Smart Money: Underperforming venture comes with growth potential

Dear Bruce: I am interested in purchasing a 10-year-old consignment business that has a good customer base. The business sells everything but clothes. Last year, it produced $2,500 a month after paying for the merchandise. It’s not open seven days or even five; it almost seems as if it’s open whenever the owners feel like it. The current owners rent their space, and it will continue to be rented to any new owner. They are asking $10,000 for the business: inventory, computer and all the display equipment. How do I know whether this is a reasonable asking price? —B.C., via e-mail

Dear B.C.: In essence, they are asking $10,000 for a business that doesn’t net much income. If the business were open, say, six days a week and were to expand on what’s already on hand, there may be room for more income. Given the fact that it’s been an established business for some time, the price doesn’t seem out of sorts. Realize that in order to turn this into a decent-paying proposition, you will need to make a heavy-duty investment of time and effort – at least twice as much as the current owners.

Franchising may limit innovative options

Dear Bruce: I am 55 years old and have been downsized at my job. Wondering what to do in my “new life,” I was thinking of buying into a franchise. What are your thoughts? —F.B., via e-mail

Dear F.B: Franchising has a lot to recommend it, and a lot to be considered before one writes a check. On the plus side, you are working with people who know their industry, assuming you choose an established franchise. They’ve made the mistakes, and they can help you avoid those mistakes. Franchises, however, are all about conformity. No matter how good an innovation may seem, you will not be permitted to make that change unless the franchisor approves. Look hard and choose carefully. If you are a corporate type who can deal with conformity, and you don’t mind having a partner for life, a franchise may be just the ticket.

Self-employment brings insurance hurdles

Dear Bruce: I’m 22 years old and work for myself. I’m a subcontractor for a local phone company and have been for the past 2K years. I am having a hard time getting insurance, and I don’t know what to ask for. Any suggestions? —C.D., via e-mail

Dear C.D.: You have to be a lot more specific. What kind of insurance are you looking for? If you are talking about health insurance, assuming you are in decent health, it should not be a problem at your age. I don’t know any reason why workers’ compensation would be an issue here; however, liability insurance could be. When you talk about insurance, there are so many areas that the self-employed have to consider. We’re going to have to focus on a specific area, so I hope you’ll write me back with more information.

Finding best spot boils down to choice

Dear Bruce: I’m self-employed and considering relocating. I’m wondering your opinion on finding an area that’s growing most quickly. We are considering a franchise, and we’d like to be in a place that’s not overdeveloped. I would also be interested in finding a business to operate for someone else. —R.K., via e-mail

Dear R.K.: Like everything else, there are good areas and bad areas. What does overdevelopment mean? One man’s overdeveloped area is another’s idea of living in the country. Rather than focusing on a narrow geographic area, you would be wise to concentrate on what you do well, what kind of business you want to get into and where the capital will come from, et cetera. Of course, there is nothing better than visiting an area for a time, learning firsthand what it is all about. This is truly a case of “different strokes for different folks.”

Bruce Williams is a national radio talk-show host and syndicated columnist. He can be reached at bruce@brucewilliams.com.