What are the benefits of buying a business instead of starting one?
So, you want to be your own boss. There are certainly pros and cons to both buying and starting a business. If you do a careful analysis, you’ll learn what many seasoned entrepreneurs have discovered…the risk-to-reward ratio is tipped in your favor when you purchase an existing business.
Purchasing an existing business reduces an entrepreneur’s risk while creating opportunities for tremendous profit. There are a number of reasons to consider the purchase of an existing business rather that starting one from scratch:
- Proven Concept. Buying an established business is less risky – as a buyer you already know the process or concept works. Financing a purchase is often easier than securing funding for a start-up business for that very reason—the business has a track record.
- Brand & Intellectual property (IP). You’re buying a brand name and its IP. The on-going benefits of any marketing or networking the pervious vendor has done will transfer to you. When you have an established name in the business community, it’s easier to place cold calls and attract new business than with an unproven start up.
- Goodwill & Relationships. With the purchase of an existing business, you will also be buying an existing customer base that took the vendor years to build. It’s very common for the seller to stay on and transition with the business for a short time to ensure a smooth transfer of those relationships to the buyer.
- Focus. When you buy a business, you can start working immediately and focus on improving and growing the business immediately. The seller has already laid the foundation and taken care of the time-consuming, tedious start up work. Whereas if you start up a new business a lot of time and money is spent on basic items like computers, telephones, furniture and policies that don’t directly generate cash flow.
- Cash Flow. Typically, a business purchaser is structured so you can cover the loan amount, take a reasonable salary, and have some left over to take the business to the next level. Whereas start up owners, on the other hand, often “starve” at first. Some experts say start-ups aren’t expected to make money for the first three years.
In summary, buying an established business versus starting one up yourself, saves you time and money and are generally more successful long term investments.