bunch of tools that are relatively inexpensive.

 

In any of these professions you don't have to be a genius to make a pretty good living. 

 

 

[yadayada]

websites in niches. Especially great if you have a certain hobby. There might be something you can do here, and you will not hate working on it. A friend created a website relating to a video game he played. I think he made nice 4 figures a month with v little work after the initial work.

 

Another one is getting stuff cheaply elsewhere (asia for example) and selling it in EU or US (wherever you live). I heard of a guy who would get cheap firewood from poland and sell it in the netherlands to do it yourself stores nicely packaged. They would put it on sale, and he made some good money from that. Nowadays China is getting more expensive though, and with more people exploiting it and higher pay in China, there is less money to be made. Probably have to try other countries like vietnam or something.

 

He also ordered a bunch of electric flyswatters from some guy in china, several containers, and basicly did the exact same thing. Made almost 6 figures on that. That was fairly recently. These things are often not that sustainable, but they can pay of nicely and be high margin if you play it right.

 

Obvioulsy you need some marketing and sales skills. You basicly need to convince some stores to put those products in their store. He did not have any friends higher up in those chains or anything like that.

 

I call this arbitraging temporary inefficiencies. I think Pabrai had some interesting things to say about  this.

 

I would also say that almost all the mentioned things so far are  terrible. Anything with food seems high risk and low return and it almost always ends up being a full time job. Working for the government also does not seem a good use of your time most of the time. Also snack machines require high upfront capital and scale to pay off. Just investing that money in stocks would probably a better use of your time.

 

Another market that has serious inefficiencies is the translation market. If you know more then one language I would seriously consider looking into that. A family member made about 90 euro's per hour translating for the police. Wasn't super highly skilled or anything like that. And with that kind of work you often have a lot of freedom and can work from home. You can often do this on the internet and it pays well. Often interpreting gets paid very well. If you already know a second language this is a skill you can learn relatively quickly. Can expect to get north of 20 euro's per hour and work whenever you feel like it.

[SharperDingaan]

Get yourself a trade to do in your spare time, & hire yourself out under your own shingle, or to someone else, on a casual basis. Work an average 15 hours/month on weekends as a baker, plumber, auto mechanic, etc. - & you will do quite well.

 

Depending on skill set, look at start-ups & contribute 'guidance' for equity.

You only need to find the next Apple, once.

 

SD

[DTEJD1997]

To be a lawyer for example, you basically need a computer, phone and an office.  Even a lot of the trades require little more than a truck or van and a bunch of tools that are relatively inexpensive.

 

In any of these professions you don't have to be a genius to make a pretty good living.

 

I can assure you that need a little more than that to be an attorney in the USA.

 

1). You need a 4 year degree

2). you need to take the LSAT

3). You need a high enough score to get into a law school

4). you need to make it through law school (3-4 years)

5). you need to make ti through the character & fitness examination to sit for a state bar

6). you need to pass a state bar

 

Each of these steps a certain percentage of people drop or get knocked out.

 

IF YOU CAN MAKE IT through all 6 steps, the REAL CHALLENGE begins.  Now that you are licensed to practice law, you've got to monetize that.  The best way to do that is to be hired by a "big law" firm.  If you went to the top 10-15 skools, you've got a decent shot at that.  If you went to the next 40 or so lower ranked skools, you've got a shot IF you are in the top 10% or so of the class.  Barring that, you've got to have STRONG family connections to a law firm.  Barring that, you've got to have some real specialty.  If you don't, there is almost no shot at making a starting salary that would justify the time & expense of a law degree.  If you graduate from the next 150 or skools, you've got almost no shot at a high starting salary.

 

Some of the lower ranked law skools have un & underemployment figures of 50%.  Some of them have single digit percentages of graduates making good starting salaries.

 

Thus, the number of lawsuits against these skools by disgruntled graduates.

 

A young attorney who took on student loans and didn't graduate from a top ranked skool OR have some very unusual specialty is most assuredly going to be a member of the working poor.

 

Going to law skool these days is not a good way to get ahead or even make a living.

