So, you want to become a business owner. Well, there are two options to getting there. The first option is to analyze the market and start your own enterprise. Here the risks are high, but you’ll enjoy the benefits of running a company from scratch.
The other option would is to search for a business for sale. With this option, you’ll buy an existing business. The risks are slightly lower. The income streams are almost certain. If you do your due diligence well, you’ll get value for your investment.
According to statistics, more than 50 percent of small businesses fail within the first four years The chances of your startup collapsing are quite high. Rather than face all these risks, it’s generally considered a more sound investment to buy an existing business. The following are some benefits that accrue in the process.
1- Proven Concept and Procedures
During the first years of a startup business, the managers are busy creating the systems. Where they make mistakes, they’ll overhaul the entire system and implement a different one. It may take time and money to find a system that works.
However, when buying a business, you already know the systems that work. The organization structure and the reporting structure should be perfect. The employees know who they report to, creating unity of command in the business.
As such, some costs are eliminated. It is also impossible to duplicate roles here.
Reputation is the main asset that a business has. A good reputation means it won’t struggle to attract new customers. They already know the quality of services your firm offers.
A good reputation will also help the company to negotiate for better trade deals with existing and new suppliers. For instance, the suppliers and dealers will be willing to advance goods on credit when the business reputation is good.
When the reputation is negative, or absent, the suppliers will most likely require all payments to be made upfront and in cash.
When buying a business, you’re buying the brand name of the company. The networking and contacts of the previous owner are now yours.
With an existing business, you can pitch for new clients. New suppliers will be willing to supply their goods to you. Such will not be the case if you choose to start your own company.
The main reason for investing is to grow and maximize your returns. It’ll only happen where your company grows and reduces its cost. Buying an existing firm allows you to maximize growth.
Remember, it took time for the previous owner to get the contacts of its supplier and hire and assimilate the employees into the organization structure and culture. You don’t have to do these tasks yourself.
If the team is perfect, you’ll be able to strategize for growth. You also don’t have to worry about implementation. The staff is perfect in the industry.
Also, with a competent staff, you don’t have to micromanage the company. If the systems are working, you can easily take vacations. Spend time with those who mean much to you. You can also invest in other business ventures.
This can easily be done if you already live in the area that the business is based. For example, if you are based in California, consider businesses for sale in San Diego. This will allow you to run a successful business that you can keep watch over, but not have to constantly micromanage if you are already within proximity to it.
4- Better Cash Flow
When making a purchase, you need to consider the cash inflows against the outflows. The firm should be able to offer returns on investment.
If you are taking part in its running, the firm should be able to pay for your labor. It should also be able to leave some money for profit and reinvesting. Only an existing and successful company can make this happen.
In a startup, the initial cash flows are almost negative. The sales are low and the capital investment is high. However, all this depends on the industry you are venturing into.
5- Lower Risks
Starting a business from scratch all the way up is very involving. The chances of failure are also very high. As an investor, you should only venture into an activity whose risk you can assume or manage.
As such, buying a business is your best bet. Ensure the price you pay is reasonable and affordable. Have the best valuation expert to guide you on the process.
The Bottom Line:
Buying an established business can be a great idea for entrepreneurs who do not want to take the major startup risks, but you do need sufficient money to make the purchase.