Independence Junior College – Science Department
Associate Degree in Agribusiness
Choosing the Right Business
 Types of Businesses
The business that best suits your needs and experience will take time to research. The more time
you spend researching, the wiser choice you will make, as you will discover that very few will
fit your personal criteria.
At first, the idea of buying your first business is exciting, although the choices can be
overwhelming. There are few gems in a mountain of silt, so to make your mining for gold easier,
start sifting through your personal criteria. For example, if you don't like cold-calling, opt for
an established business with an established clientele. If you are uncomfortable selling to friends
and family, don't enter into a multilevel situation. If working seven days a week is not for you,
avoid retail.
Businesses come in all shapes and sizes, with close to 70 percent being in the service sector.
Following is an outline of the six main types of businesses that you may be researching:
o 1. Service
o 2. Retail
o 3. Franchising
o 4. Manufacturing
o 5. Distribution
o 6. Multilevel and network marketing
 Service Businesses
The majority of new entrepreneurs start a service business because it is the easiest way to
generate income utilizing their many years of expertise. What is a service business? Quite
simply, one that performs a service in return for a fee, which is usually calculated on an hourly
or contract fee basis. Service businesses include consulting, accounting, bookkeeping, Web
design, all the trades, teaching, and tourism, to name just a few. Clients pay for your expertise
and knowledge.
Being that expert is a key component to a successful service business. Once you advertise and
open the doors, you are representing yourself as a professional in your field. Unless you
belong to an accredited association — mandatory for doctors, lawyers, and accountants — the
consumer has little recourse except to sue if you offer wrong advice or perform inadequately.
A service business should offer just that – service. Clients expect it, so you have to be prepared
to offer excellent service plus a little bit more at a reasonable price. Guarantee your work, as
this gives the message that you stand by and take pride in what you do. Consumers, now more
than ever, expect quality service at the best price. Don't hang out your shingle until you are
sure you can offer a professional product — you. Ask yourself:
o Do I feel comfortable calling myself an expert?
o Will others perceive of me as "an expert”?
It is almost a fact that one hears the negative service business stories more than the positive
ones. We read about home builders performing substandard work, mechanics who don't
adequately fix a vehicle's problem, or bookkeepers who operate without proper accounting
knowledge. Imagine what could happen if a gas appliance was not properly installed. An
improperly wired house could cause a devastating house fire, and a brake failure could cause
someone's death.
Service businesses often appear glamorous, but they do have their downside. Review this list
of advantages and disadvantages and see which ones may apply to you.
The advantages:
o They usually require less start-up capital.
o You can apply your skills to generate income.
o Many can be operated from a home-based office.
o Overhead costs are considerably lower.
o You have some flexibility in setting appointments.
o You usually don't have to carry a large inventory, if any.
o There's less paperwork and accounting.
The disadvantages:
o If you are ill or injured, the job doesn't get done.
o You work longer hours catching up on administrative functions.
o It is easy to become isolated from the business world.
o There is a high liability factor involved.
o If you make a mistake, your reputation is threatened.
o Some businesses experience drastic seasonal peaks and ebbs.
o Competitors often price-cut to stimulate business.
 Retail
Welcome to the age of big-box, large, hot, service but cheap discount stores. What a difficult
climate for small retail stores – all the more reason to do thorough homework before
embarking on a retail venture. The competition is fierce, with many small retail businesses
hardly making an acceptable living. Retail outlets not only compete with each other, they also
compete with large chain stores, manufacturers’ outlets.
However, if you carefully target your market, your chances of success will increase. Although
Internet sales are making small inroads into retail shopping, recent consumer research
indicates that more than 60 percent of potential on-line shoppers abandon a site before buying.
Websites must be easy to use and "surfer-friendly," which many are not. So although retail
competition has increased from these two sectors – big-box and the Internet – service is still
the winning factor that will entice consumers into your store, because in most cases, you can't
compete with pricing.