[tede02]

You must be an attorney ;D

 

Hopefully most people got my point that the cost of capital to start a law practice is minimal.  Not saying being an attorney is an easy path to riches.  My dad and grandfather both (dad still practices) had their own law firms by-the-way. 

[Uccmal]

(2) Following along what Munger said, do boring jobs. Government jobs pay very well if you look at the entire time line including great vacations.

 

Any job where the unions still have a say is very good - this is becoming rarer in U.S. It should still be available in Canada.

 

(5) Can work very well - people care where they eat.

 

2) For the independently minded this option resembles hell.  I have some experience with this option.

 

5) Restaurant, Terrible hours, work load, profit margins, labour problems etc. unless you have vietnamese and chinese family members who are working for nothing.

 

Shalab, Dont endorse it until you try it.  Alot of government work is hell.  Some is good but not much.  I have worked in government as a professional and it is mind numbing.  Most of the people I know can name their retirement date and its years or decades away.  There is more to life than being beaten into mediocrity until you collect a pension.  :-). 

 

 

[DTEJD1997]

You must be an attorney ;D

 

Hopefully most people got my point that the cost of capital to start a law practice is minimal.  Not saying being an attorney is an easy path to riches.  My dad and grandfather both (dad still practices) had their own law firms by-the-way.

 

Well, I would suggest the cost of capital includes the cost to get the license.  You can't be an attorney without the license.  To practice law, that is well over $100k these days.  I know some attorneys with $200k+ in debt.  Thus, the debt & time & energy required to get the license make it such a poor profession for most people.

 

Yes, I am a licensed attorney, I have many in my family, and I work with a bunch of attorneys in my 9 to 5.

 

 

 

[Gamecock-YT]

(2) Following along what Munger said, do boring jobs.

 

 

 

When did he say that? I tried to find it but couldn't. I'm interested in how he expands on it.

 

 

 

[oddballstocks]

Here's a piece of advice related to almost any business.  Learn sales and marketing.  I know the attitude on here is to look down at those things, but if a business can't sell it doesn't stay in business long.  Marketing is just a different way to sell.

 

What's the difference between the top fund managers and bottom ones?  It's not performance, sales and marketing.  What's the difference between successful and failed businesses?  Either debt or sales and marketing.

 

I'd highly recommend "How to Sell Anything" by Harry Browne (of Permanent Portfolio fame), and Scientific Advertising.  Two books written in the 60s and 30s that have stood the test of time, they're cheap on Amazon Kindle as well.  I'm working through SPIN selling which is a really good book too if you're doing larger sales.

 

I used to think marketing was terrible until I met someone who truly understood the role of marketing.  Marketing can do the job of thousands of salesmen if done right.

[dolce far niente]

According to Entrepreneur magazine:

Check out the top 15 industries with the best net profit margins during the 12-month period ending July 31, 2014. For aspiring entrepreneurs, this may be the best place to start when considering new business ideas. (Note: Net profit margin has been adjusted to exclude taxes and include owner compensation in excess of their market-rate salaries.)

 

http://www.entrepreneur.com/dbimages/article/1407953999-Most-Profitable-Small-Business-Industries-1.jpg

 

If you are looking for shortcut to earn a few k a month, I thought Tim Ferris of 4-hr work week fame is pretty good book. Seem to be what yadayada is moving towards to.

 

Agree with Odddball, learn marketing.

[shalab]

Al, I haven't tried government work myself - for good or bad  ;). It may be mind numbing for high iq folks like yourself but the rewards seem compelling.

 

I have heard of people reading novels at work (might as well run investment management business from work ) and the benefits given to the city employees are far better compared to what is available in private sector.

 

Here are some articles

 

http://time.com/money/3182889/how-to-be-a-millionaire-and-not-even-know-it/

 

Some of the richest retirees are public pension millionaires:

 

http://www.mainstreet.com/article/retirement/some-richest-retirees-are-public-pension-millionaires

 

 

(2) Following along what Munger said, do boring jobs. Government jobs pay very well if you look at the entire time line including great vacations.

