The thought of being your own boss and running a successful business is exciting. You may have already thought about it for years, but have you considered buying an existing business instead of starting one from scratch?
If you buy a business, you are purchasing an established enterprise with its own customers, branding, assets, and employees. In comparison, starting a business from scratch requires creating everything yourself, including all the infrastructure, marketing, and strategy. It is a lot of work, and the success rate is not that high.
Here are some reasons why you should consider buying a business:
1. Established customers and reputation
With an existing business, there is already established brand recognition and a customer base. Customers have already developed trust in that brand, which means you do not have to spend money and time building that from scratch. The business may also have a positive reputation in the community that you can leverage to grow the business.
2. Proven business model
The business you buy has already been established, and you can analyze its past performance data to assess its strengths and weaknesses. That information can help you make informed decisions that will enable you to maintain, scale, or pivot the business. It is far easier to improve an existing business than to create everything from scratch.
3. Financial predictability
When you buy a business, there is already an established cash flow and financial records that you can review. The business also has a financial history, which helps you evaluate the potential for growth and the risks involved. You can use that information to create a business plan and financial projections that will help you in securing funding and planning for the future.
4. Faster Return on Investment
Buying an existing business may have a higher initial cost, but it is almost always faster to turn a profit than starting a new business from scratch. Once you buy a business, you can begin selling and earning money instantly, unlike in a startup where it may take multiple years to get off the ground.
However, there are also some disadvantages to be aware of before you buy a business.
1. High Initial Investment
The asking price of an established business can be expensive and may be challenging to finance. Besides, you could inherit problems from the previous owner, such as debt, equipment that needs maintenance, or even customer complaints that have not yet been resolved.
2. Limited Flexibility
You will have to work within the brand’s existing structure and may not be able to make significant changes immediately. You must balance the benefits of an established business model against any limitations that its existing assets, employees, and customers may place on you.
3. Employees
When you buy a business, you buy the workforce too. This could be an advantage if the employees are skilled and competent, but it could also be a disadvantage if there are personnel issues that subtract from the value of the business.
If you are considering buying an enterprise, you must do your due diligence. Here are some steps to follow:
1. Research your target market
Look at the industry and the customer demographics that the business you want to buy is serving. Analyze the competition, regulatory environment and potential for growth. This will help you understand the business’s current market position and potential for growth.
2. Inspect the Financials
Examine the business’s financial statements and tax returns for the past few years. This information can help you discover any hidden problems and determine the business’s income and expense trends over time.
3. Understand the Business Operations
If possible, work with the business owner or management before the sale to learn how the business operates. Learn about suppliers, procedures, employees, customer relationships, contracts and assets. The owner will be an excellent resource to understand the challenges that come with running the business.
4. Hire Professional Help
Have your team of lawyers, accountants, and business advisors to help you conduct these assessments and provide expert guidance on legal, tax, and financial implications of buying the business.
Buying a business has its pros and cons. However, with the right mindset, research, and preparation, it can be a rewarding experience. It has far less risk and a much higher probability of success than starting a business from scratch from the onset.
