Benefits of Buying an Existing Business
If you want to be in business for yourself, there are two general ways for you to get started. You can start a business from scratch and do all the initial set up work yourself, or you can purchase an existing business that has already been established. All other factors being equal, buying an existing business provides several advantages over starting one from the ground up.
Reasons to Consider Purchasing a Business: Here are some of the major reasons why you should look at buying an established business:
The Initial Hard Work Has Already Been Done: There is an immense amount of legwork involved with starting up a business and bringing it to the point of profitability. This typically requires several months or perhaps even a couple of years of working long hours and pounding the pavement to build the business largely through trial and error. When you purchase an existing business, this work has already been done for you. The business is likely already well established, and there should be plans and procedures in place that allow it to run more smoothly.
The Brand is Established in the Community: When you buy an existing business, you are inheriting their name and the goodwill within the community that comes with it. An established business has a reputation (hopefully a good one) that a new owner will be able to benefit from.
You Receive Immediate Cash Flow: Most likely, one of the major reasons you want to become an entrepreneur is to enjoy a good standard of living. And this means having a business that is profitable enough to support your lifestyle. Because of what we talked about earlier, it will be a while before a startup business will reach the point where it will provide you a good living. With an established business that is profitable, you enjoy a decent income from day one.
An Established Business has a More Predictable Track Record: When you purchase an existing business, it has a financial history that you can draw from and gain a good idea of how it will perform in the future. While past performance is not a guarantee of future results, if a business has done well in the past, it is one good indicator that points to continued success going forward.
There is Already a Market, and Customer Base for the Product/Service You are Providing: Closely related to the established brand and goodwill we talked about earlier, purchasing an existing business means having a built-in market and customers from which to build. And knowing your ideal customer is important, because this gives you a better idea of who to market to expand your customer base.
Reasons Not to Purchase an Existing Business: Although there are a lot of benefits in buying an established business, there are some potential drawbacks to be aware of as well:
You Might Not Have the Required Financing Available: One of the major challenges with buying an existing business is coming up with the capital to make the purchase. Most buyers will need some type of financing to complete the transaction, but hopefully you have some of your own money to put into it as well. At the end of the day, you need to be able to line up the financing, and the numbers need to work. If the math does not work, then this might not be the right option for you.
The Business Might Not Be a Good Fit for Your Experience and Skillset: The fact that the current owner has made this into a successful business does not guarantee that a new owner will be able to continue this track. The simple fact is that everyone has different skills, passions, and interests, and not every business is going to be a good fit. You need to take an honest look at whatever businesses you are considering ensuring that you are ready to successfully operate the venture from day one.
The Business Might Have Issues that are a Cause for Concern: Whatever business you are considering, you need to do your due diligence and look closely at all the details. In doing so, you might find that something is off. Maybe the owner’s reason for selling does not make sense. Maybe the business looks to be on a downward trajectory, or maybe they have some type of pending litigation that they are dealing with. If there are issues with the business that concern you, you will need to factor them in when you look at the overall risk/potential reward if you were to buy this business.
Contact a Local Business Intermediary to Discuss Your Business Purchase: Buying an existing business is a great option for many aspiring entrepreneurs, allowing them to hit the ground running and jump right into profitability. But there are some cautions to be aware of as well, and it is always best for prospective buyers to work with a local business broker. A reputable business broker can help you find the business that is the best fit for you, and they can also help you successfully navigate the transaction.