The Four Pillars to Look For When Investing in a Business - Black Enterprise
Black Enterprise magazine Fall 2019 issue

As 2019 comes to a close, we take stock of the year that is ending and contemplate what is to be in the year to come. It’s also commonplace to identify regrets and create a positive, mental road map for what we’d like to accomplish going forward; attempting to avoid that regret list this time next year. If owning your own business has been on your road map repeatedly, I encourage you to take the first step to make that recurring dream into a reality. Twenty-seven million Americans are starting or running new businesses, so you have to ask yourself, why am I not part of that group? That’s 12% of the adult U.S. population. It’s attainable, but it starts with the first step.

I field all sorts of inquiries, from a wide variety of people, at various stages in the process of determining if entrepreneurship is for them.  Some have been looking five or more years, others just read an article (hopefully one of mine!) and it sparked an excitement or interest that they have been suppressing. Once I’ve listened to their story—each has its own twist—the same piece of advice applies: look for these four characteristics when determining the right business for you and your family to invest in.

Related: Using Venture Philanthropy to Invest in Entrepreneurs and Communities

Industry Growth Potential

Is the business or franchise you are considering in a sector that shows growth potential? While we all have interests that we are excited or passionate about, that doesn’t mean that over time, enough people will have that same excitement to be able to grow and sustain a business. As we saw with the VHS rental business, it was hot for a while, but long term, unsustainable with the advancement of technology. A few sectors that are tapped for new or continued growth are senior care, pet care, healthy food, and co-working space.

Turnkey / Quick Startup

One of the reasons people seek franchise opportunities is the “business in a box” component. Anyone that has ever tried to start a business from scratch knows and understands how much work it is to accomplish milestones such as securing products or services, moving through the legal requirements, hiring employees, marketing, and setting prices. Anything you can do to minimize the time and cost between starting the business and obtaining your first customer is where you want to be. In some cases, this could be considering purchasing an existing business.

Recurring Revenue

Having recurring revenue in your business can make or break a business. In times where you’re not landing a big account or selling a high priced product, the recurring, steady accounts receivable will be what pays the bills. Try and identify opportunities that provide for ongoing memberships, maintenance, refills. Sectors that include this type of revenue are health and fitness, commercial cleaning, and security.

Quality Products and Systems

Whether you invest in a franchise or have a startup, it’s critical to make sure you’re sourcing high-quality products and have strong systems to support and scale your business. The benefit of purchasing a franchise is that during the discovery phase, you’re able to speak with current owners and learn more about the products and systems, and oftentimes see them in action. In addition, franchisors provide full training to ensure owners know how to utilize and leverage both. As an independent, your due diligence is even more critical to determine the best products, systems, and partnerships for your business.

This list doesn’t capture all of the characteristics that accompany a strong business, but if you have at least three of the four, you will have a great foundation to build on.