When most entrepreneurs dream about owning a business, they assume the best way to accomplish that lofty goal is to build a new company from the ground up. Unfortunately, these ambitious aspiring business owners rarely consider the disadvantages of starting a business from scratch. This article will explain why you should consider buying a business rather than starting one from scratch.
In many cases, buying an existing business is the wiser choice, both financially and practically. Before deciding which route to take, read on to find out about some of the benefits of buying an established business instead of starting one from scratch.
When an entrepreneur starts a new business, it often requires months, or even years, of lead time. The aspiring business owner must:
- Assemble a competent team of specialists
- Hire additional employees
- Find a location
- Build distribution channels
- Establish relationships with suppliers
- Develop a reputation
All of these essential tasks must be tackled early on, well before the new company can be considered well established. For those who don’t want to waste time, buying a business is usually a better option.
Of course, it can also take some time to find the right established business. The difference is, once the deal is closed, the company will already be up and running, its operating procedures and protocols will be set, and the new owner will have access to working capital from the very first day. The new owner may need to remodel the space, hire additional staff, or upgrade equipment, but all of that is much easier than starting everything from scratch. Read on for for reasons why you should consider buying a business rather than starting one from scratch.
When a buyer purchases an existing business, the company’s historical numbers and financial history will be transferred along with all the rest of the relevant documentation. Having access to those historical numbers makes it much easier to come up with an accurate budget and make plans for the future. Plus, the new owner will know what to expect in terms of revenue and costs before signing on the dotted line.
Buying an established business comes with more of an assurance of success than starting a new one from scratch. Data from the Bureau of Labor Statistics shows that around 20% of new businesses fail within the first year, and an astonishing 70% of them close their doors within a decade. Part of the reason that most small businesses fail is that there’s no way to predict whether a brand-new company will be able to find a niche within its market.
Purchasing a business that has been around for more than 10 years and has already carved out a niche for itself can help to reduce risk. However, all buyers should conduct their due diligence. Go beyond the numbers and check out the business plan to find out what to expect in terms of market testing and acceptance of products or services.
Finding a lender that will finance a startup can be tough. Banks know that starting a new company from scratch is a risky business, and there’s no way for lenders to tell whether the company will be able to repay its loans.
New business owners don’t have financial records, business lines of credit, or even collateral to put down. As a result, most wind up taking out personal loans to start new businesses, putting their own credit scores on the line. When investors choose to buy a business instead, they usually have access to a far wider range of financing options for growing the company.
Buying an existing company means having access to a full staff of trained employees who know exactly how to do their jobs. There are few things more valuable than a trained and experienced workforce, especially when it comes to management-level positions.
Instead of wasting time hiring and training new employees to perform jobs that they may never have held before, as would be the case with a startup, the new business owner will get a leg up. The company’s employees should know how the business operates, and they may even have ideas about how the company can improve.
It takes time to figure out how to run a new business. From sorting out vendors and optimizing inventory to marketing products and developing a strong customer base, entrepreneurs have their work cut out for them.
At established businesses, all of these systems and processes should already be established. Even if there may be room for improvement regarding efficiency or consistency, it’s better to start with all of the many complex parts of a modern business up and running than it is to start from scratch.
Marketing experts across all industries agree that these days, branding is crucial. Brand recognition is the key to establishing a market presence and expanding a customer base. Unfortunately, starting a new brand in a challenging market is no easy task, as all of the established businesses in the area will already have a head start.
Purchasing a business with a well-established brand allows new business owners to get a leg up on the competition from the very beginning. New owners will inherit not just the company, its infrastructure, and its inventory, but also its brand and market share. Don’t underestimate the value of these intangibles.
Businesses that have been around for a while often have a lot of goodwill and longstanding status within their communities. Customers trust the brand to provide them with consistent products or services and have already formed positive associations. It would take some very poor business decisions to destroy the kind of community goodwill that keeps loyal customers coming back day after day.
Purchasing a business instead of starting one is a great way for aspiring business owners to minimize risks and maximize profits, but only if they work with qualified business brokers. Business brokers are pros at finding companies for sale that will suit their clients’ needs, and they know just how to facilitate the sales process. With the right business broker, investors and entrepreneurs can have their newly acquired companies up and running in no time. These are just some of the reasons why you should consider buying a business rather than starting one from scratch.