Here are some factors to consider that are unique to retail stores:
 Location
Prime retail locations are expensive for a good reason. If a store is located in a large shopping
center, rents can be disproportionately high, with advertising dollars paid to the property
managers each month. You have to sell a lot of doughnuts to pay $2,000 or $3,000 a month
for rent. If your store is located in an out-of-the-way location, you will not experience the
volume of walk- and drive-by traffic necessary to generate enough sales. Before deciding on
a location, find out how many other stores in that location moved on or closed up shop.
 Employees
Both you and your employees should have thorough product knowledge. Remember – be the
expert. Your employees should also have excellent customer service skills. Consumers expect
and demand both. Many customers have been lost to the competition because of incompetent
sales staff. That being said, finding good employees is the biggest problem experienced by
both small and large businesses.
The retail trade requires excellent people skills. You need patience to deal with a variety of
temperaments. You will have to serve teenagers, seniors, immigrants, tourists with language
difficulties, parents with screaming children and some rather disagreeable customers who
seem to enjoy giving sales staff a difficult time.
 Inventory control
Well-stocked shelves and attractive displays entice customers to browse. A small retail store
can easily carry a minimum of $60,000 in inventory, equating to large amounts of cash sitting
on the shelves. Poor inventory purchasing means that slow-moving products will eventually
have to be discounted. Select your lines carefully to facilitate a quick turnaround. Find out
how many times a year your inventory should "turn" or sell by your industry's standards.
Monitor your inventory turnover and watch for the slow-moving products.
 Hours
Retail stores are often open seven days a week, with extended trading hours. You can't work
seven days and order supplies, restock shelves, and manage all the accounting and
administrative work. You need help. First, determine the hours you can manage to work
regularly without overextending yourself, decide for which work you are host suited, and then
fill the gaps with additional staff. Be prepared for long days.
 Marketing
Many retail stores waste money on ineffective marketing methods. Study how similar stores
advertise in your area. Note how their advertising appeals to you as a consumer. Visit the
stores both before and during an advertised sale, noting whether traffic has increased or not.
 Consumer spending cycles
Keep up-to-date with consumer trends as they vary with the economic climate. As the nation
seems to be working harder and getting poorer, tailor your inventory to your target market.
Unless you specialize in strictly high-end products, maintain an inventory that appeals to the
pockets of lower- and middle-income brackets. Retail outlets are totally vulnerable to
consumer spending cycles. Your sales can be affected by weather, post-Christmas financial
woes, summer vacations, the back-to-school rush, the economic climate, and political changes.
Learn the cycles that will both increase and decrease sales so you can better plan your cash
flow and marketing strategies.
 Overhead and profit margins
A good portion of your profit will be going into other people's pockets, particularly to staff
and landlord. If you employ family members, at least the money stays in the family. Standing
overhead costs – that is, overhead costs that do not decrease whether or not you make a sale –
must still be met. Advertising, rent, telephones, power, and wages eat up a good percentage
of profits. If you are starting a new store, know the break-even point (the amount of sales you
must make each month to cover the bills), calculate how much you must sell, and determine
how you are going to achieve this figure.
 Pricing
Tough competition in the retail sector means that you must know your prices and review them
regularly. Not many businesses can boast total product exclusivity – even specialty stores
have competition. A smaller store's buying power is weaker than the larger ones, and you can
only corner a certain percentage of the market, unless you sell a unique product line. Few
businesses enjoy this luxury.
Keep normal retail prices in line with the competition. At the same time, they must be high
enough to support your overhead. It is easy to fall into the trap of offering continuous sales
that realize very little profits. Profit pays for the overhead.
 Franchising
Franchising has become a popular means of owning a business. Those with a solid reputation
who have perfected their business strategies over the years will be asking a fair price for a
franchise. Traditionally, established franchise business failures are significantly rarer than
independent business failures because they have designed effective sales, marketing, and
administrative systems. This is what you pay for, along with the company’s good name.
Investing in a relatively new franchise company is as risky as starting your own business, as
is buying one that is riding a current popular trend. Your market research will indicate whether
the trend is predicted to be short-lived or long-term. Definitely consult an accountant before
making a decision.
