If you’re considering buying a business, you’ve probably realized that there are many opportunities out there for aspiring entrepreneurs. From franchises to websites to brick-and-mortar small businesses, there’s an almost limitless number of options for someone looking to ditch their 9 to 5 for something of their own.
However, becoming a business owner requires you to be savvy when it comes to the financials, and one very important piece of that is your ROI.
What is ROI?
ROI is an abbreviation for Return on Investment. ROI is a performance measurement that measures the potential profitability of an investment…in this case, a business you intend to purchase.
How is ROI Calculated?
The simple formula for calculating ROI (expressed as a percentage) of a business is to divide the business profits by the business expenses. However, calculating ROI is rarely simple, especially when talking about the ROI on purchasing a business. First, the current value of the business must be accurately determined, along with a detailed accounting of all business revenues and expenses. Much of this information must be obtained from the current owners, so it may be biased in their favor. Take all of this into consideration when using ROI results to compare businesses. If you’re in doubt about calculating the ROI for a business, a reputable business broker can help.
Ideal ROI for a Business Purchase
Now that we’ve talked about what ROI is and how to calculate, let’s move on to the good stuff…how much ROI do I need for my business purchase to be successful? The answer is…it depends on who you ask and how you calculated the ROI in the first place. If you deducted a salary for yourself as part of the business expenses in your ROI calculation, then you might not need as high of an ROI to feel successful. If you did not account for your salary, you’ll want a higher ROI to make up the difference. Experts recommend an ROI of 15-35% for new business purchases.
Business Buyer Representation in Tampa Bay
Are you ready to buy a business in Tampa Bay? Tampa Business Broker Inc. provides representation and valuation services for buyers eager to try their luck on the Gulf coast. For more information, contact us at 813-469-7957, email buyorsell@tampabusinessbroker.com, or contact us online.
