Buying a business that has already gone through the rough starting phase can sometimes be a better option than starting from scratch. In this post, we are going through reasons, why buying a business might be better than starting a completely new one.
Starting a business completely from scratch can take a lot of time and stress. When buying an already established, small business, you can really get a lot of value for your money.
You will save a lot of time, and you can focus on building the business, not spending a lot of time starting it. Let’s get to the reasons buying a business is better than starting one.
1. Existing customer base
The first reason to buy a business, is that it probably already has a customer base. You don’t have to acquire so many new customers. Getting new customers is much more work than maintaining your current customer base.
You also have a clear image, what your customer base is. You see, what kind of people usually buy the product, and this makes it easier for you to improve your product as well as acquire new customers.
Having customers already when you start, will make it much easier overall. The first customer is always the hardest one, and when you already have customers, you can skip the step of getting your first customer.
2. Name and reputation
The second reason to buy a business that has already been working is that it has a name and reputation behind it. You don’t have to build a brand from scratch, you can focus on improving and maintaining it.
This can be a double-edged sword. If the business you buy has a bad reputation, it might be difficult to improve it with the same name.
However, if a business has a bad reputation, you can probably buy it for a cheaper price. Then just re-brand it, change the name, and you can start building your reputation from the ground up.
3. The hardest time is already in the past
Usually, the beginning is the most difficult for the business. You don’t yet have a lot of income and you will have to make the little money last that you have. When you buy a business that is already running, you might not need to invest new money into that. They can work and grow with their own cashflows.
This depends on what kind of a business you buy and what its current stage is. Not all businesses are profitable even when they are sold. The more the business makes in profit, the more expensive the business probably is.
Look for opportunities, where businesses still have a lot of room to grow. This way, even if you pay for the businesses current value, if you have the skillset to grow it, you can build it up pretty fast.
4. Already established systems
Existing businesses have already established systems to run their every day operations. This again will help you skip one or a lot of steps, compared to starting a new business. The systems might not be perfect, but already you would have a starting point to start to improve them.
This might be something as simple as a deal with supplier or buyer. There is always work to get new deals. Even if the deals are bad, they can be a good starting point to start improving.
5. Already profitable
Sometimes, the businesses are already profitable. If this is the case, the seller might agree to something like an earn-out. This means you will pay the business to the seller with the money your new business generates.
You might have to pay something upfront, but at least you would not have to get huge loans, if the seller agrees to this kind of a method.
If you pay for the business upfront, you can focus the profits more towards building and growing the business. The struggles of the early days are past, where you don’t yet make barely any profit. This of course, depends on the business you are buying.
6. Business model is proven to work
Sixth thing on the list is that the business model has proven to be profitable in the field it operates in. If you are buying a business, you probably want something that already has some wind under its wings.
This might not be the case always. The business might be a startup, one that doesn’t yet have any sales or customer base. If this is the case, it is often riskier than buying a business that already has cashflow and an established customer base.
7. Employees know their job
If the business has employees, they already know their job. You don’t have to go through the hiring process, which takes time. You also don’t have to train the employees and you can learn a lot about the business from them.
When you start to upgrade and grow the business, the employees that have worked with the company for longer, can have good ideas about what could be done better. They can have good perspective, that you might miss as a new owner.
Final words
These are some of the benefits you will get, if you decide to buy a business instead of starting a new one. Like I mentioned, there can be disadvantages such as bad reputation. However, those things are fixable.
The other disadvantage you will face if you decide to buy a business instead of starting a new one is that buying requires capital. The work done for the business is never free. It might be cheap, if you calculate the time to the work it would require to build it up to that point, but still, it requires capital.
For some, the starting of your first own business might be the thing that you enjoy. Buying a business is not suitable for everybody, but it can be an option as well.
Other business-related posts can be found here.
Hopefully this was helpful to you, have a nice day.