Millennials are quickly filling up the business marketplace and even taking ownership within the small business community. The 18- to-35-year-old generation now outnumbers both Gen X and baby boomers in the workforce, according to Pew Research. However, it’s no longer assumed these recent graduates will settle into traditional office jobs.
Many millennials are attracted to the independence that comes with owning a small business, according to our recent report on the demographics of small business buyers and sellers. Millennials listed the prospect of being their own boss as the number one factor motivating them to buy a business. Additionally, 64 percent of millennials view small business ownership as an opportunity to earn better income.
It won’t be long before this young generation becomes the most prevalent population of small business owners. The restaurant industry, in particular, continues to be one of the most popular sectors for all buyers, with 26 percent listing it as the one they are most interested in, and another 19 percent citing the bar and tavern sector.
It’s no surprise that the vast majority of millennials (80 percent) are first-time business buyers. While the restaurant business has the potential to be an incredibly profitable venture, it also can be a high-risk endeavor, especially if not managed properly. To increase the odds that their venture succeeds, millennials should consider the following tips when purchasing a restaurant.
1. Improve your creditworthiness.
Millennials have more commercial and consumer credit accounts than other generations of business owners, according to a recent Experian study. But millennials also have the highest commercial credit card delinquency rate of any generation, with 3.6 percent of their commercial credit card accounts delinquent 90 days or more.
A bad credit rating can effectively kill your chances of obtaining financing from commercial lenders and sellers. To improve your loan options, young restaurant buyers should take measures to improve their credit worthiness before entering the marketplace, even if it means delaying plans for a year or more. When saving, it’s also a good idea to set aside funds for both initial expenses and unforeseen circumstances. Planning for your company’s financial future is just as important as setting its foundation.
2. Evaluate all financing options.
The traditional lending industry has been slow to recover since the economic downturn, making it more difficult for young buyers to secure acquisition funding. However, many online lenders like Kabbage and OnDeck have popped up to fill this void.
Filling out an online loan application generally takes about 30-60 minutes. Applicants usually receive a response in a matter of hours and funds can become available within a matter of days. While the quick process of online lending is certainly appealing, young buyers should be aware that many online loans come with higher interest rates. Take the time to carefully compare your loan options and evaluate the terms of repayment.
3. Build up your industry experience.
With the majority of millennials having no prior business ownership experience, building out your industry and management experience is key to understanding all the tasks and responsibilities of owning a restaurant. Taking on an apprenticeship or management opportunity can better prepare you for the realities of owning a restaurant and also give you more time to raise the funds needed to buy a restaurant. These opportunities also provide valuable connections that could potentially lead to an acquisition opportunity.
4. Connect with your local SBA and SBDC offices.
District Small Business Administration (SBA) offices provide a variety of resources for first-time business buyers and small business owners. Your local SBA office can provide more detailed information about the SBA’s various loan programs, many of which offer flexible terms and low rates. Additionally, local SBA offices offer counseling, training programs and other resources to help buyers successfully acquire and operate a successful a restaurant. Small Business Development Centers (SBDCs) operate in most markets, and are another great resource for new and aspiring entrepreneurs.
5. Join local business groups.
Getting involved in local business and industry groups is an easy way to build relationships with other restaurant owners and gain credibility with local consumers. Joining your state’s restaurant association offers local representation and networking opportunities. Your local chamber of commerce offers many educational resources to business owners and serves as a pipeline to the local community. Even more casual groups such as a local Meetup can be an easy way to connect with other restaurant owners and find a mentor to help you navigate the complexities of both buying and owning a business.
The process of buying a restaurant takes times and tests nerves. Young buyers can avoid common pitfalls by setting clear goals and acquisition parameters, and enlisting the help of people you trust.