Small business ownership is more popular than ever, but the road to owning a business that fits your personality and goals can be fraught with pitfalls if you’re not fully prepared.

Some studies indicate that well over half of all Americans are interested in owning a small business, yet the number of people who actually make the leap to an entrepreneurial career is much smaller. For many, it is not a lack of business skills that gets in the way, but the failure to adequately identify a suitable business option.

It’s crucial not to underestimate the importance of choosing the right business. Imagine trying to run a marathon wearing running shoes that are three sizes too small. That’s what it’s like to operate the wrong business. Your efforts will likely be doomed from the start simply because you chose a business that doesn’t match your interests.

However, selecting the right type of business is only half the battle. Once you’ve settled on an industry and business structure that is right for you, the next challenge is to find an available establishment that is well-positioned and profitable. This might sound easy, but without doing the proper research it could prove to be a major hurdle to overcome. One of the reasons businesses are sold is because the previous owners failed to do the very thing a buyer hopes to accomplish – make the business continually profitable and able to support their lifestyle. If you don’t do your homework, you could find yourself struggling to save a ship that has already begun to sink.

As long as you keep in mind some key points when choosing a business, there’s no reason to be discouraged. Thousands of aspiring business owners turn their entrepreneurial dreams into a reality every year. There are a variety of factors that go into the business selection process and, believe it or not, most of them are unrelated to the amount of capital you are able to invest in the business.

Choosing the Right Type of Business

The intangibles involved in selecting an appropriate industry and type of business can have an impact that lasts far beyond your first day on the job. Personal interest and passion are non-negotiable elements in a successful business venture.

When the initial excitement of becoming a business owner wears off, you’ll be left with the task of actually doing the work, day in and day out, for as long as you own the business. If the kind of work your business does isn’t very interesting to you, you’re setting yourself up for disappointment and frustration down the road.

A lot of new business owners begin the process by conducting an honest assessment of their interests. In fact, the most successful businesses often begin as a hobby which eventually inspires the business buyer to transition into ownership.

Another intangible has to do with the owner’s skill set. Theoretically, it’s possible to buy into a business in which you have absolutely no skills or experience. The problem is that the business may not be able to endure a lengthy learning curve.

For example, if someone with no previous skills in the salon industry buys an existing hair salon with the intention of getting trained and certified along the way, a major issue would be how the business would survive while the owner learns the ropes. Would other employees fill the gaps, or is it a better idea to work alongside someone else before jumping into business ownership?

As you assess your interests, be realistic about your skill level. If your chosen field or industry requires training, factor it into your business plan from the start and make allowances to compensate for your gradual integration into daily operations.

Identifying the Right Business Opportunity

After you have determined the type of business that appeals to you and that you would be truly happy owning, the next step is to look for specific businesses that fit the bill in your price range. Unless you have a large amount of cash at your disposal, you will need to finance a good share of the purchase price, so a visit to your banker or other financing professional is a prerequisite to beginning your search. The goal should be to understand how much you can afford to pay for a business, factoring in the amount you may be able to borrow from a bank, friends and family, or the business seller.

Armed with a financing pre-approval, it’s time to get serious about your search. Some buyers enlist the assistance of a broker. Others do it themselves. It’s entirely up to you. Technology offers a great starting point for aspiring entrepreneurs who are in the market for their first business. In recent years, online business listings have become the connection of choice for both buyers and sellers.

The important thing is to understand that a business purchase is a highly nuanced transaction. If you aren’t prepared to ask the right questions, it’s very easy to fall into traps that will be difficult to get out of.

There will be a long list of questions begging to be answered. Sellers are required to provide certain information to buyers in the form of due diligence. It is standard practice for potential buyers to receive access to historical financial statements, as well as other pieces of information that will impact the future of the business.

The seller will usually have conducted a valuation process that serves as the basis for the asking price. Although online business-for-sale marketplaces often provide highly accurate valuation reports, there is no guarantee the seller will have listed the business at or near the quoted price. If the business becomes a serious candidate for purchase, you will need to conduct your own valuation process with the help of a third party tool such as an online comparables report, available on sites such as BizBuySell.com and BizComps.com.

The bottom line is that it is imperative to keep asking questions and seeking answers until you are fully satisfied you know as much as you can about the company. If you aren’t completely comfortable with the business or the way the seller is handling the transaction, keep looking.

Read Part 1 of 5: Is Now the Right Time to Buy a Small Business?
Read Part 2 of 5: Jump-starting the Dream: How to Successfully Buy a Small Business
Read Part 4 of 5: Five Questions Business Buyers Should Ask, but Usually Don’t

About the Author
Mike Handelsman is General Manager for BizBuySell, the Internet’s largest business for sale marketplace. Since 1995, BizBuySell has offered tools that make it easy for business owners and brokers to sell a business, and potential buyers to find the business of their dreams. BizBuySell lists over 50,000 businesses - spanning 80 countries - for sale at any time, with over 4,500 added or updated each month. BizBuySell also has one of the largest databases of sale comparables for recently sold businesses and one of the industry’s leading franchise directories. Please visit www.bizbuysell.com.