One of the most common ways to enter the world of entrepreneurship is to start your own business. A less common approach is to purchase an existing business.
The phrases “mergers & acquisitions”, “buying a business” and “business acquisition” are all terms that have become synonymous with big business. Why? Because those are the deals that get picked up by the media, broadcast on the news, and mentioned in business publications.
But, buying a business is not just for the corporate world. Business transactions are happening all around us every day. We just don’t know that they’re happening because they’re not public information.
Buying a business is one of the best ways to become your own boss. It often times proves more viable than a start-up. Let’s compare:
Revenue Day One – The most important difference between buying a business and starting a business is revenue on day one. With a start-up entity, there will be no familiarity with your business, your products, or your services when you open. You will need to build your own customer base and develop your own brand from scratch. When purchasing an existing business you are purchasing an existing name, inventory, location, skilled workforce, reputation and most importantly customers (revenue!). This does not imply that you are purchasing a customer base under contract (although some may be). Rather, it means that these customers have had an experience working with the business and assuming their experience was positive, they will remain loyal to the business.
Financing – It is easier to obtain financing for the purchase of an existing business than it is to obtain financing for a start-up. Lenders and investors are looking to minimize risk and maximize return. This is done more easily with an existing business than with a start-up. Lenders and investors place far more emphasis on actual historical results than on projected future performance.
Employees – You’ve heard the saying, “Good people are hard to find.” It is never more true than in business. Having the right employees in place the day you open our doors is invaluable. Not only will you avoid the financial burden of finding and training new employees, existing employees will afford you the luxury of working on the business rather than in the business.
Suppliers – Existing businesses receive more favorable credit terms and more leniencies from suppliers than start-ups. Why? Because they have a track record. This is especially important when your business has seasonal or cyclical factors that affect supply.
Reputation – The reputation of an established business can be either an asset or a liability for a buyer. Understanding a company’s reputation requires significant due diligence. Find out what the community is saying about the business and look for trends in the company’s historical income statements. In a start-up, the customer experience depends solely on you.
Buying an existing business is often overlooked as an avenue to business ownership. However, it may be the most viable and risk averse. If you are considering starting a business, I encourage you to explore buying as an option. It has proven successful for more than just the corporate world.