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California Businesses: What to Know Before Investing in the Golden State

Investing in a business requires a lot of soul searching, whether it's already established or a new business.  You’ll want to make sure the money that you invest in the business, along with the resources, are being used for what you intended and that will receive a return on your investment.

There are rules and regulations that must be followed when operating California businesses.  Here’s an overview of what investors need to know before committing to putting money in a California business.

What Should Investors Consider Before Investing in a California Business?

There are several factors that any investor should consider before getting into a business in California. Many are specific to the business itself; others are specific to doing business in California and/or whether to invest in a franchise.  Here are some things to consider.

Investment Factors Specific to the Business

It is important to do your due diligence and learn more about the company before investing in a California business.  Below is a brief outline of what to investigate.

The Need

Most importantly, you’ll need to understand the amount of funding the business will need.   The funding needs can vary greatly, whether it is an established business or a startup.  You will want to know why the business needs the funding and what their plans are to do with it.  Additionally, you will want to know what you can expect for your return on investment.

The Market

You will need to determine if there is a market for the products or services the business sells.  You will want to know the details of market in relation to the business’s products or services.  You may want to consider conducting your own market research.  At a minimum, you should thoroughly review the company’s business plan.  Business plans should include things like:

  • Target market
  • Hard numbers providing financial projections
  • Sales channels ;
  • Analysis of the competition
  • Marketing plans
  • Timeline for when the business will produce an ROI

It is important to be able to see that there is a clear plan in place and that the market is ready for the business as much as the business is for the market.

The Management

Having a management team that can perform is extremely important.  Great products or services and a sound business plans will mean nothing if management cannot properly execute.  It is important to find out who is managing the company, what their background is and what their successes and failures have been.  You will want to get to know them as much you get to know the products or services and the business plan.

State of the Company

You will want to know what the current state of the company is – is it an established business, looking to expand into new markets or is it a startup business that requires seed money?  What is the business’s story or pitch?  Is it worth your investment?  You should consider things like:  What needs do the products or services fulfill?  What differentiates the business among its competition?  How will it change the market?

Growth Opportunities

You will want to determine how much room there is for growth.  Most businesses want to grow out of its market and into new markets, but how does the business intend to do this?  Will there be a drive to expand the current products or services into new markets?  Where does the business see itself in five, ten, even fifteen or twenty years, and how does it intend to get there?

Exit Strategy

There may be a day when you will want to exit, regardless of how well the business is performing.  What will your exit strategy options look like?  It is important to know if you will be able to sell your share to another party or if the business will buy your share back.  You will need to know if you will be able to get your money out of it and hopefully make a profit, even if you are committing to a partnership that you are thinking will be long – even if you are committing to an investment that you are hoping will be a long-term partnership.

Investment Factors Specific to California

One thing is certain:  California welcomes new and exciting businesses!  If you live in the Golden State, you probably know that now is a great time to invest in a business.

California Business Opportunities

Countless businesses have shut down in California over the last few years, creating gaps in the market.  Things are opening up again and commercial space is readily available.  While many California business owners simply chose to retire early, others have had time to reflect about their career goals.  They’ve decided to become their own boss and achieve greater levels of work-life balance.

California has been the home of tech and biotech startups for years.  Many other business types can excel in the diverse California market also.

California Rules and Regulations

One of the most important factors to consider when investing in a California business is the compliance with the rules and regulations established by the State of California.  Different rules and regulations will apply for different services and products.

In addition to complying with California law, you will also want to be kept abreast of laws and regulations that may have an impact on the business you invest in.  Since there is a wide range of laws that could potentially your California business investment, it is always best to contact an experienced business law attorney who can explain what the laws mean and provide advice on what to do.

Investing in a Franchise in California

Whether you’re a seasoned business professional or brand-new to business ownership, starting a franchise is one of the best ways to create a business.  A franchise provides you with a proven business model.  You will just need to follow the plan.

What to Look For

How do you find the right California franchise for you?  A big part of it is location.  Not every national franchise will be right for California.  When researching potential franchises, you should consider the following:

  • Initial investment - Most franchises require not only a license fee but also proof that you can meet the net worth requirements, to show that you can support the franchise successfully.
  • Autonomy – Will you need to follow strict processes and procedures?  Or will you have a little leeway?  The amount of control franchises exert vary greatly from one franchise to another.
  • Marketing and name recognition - Will your products or services sell themselves or will you still need to do some selling?  It will be easier to get customers if you are working with a national franchise, than if you are working with a local franchise.
  • Training and support - What training tools will the franchise provide?  Will they be a true source of support for you?  Or will they just take your initial investment and let you use their name?
  • Competition - Will there be a lot of similar businesses in your area?  Will be franchisor make sure that their franchisees are relatively spread apart?  Or will they create your competition for you?

Different things will be important for different people.

Due Diligence

In today's market, you can't afford to invest in any business without first doing your due diligence. To invest or not in a California business is really a determination that you should you make after you consider all the facts, understand all the relevant laws, and analyze all the data. An experienced attorney can help you with this process.

For additional information:

What to Know Before Investing in a Business

Why its time to Buy a Franchise in California

 

 

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