Well- established and profitable franchises are expensive, and there are many reasons for this:
o They have spent the time and money on in-depth marketing research and their
products and services are usually proven.
o They have perfected their marketing and advertising methods.
o Locations are researched for viability.
o They have built their reputation and are trusted by consumers.
o Profit margins, products, and operating expenses have been established and refined.
If you have a strong and creative entrepreneurial spirit, you may find a franchise too restrictive
and regulated, as you must abide by their rules. Uniformity is the secret to their success. A
Subway sandwich in Belize tastes exactly like one in North America. They have designed an
operational plan and a formula that work. Although you are an independent, you are controlled
by the head office. You pay for goodwill on purchase and a percentage of profits or sales
volume each year. You must purchase their own brand of supplies and raw materials, paying
more than if you shopped around. A good franchise is an expensive proposition, but in most
cases, a profitable business is the end result.
 Manufacturing
Manufacturing is defined as anything produced from raw materials, from candles to cameras.
As a manufacturer, you are responsible for the end product and its safety in the marketplace,
therefore you should be an expert in tile industry. During your research, check local and
Central American markets producing similar products. Often, locally manufactured products
cannot match the prices of international produced goods because of our higher salaries and
living standards.
 Starting a Manufacturing Business
It takes years to establish a new name in an industry so you will need enough working capital
to maintain the new business for up to two years or until regular profits roll in. Allow adequate
time and money to talk to the various government agencies and to confer with your accountant
or a business consultant. You need a sound business plan that you have prepared – with
professional advice – so that you are fully conversant with its contents. Manufacturing can
require a lot of money as you may need to purchase tools, packaging supplies, and equipment
or incur legal costs for registering. You will need an experienced team working together to
cover production, sales, shipping, marketing, and administration.
 Buying a Manufacturing Business
Most vendors will provide a training period after purchase, but their expertise usually comes
from many years in the industry. Are they going to take the time and teach you all the tricks
of the trade? You may purchase a business with dependable, well-trained employees already
in place, but you cannot rely solely on your employees – they are transient. You have to rely
on your own experience and good judgment.
If you plan to export a product or import raw materials, you must learn about the various
methods and costs of shipping, customs documentation, and letters of credit. Products have
to be costed to allow for foreign exchange costs and you must be aware of the foreign exchange
restrictions put in place by the Central Bank.
 Distribution
Distribution (or wholesaling) usually operates on small profit margins, relying on volume to
support a profitable business. A distributor acts as a link between the manufacturer and retail
outlets. Be knowledgeable about the products you are distributing. Most manufacturers offer
support or training to their distributors.
The size and variety of lines you distribute will dictate the type and size of the premises you
will need. Larger items may require a warehouse, dock-loading facilities, shelving, forklifts,
special equipment for moving materials, and an efficient shipping and receiving system with
dependable, honest employees.
During the research process, find answers to the following questions:
o Have the products been available for a few years?
o Could they become obsolete?
o Does the manufacturer have a good reputation?
o Do you know how large the market is?
o Do you know all your major competitors?
o Are prices competitive?
o Does the manufacturer honor warranties?
o Are the products easily serviceable or repairable?
o Do you know the products' seasonal sales cycles?
o Are there any reoccurring problems with the products?
If you are purchasing an existing business, the retail client base should be established. You
will need to review the financial information to see whether the client base needs expanding,
what the current terms of payment are, how slowly clients pay, and whether there are any bad
credit risks. If you are starting a distribution business, you must find potential clients and
evaluate their interest in your products. It's no use distributing products that move slowly, as
they take up valuable warehouse space and restrict your cash flow.
Your business plan will help determine if there is enough profit margin in your products to
cover overhead. Average gross profit margins (i.e., profit after the sale less the cost of the
product) can range from 10 to 30 percent of selling price. A profit margin of less than 20
percent doesn’t leave much room to cover overhead costs. Calculate how much you must sell
monthly to cover your break-even costs before making a final decision.
 Which business is right for you?
Ultimately, only you can decide which business will work best for you, so the next step is to
further narrow down the possibilities by doing more research and evaluating. Some important
considerations to think about are:
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Why do I want to start a business?
