It has been some time since my last post so to all the faithful readers, I apologize. The subject came up on one of my phone conversations the other day about the advantages and disadvantages of buying an existing business versus starting your own. As someone who has started a business and is in the business of selling businesses for others, I am in a unique position to share some thoughts on this debate.
There are advantages and disadvantages to each situation. Since this discussion can be a lengthy one, I’ll limit myself to the “Top 5” reasons why buying a business is better than starting your own:
The “Top 5”
1. Revenue Day One / Existing Customers – this is by far the greatest advantage of buying an existing business. Even if the business is not capturing the magnitude of revenue you desire, money is money and having some is better than having none. Having an existing customer base and an established revenue stream the moment you open the door your first day as owner, priceless.
2. Access to Financing – just like cars can’t run without fuel, businesses can’t run without money. Anybody that has ever started a business will tell you that banks and other third party lenders don’t look favorably on the new guy. It doesn’t matter how great your business plan or how strong your work history nothing speaks to a lender or an equity investor like an existing track record.
3. Existing Employees – you might be new on the job but your employees are not. Having trained employees your first day on the job is invaluable. The seller may or may not have been willing to stay on after closing to help you get acclimated in your new role. So, having trained employees to bring you up to speed quickly, again, priceless.
4. Vendor Relationships – this is one people sometimes overlook. But rest assured, having a steady supply of product or raw materials to keep you and your employees busy saves you a lot of stress. It takes time and money to locate new vendors and negotiate contracts. Even if there are better vendors and better deals out there, don’t underestimate the value of having something in place to keep the business operational while you consider new options.
5. Reputation – this could be a plus or a minus depending on the company’s reputation but I’m including it as a big positive for this reason. Even if the current reputation is currently unfavorable it provides you the perfect opportunity to get in front of your target audience (even if it is to beg for a second chance). You’ve heard it and seen it before, “Under New Management.” Use it. It works. Obviously there are many others but since I promised to limit the discussion to my “Top 5”. You’ll have to wait till next time for additional thoughts.