 

Any job where the unions still have a say is very good - this is becoming rarer in U.S. It should still be available in Canada.

 

(5) Can work very well - people care where they eat.

 

2) For the independently minded this option resembles hell.  I have some experience with this option.

 

5) Restaurant, Terrible hours, work load, profit margins, labour problems etc. unless you have vietnamese and chinese family members who are working for nothing.

 

Shalab, Dont endorse it until you try it.  Alot of government work is hell.  Some is good but not much.  I have worked in government as a professional and it is mind numbing.  Most of the people I know can name their retirement date and its years or decades away.  There is more to life than being beaten into mediocrity until you collect a pension.  :-).

[west]

I'd highly recommend "How to Sell Anything" by Harry Browne (of Permanent Portfolio fame), and Scientific Advertising.  Two books written in the 60s and 30s that have stood the test of time, they're cheap on Amazon Kindle as well.  I'm working through SPIN selling which is a really good book too if you're doing larger sales.

 

Are you sure you got that Browne title right?  I can't find any "book" book with that title anywhere.

[netnet]

A vending machine route is also a good option.  I know an owner of one of those that does pretty well.  He claims his best locations are retirement homes.  At retirement homes the residents use the machines, along with the workers AND visitors.  He says car dealerships are also good locations.

 

I had not thought of the vending machine business.

 

2. In the above, government job is the best with limited hours and pension/health benefits

    Also - in many places you can retire at 50 with full benefits and pension

 

It's hard to start a government the capital requirements are rather high.  ;)  plus the returns aren't great unless... you are the dictator then it is a  good business if you can die peacefully in your bed without too much blood on your hands.  (Seriously though, there are some very high IQ folks in gov't work but that gig was not for me.  I tried it and did not like it.  A bunch of Goldman Alums are in the White House.)

 

Handyman if you are mechanically inclined

not quite the low maintenance I had in mind.

 

And regarding the list from entrepreneur magazine, where are the software businesses?  And equipment leasing in 3rd place.  Munger's quote says it all, to paraphrase him,  all the profit is sitting in the lot at the end of the year NOT in the owner's pocket!

 

 

 

 

 

[peter1234]

I'd highly recommend "How to Sell Anything" by Harry Browne (of Permanent Portfolio fame), and Scientific Advertising.  Two books written in the 60s and 30s that have stood the test of time, they're cheap on Amazon Kindle as well.  I'm working through SPIN selling which is a really good book too if you're doing larger sales.

 

Are you sure you got that Browne title right?  I can't find any "book" book with that title anywhere.

 

Is it this one by Stanley Brown?

http://www.amazon.com/How-Sell-Anything-Anybody-Girard/dp/0743273966/ref=sr_1_1?s=books&ie=UTF8&qid=1409556684&sr=1-1&keywords=how+to+sell+anything+brown

[dolce far niente]

where are the software businesses?  And equipment leasing in 3rd place. 

 

It's neither an exhaustive list nor research . I just use it as mind exercise; expanding the possibilities and comparing them against what I learn elsewhere.

 

I have been looking for new business to build or takeover for the past few months so I'm really looking forward to insights from the more experienced investors/business people here.

[giofranchi]

I would add a business that needs no or few employees.  Businesses with employees adds headache, complexity, costs.

 

Yes. And besides the number of employees I would also care much about the “kind” of employees a business requires. Generally, I prefer a business which doesn’t require highly skilled employees. The less skilled employees are, the easier it is to replace them… should it become necessary to do so!

 

Gio

 

[giofranchi]

Here's a piece of advice related to almost any business.  Learn sales and marketing.

 

I agree. And thank you for the book tip.

I think you could also hire good sales and marketing people. In my experience you should enjoy the process of selling… If you don’t, because you find it time consuming, time you’d like to devote to other activities, a good enough alternative solution is to hire someone who truly likes selling. ;)

 

Gio

 

[yadayada]

Or you can do what this guy does: https://www.youtube.com/watch?v=8_EjKKGSXus