What Kind of Business Should I Buy?

Three Questions Wearing One Coat

Almost everyone answers this by taste. They picture a business they would enjoy owning and start looking for it. That is one of three questions and the only one nobody else gets a vote on, which is exactly why it is the one that feels like the whole answer.

The other two belong to other people. A lender decides what it will finance, and it decides by trade before it looks at your deal. The market decides what is for sale near you at a price you can reach, and it does not care which trade you pictured. A search that answers only the first question runs for a year and then discovers the other two.

So the useful order is backwards from the instinct: find the trades where all three answers overlap, then pick inside that set on taste. The overlap is usually smaller and stranger than the picture, and it is where deals actually close.

The Lender Has Already Ranked the Trades

The two figures above are the ends of the same federal loan file, on the same cohort (FY2018-19 change-of-ownership approvals (7-8 years seasoned)), counted the same way. The trade you choose moves the odds that the loan behind your purchase goes bad by more than a full order of magnitude, before anything about your particular deal is known.

This is not a ranking of which businesses are good. It is a record of which ones a first-time buyer, financed the way you will be financed, managed to keep paying for. A trade at the wrong end of it is not off-limits: it means the deal has to be better, the price has to be lower, and the lender will ask harder questions about you. Read the full table on SBA Default Rates by Industry, which shows every trade with enough seasoned loans to measure.

What Is Actually For Sale at Your Price

The market a first-time buyer shops in is smaller than the market. Most listed businesses sell below the size that supports a full-time owner salary and a loan payment at the same time, which is the floor a first-time buyer runs into before taste ever comes up. Supply also clusters: some trades change hands constantly and some almost never do, and a thesis aimed at a trade with four sales a year in your metro is a thesis that will not close.

Test the supply before you commit to the trade. Compare Industries puts the trades side by side on the numbers that differ, and Where the Businesses Are counts establishments by trade and place, which is the closest thing to counting how many owners near you could sell to you. Market Depth takes the same question one step further and asks how many of them are actually buyable.

Narrow It Until It Fits in a Sentence

A thesis is not a list of industries you would consider. It is a sentence specific enough that a broker reading it knows in ten seconds whether to send you a deal, and specific enough that you can say no fast. “Service businesses in the Southeast” is not one. “Residential HVAC in metro Atlanta, $600k to $1.2M of owner earnings, at least half the revenue on maintenance agreements” is.

Narrow ruthlessly and reopen deliberately. A tight thesis you revise twice beats a wide one you never test, because a wide one produces deals you cannot compare against each other and a year of work with nothing learned. Write yours in the Search Thesis Builder and turn it into the screen you actually apply with the Buy Box Builder. Once a trade is on the shortlist, its buy guide says what decides a deal in it, and Stage 2: Define & Test Your Thesis is the stage that walks the whole exercise.

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