Before I start off, let me be upfront by saying, 99% of would-be entrepreneurs out there do not have the funds to buy an existing business. But, in an ideal world, if you do have the funding available, it would be worthwhile to look at the reasons why buying a business is an easier path to becoming your own boss than starting from scratch. So why should you buy a business versus start your own? Here are my 12 personal reasons:
- The success rate for businesses acquired is much higher than the success rate for a new business startup. Just look at the statistics of how many new start-up companies fail within the first 3 years of opening their doors.
- An established customer base means immediate cash flow! Need I say more?
- It is much easier to find capital to buy an existing business than to start a new one. Why? See reason #2 above. Investors aren’t stupid. They know the statistics. Funders are much more willing to lend money when there is an identified source of repayment already in place. A past and solid trading history. As a start-up, you have an idea. Perhaps a well-written business plan. But if you have no cash, chances are you won’t receive any further attention from Investors. The business will have a financial history, which gives you an idea of what to expect and can make it easier to secure loans and attract investors.
- Projections for a start-up are nothing more than an educated guess. Projections for existing businesses are based on historical results. Which is more reliable?
- Start-ups always, I repeat, always cost more to start than expected. For the money you will end up spending to start that new business (which may or may not succeed) you could have probably purchased an existing business with immediate cash flow.
- You may actually need to come up with less cash for your down payment plus working capital when you buy an existing business than you would need if you started your own business. Why? With owner carry financing and a performing track record, your existing business purchase is very bankable. A new start-up is not very bankable. The cash required to get the new business to a cash flow positive is unknown. And it eats cash.
- An established website presence. Although each business will vary, most businesses rely to some extent on a business website. The longer a website has been established, and the more traffic that the website receives, the more value search engines place on that site. This is important as your website ranking determines your placement in search engine results. In other words, building a new website is not enough. Customers still need to find it. A quality established website can be a real asset, something that a new start-up will not have.
- Less brain damage. Just ask anyone who has been lying awake night after night after starting their own business. Always wondering if customers would really come. When will the business start making money? When will your dreams become a reality?
- Difficult start-up work has already been done. The business should have plans and procedures in place.
- You will acquire existing customers, contacts, goodwill, suppliers, staff, plant, equipment and stock.
- A market for your product or service is already established.
- Existing employees and managers will have the experience they can share.
I am not advocating that entrepreneurs should not start their own businesses. Not at all. But one needs to realise the risk for each option. Start-up businesses have inherent risks that differ from existing businesses. And yes, buying an existing business will bring its own unique risks. The question is two-fold. Do you spend your own money on buying an existing business or start your own? And secondly, what is your risk appetite?