Am I starting for the right reasons?
Do I need more money?
Am I depressed because I cannot find a job?
Is my work situation unbearable?
Was I laid off and now I’m ready to be my own boss?
Am I tired of working for an incompetent boss?
Could I better organize my family by working from home?
Do I have to care for parents/grandparents at home?
Do I want to be my own boss? Am I tired of working for one?
Can I start a technology-based business at home?
o Do I have the skills, time, passion and money to start a business?
o My health and mental attitude: Entrepreneurship takes long hours and can be
stressful. If you are easily depressed, self-employment can be a challenge.
o Future Goals: Be clear about your short-, mid-, and long-term goals for yourself,
your family, and the business. Do you foresee a comfortable work-at-home
situation, or do you want to grow? You need these goals to sustain your motivation.
o Family and quality of life: These are the two most important facets of our lives.
How will your business detract from or add to both?
o Suitability of your skills: Are you experienced and knowledgeable enough for
this business? Are you willing to continually upgrade your expertise and
knowledge?
o Time: You need extensive time to research and get your business going. Then you'll
be married to it, particularly for the first year or two. How much time are you
prepared to devote to this business?
o Industry track record: It may sound like a wonderful opportunity, but you need to
research the past performance of this type of business. Trends come and go.
o Current and future trends: You need to know where this business is going in the
next decade.
o Financial considerations: How much will you need, when will you need it, and
where is it coming from?
o Personal cash needs: You will need the business to provide you with an income.
Have you reviewed your family and personal budget? Some businesses don't
generate a profit for a year or two. How will you manage?
 Do you intend to buy an existing business?
Here is a checklist to guide you through the process so that you do not miss out any steps or
important information:
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I've searched the company name and had it validated
I've validated the vendor's personal credentials
I've validated business and trade references
I've researched the business location, the lease, and employees
I've evaluated the assets and inventory and they are satisfactory.
I've discussed the business proposal with my accountant
My lawyer has prepared the agreement for sale
The city/county approval and research are completed
I've researched the competition and market
I have sufficient funds available to start and operate this business
This business is definitely a profitable concern
This business can pay me a satisfactory wage
The sales figures are steady and not declining
I can operate the business competently
My accountant agrees that the price is satisfactory
The assets are fairly evaluated
The goodwill is fairly priced
This business could be diversified or expanded
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I am aware of mistakes made by the previous owner
This business has a definite long-term life
This franchise makes acceptable profits
The projected returns are realistic and attainable
 CHOOSING TYPE OF BUSINESS CHECKLIST
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Are you a timely decision-maker?
Do you trust your intuition?
Do you relate well to people on all levels?
Can you join in a conversation in room full of strangers and feel at ease?
Can you pick up the phone and ask a direct question in an uncomfortable
situation?
Could you call a client and ask for a late payment?
Can you direct others to carry out your orders without being too aggressive or
overbearing?
Can you start a project and follow it through?
Are you a good verbal communicator?
Do you like yourself and who you are?
Do you start each day in a positive manner?
Can you maintain a positive attitude in adverse situations?
Do you have the appropriate technical expertise for the business you are
considering?
Are you willing to expand on these skills?
Do you keep up your global and financial current affairs?
Can you cold-call or sell yourself over the phone?
Do you have a sound financial knowledge of how a business operates?
Can you express yourself well in writing?
Can you work without directions?
Are you willing to work long, hard hours?
Can you work without getting easily distracted?
Do you understand terms, such as cash flow, assets, liabilities, equity,
depreciation, and working capital?
Do you keep legible notes and pay attention to details?
Do you keep appointments and arrive on time?
Are you usually well-organized?
Do you enjoy people?
Do you have patience with people?
Do you enjoy meeting new people and networking?
Could you keep the pressure of business away from your family life?
Will you continue to pursue your hobbies and interests?
Ideally you have been able to answer yes to at least twenty of these questions. You need a variety
of skills so you can control a multifaceted operation by yourself. If you answered no to any
question, ask yourself how you could improve in these areas, and make a note of them below.