We’ve all heard the stories of the entrepreneur who risked it all to start a business and became a huge success. Bill Gates, Mark Zuckerberg, and Jeff Bezos come to mind. Ray Kroc, Elon Musk, and thousands of small business owners have found success through buying small firms and building them into large enterprises.
Whether the goal is to be featured on the Forbes list of wealthiest individuals or to create a valuable asset that you can leave to your heirs, buying an existing business can give you a leg up in the world of entrepreneurship.
Here are 3 reasons to buy an existing business:
First, the most difficult task that business owners face is finding customers. Today, consumers have more options and are more price conscious than ever before.
Finding and serving customers is the number one objective of any business owner. Without paying customers, your business doesn’t exist.
If you purchase an existing business, there is a list that you can build on. As the new owner, you can re-engage the existing book of business, find out what’s in demand, and offer additional products and/or services to those buyers.
Second, depending on the business that you would like to start, there will be significant upfront costs associated with opening your doors without a revenue stream. How does your business look? Are you going to hire employees or work with independent contractors?
If you are going to be a brick and mortar retailer, you have to decide whether or not you’re going to buy a building or lease a storefront.
If you’re a service based business, you have more flexibility. Are you going lease office space or a co-working space? You can keep costs low by running your firm out of your home or at a local coffee shop with free wi-fi.
You’ll address many of these concerns by acquiring an existing business. The workflows, labor arrangements, equipment, furniture, and fixtures are already in place. These assets, included in the purchase price, allow you to hit the ground running and will give you a foundation to build out your operation on.
Finally, financing is virtually impossible for start-up businesses to obtain. Banks want to be repaid. And vendors want to make sure that they’re going to get paid, on time.
Existing businesses have balance sheets, income statements, cash flow statements, and tax returns that banks can evaluate. Their bank balances are accessible in real time. This gives lenders a level of comfort when it comes to making lending decisions. Vendors are more comfortable doing business with you and may even extend credit.
As a buyer, you can leverage the business’s collateral, i.e. real estate or equipment, to obtain financing to purchase the business. This is an attractive option for many prospective business owners.
There are many ways to participate in entrepreneurship.
There isn’t a one-size fits all approach to business ownership. Let’s face it. Starting a business from scratch is hard for many people. For a larger number of aspiring bosses, purchasing an existing business is a better approach.
While success isn’t guaranteed, purchasing an existing enterprise may provide an entrepreneur a higher probability for them to reach their professional and personal goals, whatever they may be.
(Levar Haffoney is a 2016 Network Journal 40 Under Forty honoree. He is a principal with Fayohne Advisors LLC. You can connect with him at www. fayohne. com, LinkedIn and Facebook.)