Identifying good small business opportunities is tricky.

You’ve got the folks (maybe your parents or spouse) who tell you you’re crazy to even consider the idea.

You’ve got the folks (maybe business brokers or someone selling a franchise) who tell you you’d be crazy not to commit. Immediately.

And then people like your accountant or attorney often weigh in vague advice like “well, gosh, it depends.”

Given the above, I thought it’s make sense to provide four quick tips for identifying good small business opportunities.

Tip #1:  Verify Some People Make Great Money

A first tip for finding good small business opportunities. Make sure some small business owners in the category (let’s say ten percent) make great money.

In other words, it doesn’t really matter if the average small business owner in a category just grinds it out and hates his or her job. (Often the average small business owner’s profits and business operation look just barely not bad.)

But what you do want is a niche that’s good enough some nice chunk of the market actually makes a true entrepreneurial profit.

Note: I think there are a number of activities that purport to be good small business opportunities that are not.

Tip: A quick online search of businesses for sale like the one you want to own should let you find a nice handful that make great money. Most will not make great money. But a nice handful should.

Tip #2: Figure Out What Makes “Top Ten Percent” Firms

A second tip relates to the first tip: You need to be able to find out what makes the profitable firms within your industry profitable.

By the way, the “secret sauce” formula will probably be embarrassingly simple. (In a CPA firm, the firm needs to (a) “product-ize” services and then (b) systematize everything.)

But you need to know the secret sauce for your industry.

Tip #3: Double-check Historical Record Still Relevant

Quick point: Make sure that your data showing people make money and how they make money in the niche is still accurate.

In other words, just because an industry or business formula generated great profits two years ago, well, don’t assume the industry and formula still generate profits.

And this thought: “Probably” is probably a good enough answer. In other words, if you think about the history of the industry and about how changes in the industry or the wider economy impact the profits and you conclude “well, things are probably okay,” that’s probably good enough.

Tip #4: Verify Resources Available to Move from Point “A” to Point “B”

A final tip. Even if you’ve got a super-profitable industry and have confirmed the top performers make great profits, you want to verify you have the money, time and information resources necessary to become one of those top performing firms.

You may need educational or technical credentials. You may need enough time to turn leads into customers. You may need cash or other financial resources to get you through the startup phase.

Another way to say this: You need to have a realistic chance of climbing (or crawling over) the barriers to entry.

This related remark: Remember that barriers to entry protect your business once you’re over the barrier. Good small business opportunities, therefore, should have barriers to entry that you can only just barely get over yourself.

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