What kind of business should you buy? Choosing an industry

"Any good business in my area" isn't a search. It's too broad to research, too broad to write a convincing letter about, and too broad for a lender to judge whether you can run what you buy. Choosing two or three industries is what turns a vague wish into a list of companies.

The right industries aren't the ones with the best headlines. They're the ones you could run well on a bad Tuesday. Here's how to narrow them down.

Start with what you've actually done

You don't need to have worked in an industry to buy a company in it. But you do need to be able to run it, and lenders will ask. When a lender reviews an SBA-guaranteed loan to buy a business, it has to describe your industry experience and your management background, and explain who will run things day to day.

So look at your own history for skills that transfer:

• Managing crews or field staff carries over to trades like HVAC, plumbing and landscaping.
• Running an office, a department or a budget carries over to commercial cleaning, staffing and other service companies.
• Selling to businesses matters in companies that win contracts, like managed IT or uniform and linen service.
• Technical training (an engineering degree, years in IT, a trade license) can open industries that are hard for others to enter.

Be honest about the gaps too. If you've never managed anyone, a company with thirty employees is a big first step, whatever the industry.

Licensed trades: who needs the license

Many industries require a state license, and in Florida the rules differ from one to the next. It's worth knowing them before you fall for a company.

Construction trades. In Florida, a company that does contracting must be qualified by a licensed contractor, called the qualifying agent, who has final authority over the company's construction work. The owner doesn't have to be the license holder. A buyer without a license can generally own an HVAC, roofing or pool company if a licensed contractor qualifies it. But the qualifier isn't a figurehead: they're legally responsible for the work and, unless the company has a separate financially responsible officer approved by the state, for business matters like contracts and payments. If the company's only qualifier leaves, it has 60 days to find another, and it's limited in what it can do until then. Electrical contractors have their own board and a similar 60-day rule.

That makes the qualifier one of the most important people in the deal. Before you buy, you'll want your own license, a qualifier who is committed to staying, or a clear plan to hire one.

Pest control. Pest control companies are licensed by the Florida Department of Agriculture and Consumer Services, not DBPR. The company has to apply for a license when ownership changes, and its pest control work has to be supervised by a certified operator in charge who works for the company full time.

Health care facilities. Home health agencies, assisted living facilities and other providers licensed by the Agency for Health Care Administration (AHCA) have their own change-of-ownership process. Both the seller's notice and the buyer's license application have to reach AHCA at least 60 days before the change of ownership. See home health and senior living.

Restaurants. A new owner of a restaurant needs a license from DBPR's Division of Hotels and Restaurants before operating, and a liquor license goes through a separate division.

Businesses only licensed professionals can own. Some industries are closed to buyers without the right license. In Florida, dental practices can only be owned by dentists, CPA firms must be majority owned by CPAs, and law firms can only be owned by lawyers. If that's not you, cross them off.

Look for revenue that repeats

A company whose customers pay every month, or come back on a schedule, is easier to own than one that has to win every job from scratch. It's more predictable, easier to finance and less likely to fall apart when the owner leaves. Buyers often pay more for it, as our post on what a small business is worth explains.

Industries where repeat revenue is common include:

• Service agreements: HVAC maintenance plans, elevator service, fire and security system inspections.
• Routes: pest control, pool service, waste hauling.
• Contracts: commercial cleaning, managed IT, uniform and linen.

When you look at a company, ask whether the revenue is truly recurring or just habitual. A signed annual contract is different from customers who have always called but could stop tomorrow. And watch for one or two customers making up a large share of revenue. That's one of the risks in our post on what changes the price.

Be honest about the physical side

Many good small companies involve hard, hot, physical work. As the owner, you probably won't be on a roof in August. But in some companies the owner is also the best technician, and the customers expect them on site. You'll need someone to fill that role, or the stamina to do it while you hire.

Ask what the job looks like on its worst day. Emergency calls at 2 a.m. come with plumbing and HVAC. Early mornings come with landscaping and routes. Weekends come with restaurants and auto repair. None of this is bad. It just needs to be a life you'd choose.

Seasonality and cash swings

Some businesses earn most of their money in a few months and live on it for the rest. In Florida, a few patterns are worth knowing:

• Heat. Air conditioning work peaks in the hot months.
• Winter residents and tourism. In many coastal areas, demand for restaurants, services and repairs rises in winter, when part-time residents and visitors arrive.
• Hurricane season, June 1 to November 30. Storms can bring a rush of work for roofers and restoration companies, and disruption for almost everyone else.

Seasonality isn't a reason to avoid an industry. It's a reason to ask for several years of monthly revenue, not just annual totals, so you know how much cash you'll need to carry the slow months.

A simple way to compare industries this week

Take the industries you're considering (add columns if you have more than three) and score each from 1 (poor fit) to 5 (great fit) on the questions below. Be honest; nobody else needs to see it.

Question	Industry A	Industry B	Industry C
Could I lead the people who do this work?
Do I have, or can I keep, the license it needs?
How much revenue repeats?
Could I handle the physical demands and hours?
Can I manage the seasonal swings?
Are there enough companies near me?

Two or three industries often stand out. Those are the ones to search. Then use the records described in our post on what public records tell you to find the established, owner-run companies in them, and the signs that a company is established to decide which ones deserve a letter.