Five Reasons to Buy an Existing Business Over Starting One Up
Starting a business can be a life changing experience. Having a business can provide the freedom to set your own hours, and the income potential to live the life you want. The challenge is when you are just starting; there is a lot of uncertainty about the future. This is particularly true if you are starting from scratch.
Aspiring entrepreneurs often debate the pros and cons of buying an existing business vs. starting one up. In many cases, buying one that is already established is the best option. Here are five reasons why:
Easier to Secure Financing
Most lenders are much more inclined to provide financing for a business that is already off the ground and has a proven model. There also may be more financing options, such as having the seller carry a portion of the loan. A startup, on the other hand, has too many unknown factors, making it very difficult to convince a lender to take a chance on you.
When a business is just starting up, it can take a long time before it becomes profitable. Expect to work at it at least six months or longer before you are in the black. And for some types of businesses, it could take years. During this time, there are startup costs, such as licensing, leasing space, purchasing supplies, etc. With an existing business, the grueling startup phase is over. There are already clients/customers, and there is already revenue coming in for you to build on.
Building a team of quality employees takes time. In the beginning, you may go through quite a bit of turnover before you have the right people in place. An existing business already has employees, and if the business is profitable, chances are this is largely due to the hard work of the staff. When you enter into this type of situation, it is far easier to transition into ownership with good employees by your side. In addition, you are able to focus more of your efforts on growing the business, and far less on training.
Most startup businesses do not make it. This is why most lenders view them as highly risky. New businesses are not only risky for the lender; they are risky for the owner as well. Buying into an existing business is a far safer option. Provided the business is already doing fairly well, there is a good chance it will continue to do well if all other factors remain the same.
Less Required Work
During the startup phase of a business, there is a tremendous amount of work involved. You can expect to put in long days (15-20 hours in many cases) for months on end until you have reached some stability. During this phase, it is easy to get discouraged and call it quits. With an established business, there is far less work required. You already have employees, customers/clients, and proven processes in place. All you need to do is continue and build upon what is already working.
Buying an existing business can be a great move, but you need to make sure you purchase one that fits your passion, skills and budget. A reputable business broker can work with you to locate the right opportunities based on your specific circumstances. A business intermediary has access to numerous listings, and can save you lots of time searching for the opportunities that match your criteria.