I see that you are getting a lot of replies, "pitches" for ways to invest your $300,000.
What I have to say isn't one. Here are some suggestions from my perspective as business owner, investor and buyer with 26 years experience:
I'm sure that you know this and that I am stating the obvious ... but protect the capital that you have and use it wisely.
Unless you are dead-solid sure about the venture ... I think that you would be better served in using that money to acquire an established business and not put it into a start-up venture.
There are many reasons that it makes better sense for this and I won't go into them in this reply to your post (I can post that in another reply if you like, just let me know and I will do so - and actually you can read it in the Articles section of this site - just look for the article by Adducent). Suffice it to say that I think you should look at buying a business that is complementary in some way to your existing business so that you take advantage of your experience and success with your established business. What I want to put here is from an article from my own website about the best use of capital that you have to buy a business. It may help you with your thinking/decision making on how to use your capital.
Business buyers often ask me, "What size business should I look for?"
And almost as often they follow it up with a statement like "I have $250,000 (or some other amount) available and was looking at this business that is listed and has an asking price of $250,000 (or some other amount equal to what cash they have)".
Now cash is king and it is great when you have plenty of it; but should you use it for an all cash (from your pocket) deal?
Is that a wise choice or use for your money?
Answer (in my opinion): "No" and "no".
Let's do some math and go through the thought process on why using your cash for an all cash deal may not be a good way to go when buying a business. As an example here's the scenarios for a buyer that has $250,000, they can put towards buying a business:
$250,000 can buy, for all cash, a business that has a negotiated price of $250,000.
$250,000 used as a conventional 50% down payment; can buy a business that has a negotiated price of $500,000.
$250,000 used as a conventional 25% down-payment; can buy a business that has a negotiated price of $1,000,000.
$250,000 used as a conventional 10% down-payment; can buy a business that has a negotiated price of $2,500,000.
Obviously the smaller the business you buy, the less income/money you probably make from the business. And in many ways a smaller business is at greater risk and more likely to fail than a larger one.
So why would someone want to pay all cash to buy a small business when they could use what cash and resources they have to buy a larger business?
Answer: Lack of knowledge and experience.
If you are dealing direct with the business owner ... they want to get as much cash as possible. So there won't be any discussion about using less of your cash for the down-payment (unless you bring it up, which you should - but more on this later) and they are certainly not going to suggest you look at other businesses where you can use what cash you have to buy more of a business.
Do you think a broker, who's responsibility is to the seller, is going to show you, the buyer, how to make better use of your money? That's doubtful. They know all cash deals are easy and they want to make their commission as quickly as possible.
So who's going to tell Mr. or Ms. Business Buyer to think about making better use of the cash and resources they have and share with them knowledge and experience about this subject that might help them and lead to a better decision and much better business purchase?
Answer (for those reading this): In this case; me.
For all of you that have some capital built up and are thinking about buying a business and especially if it is your first one:
The seller's broker is not on your side! While they may be professional and helpful to you in some way (perhaps many ways) - remember they represent the seller (and they want to get the deal done satisfactorily for their client and earn their commission).
Do you, the buyer, need to have someone represent you too? No. That's not necessary (but your attorney and accountant should be involved as part of the due diligence and professional support for you in any business transaction).
But you should know about the things you need to watch for, to ask about and most importantly ... to consider when it comes to how you approach the business buying process and what your strategy should be to make the best use of your capital and resources. Give some thought about using your capital to buy more of a business; don't feel that you have to pay all cash. Most small and even medium-sized businesses sell with the owner carrying back some of the financing. That is something you should make part of your offer. In my opinion, it is not a good idea to cash out the seller completely. And I think that there are additional options, beyond using your cash for a conventional down-payment approach, where you can use deal structure and judicious leverage to make your money go even further ... buy a larger business with more potential and reward for you and in many cases less risk.
Just one example of how to take the money you have and use to buy more of a business:
In 1979, Victor Kiam bought Remington Products for $25 Million using only $500,000 of his own money (which was actually also borrowed money against his wife's art collection).
How did that deal work out?
When Kiam bought it from Sperry Corporation, Remington was losing money and employed 428 people. Within a year it was making a $4 million profit. Less than a decade later, its workforce had expanded to 2,500 and, with 43 per cent of the market it was America's dominant electric razor manufacturer; and one of the most successful leveraged buyouts in US business history.
The rest of the story?
The Kiam family sold the business to Rayovac Corp. for $322 million in 2003. Not a bad return on Victor Kiam's use of $500,000!
Can you as a business buyer do the same?
There's no way to promise that ... but I do know that there are smart ways to use the money that you have to put it to better or more use when it comes to buying a business.
And yes ... for every success story there are failure stories ... the point is that done right, with the right preparation and resources to rely on ... you can put the odds of success in your favor!
Take what you have (your business experience and this $300,000 in capital) and use it in the best way possible to maximize a profitable result. Give serious thought to finding the right business to acquire or to put that money into. Talk to business professionals with experience that may be a good "sounding board" for you to help you figure out the type of business to target and how best to use your capital. That is a strategic and tactical process that you want to go through and not accelerate or take short-cuts with. This takes some thought and planning on your part but I think that by doing this you will get a much greater return on the money you have available to invest in a business.
I hope the above gives you food for thought or some additional perspective on how to make the best use of the capital that you have available.
Dennis Lowery
Adducent, Inc.
in response to: Soundgirl50
