Smart Play: Buy a Low-Risk, High-Margin Business in a Growing Industry

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Katie Fleming

Co-founder and COO of Owner Actions

A person in front of a work van chose to buy a business that's enduringly profitable

If want to buy a business, then you’ve probably thought about operating one that’s novel, trendy, or exciting—one that’ll impress others. Many aspiring business owners think the same way. They want to capitalize on what they know about the market, emerging trends, and what people want.

Some succeed: They buy a hip business and adapt it over time to ensure that it’s always capitalizing on trends. Others succeed for a short time: Their trendy acquisition generates a positive cash flow—at least until the trend falls out of favor. However, most fail. Why? Because few trends are sustainable—and even fewer managers know how to help a trend-driven business pivot to what’s next.

 

But I want to buy a fun business…

You can choose a fun business, but the businesses that are “fun” often don’t generate the profit that makes running them worth the effort. And that isn’t fun at all.

Before you submit an offer to buy a party planning business, a pie-on-a-stick shop, or a subscription-box startup, you should consider another kind of business: one that’s enduringly profitable.

Enduringly profitable businesses are low-risk, high-margin entities that operate in growing industries. These businesses often make great investments because they’re primed to grow and profit far into the future.

 

What should I look for when I buy a business?

This category of businesses includes services that many people use every day. They often fly under other investors’ radars, minimizing the competition you may face in acquiring them.

Here are some of their qualities:

 

They’re dull.

The businesses in this category aren’t glitzy or glamorous. They’re often necessity residential services, like plumbing, electrical, disaster clean-up, or mold remediation, or they’re part of the care services industry, which includes daycare centers, preschools, and doggie daycare sites.

 

They’re established.

Best-bet businesses often include those that have operated successfully for a number of years. They have a steady stream of customers, are known for their work, and maintain a solid reputation in the communities they serve.

 

They experience slow, steady growth.

Some of the businesses savvy investors favor are those that have documented patterns of growth. Many are also part of an industry that is on course for steady growth.

 

They’re low in risk.

The businesses in this category are unlikely to be disrupted in the near term. Often, they’re services people need rather than desire, or they’re businesses that are unlikely to suffer from regulatory changes or spoilage of unsold products.

 

They aren’t cyclical.

Most of the businesses in this category have steady sales throughout the year. There is little-to-no seasonality, meaning sales don’t spike at certain times of the year and fall away at others.

 

They have high barriers to entry.

Some of the most attractive businesses succeed because it’s difficult for new competitors to enter their market and scale rapidly enough to compete with the incumbents. Barriers may include specialized skills, access to intellectual property, high startup costs, and having to compete with dominant market players.

 

They have few barriers to exit.

Some businesses worth considering exist in industries that make it easy for firms to discontinue their services. Often, these businesses are simple. They don’t have assets that would be difficult to sell or relocate, they aren’t subject to heavy regulation, and they don’t have to worry about environmental cleanup as part of their departure.

 

They can stand out from their competitors.

Many profitable businesses can differentiate their products or services from their competitors’. Instead of competing on price, these businesses stand out by offering their customers something unique or difficult for their competitors to replicate.

 

This list may be a sharp contrast to what you thought you were looking for, but it’s tough to argue with consistent profits, longevity, and an established and loyal customer base. Think about what it might look like to buy a business people truly need. The benefits just might outweigh your interest in buying into a trend.

 

Ready to buy a business?

Here’s how we can help.

Partner program. We can work one-on-one with you before, during, and after buying your business.

Review service. We can analyze a business you intend to buy and provide our opinion on a fair price.

Loan matching service. We can run your deal by our lender roster to see who can get it done.

 

Thinking about another approach to buy a business?

Cash cows can be a great investment, but other businesses can be, too. Check out these guides to explore your options:

 

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