Many people dream about starting their own business, but only a few dare to make those dreams a reality. The fear of failure is often a factor behind their inaction. When you look at the numbers on new business success rates, it’s no wonder that people are scared. It’s tough to make a go with a new business–up to 60 percent fail in the first couple of years. Did you know that there’s a way to avoid failing with a new business? Buy an established business instead.
Business studies have proven that when new owners buy an established business, they are much less likely to fail. There is much less risk associated with buying a business compared to starting one from a bare bones beginning. Let’s review the advantages of buying an established business and discover why it’s such a good idea.
When you purchase a business that’s already operating, you can review real, actual results. You don’t have to base your purchase decision on estimates of the market or projections of profit. Whether or now there’s money to be made in a certain market sector or industry is something you can easily determine in a review of the financial statements.
When you start a new business from scratch, it may take quite a bit of time to start showing a profit. For at least several month, and more likely for a year or two, you’ll have to deal with negative cash flow and lean profits. You’ll be burdened by a shortage of cash and you may get tired of being creative with what you have. When you buy an established business, it should provide you with cash flow right away.
Unless it’s a one-person operation, starting a new business means finding and hiring employees to help out. You’ll need to train them in the procedures of your new business, and you’ll have to pay them of course. An established business will already have workers in place. Many new owners of existing companies often find that the employees are the best source of training and information.
Have you considered how difficult it might be to find honest and cost-effective suppliers when starting a business? Purchasing an existing company means you get to take advantage of all the previous owner’s work in finding and negotiating with business suppliers.
When you buy a business, not only do you get the existing supplier contracts, you also get a ready set of customers. An established business means established customers and referral business. These already existing sales will help to add to your positive cash flow and also reduce your need for immediate marketing.
Depending on the service or product your new business will provide, there are certain permits and licenses you have to get before you can do business. You’ll also have to reckon with federal, state and local regulations related to various issues. One of the biggest advantages of buying an existing company is avoiding the immediate need to deal with this red tape. Plus, pretty much everything you’ll need to renew the licenses and permits should already be in the files.
If you work things right, your purchase of an established business might come with a bonus. If the seller is available and willing to work with you as a consultant for a few months, you can get some valuable information on running the company. The previous owner is a great source on knowledge on finding opportunities and overcoming obstacles.
Are there any disadvantages to buying an established business? You might have to invest more money up front to cover the higher purchase price of a successful business. On the other hand, getting financing should be a snap. You’ll be able to show the bank or your investors a track record of profit and performance, as well as a fully-developed business plan.
When you’re shopping for an existing business, don’t limit yourself to companies that are currently for sale. You might be able to make an offer on an existing business that’s not officially on the market. Buying an established, well-performing business in a profitable market can help you avoid years of risk and put you in charge of a vital, growing company.