Starting a business from scratch is no easy feat. A lot goes into building the initial concept, establishing the business as a valid entity, and getting the ball rolling. Unfortunately, despite the level of work put into opening a new business, the Bureau of Labor Statistics shows that approximately 20% of these businesses will fail in their first year, with that number going to approximately 50% by their fifth year in business. Instead of starting from scratch, it may be worth buying an existing business instead.
There are dozens of options when it comes to starting a business. However, instead of starting from ground zero and trying to work your way up, consider if it is worth buying an existing business?
Why You May Want to Consider Buying an Existing Business
Some of the top reasons why many budding entrepreneurs tend to shy away from the idea of buying an existing business include the initial price tag and the idea of having to cater to an existing audience and their expectations.
Here’s the thing – when you’re considering purchasing an existing business, there are many ways to approach it. Instead of focusing on the “what ifs,” here are some of the many reasons you should consider buying an existing business:
- An existing business likely already has income coming in. So, finances may not be nearly as big of an issue as you think
- If the brand aligns with your current idea, then most of the initial legwork is already done as far as brand establishment is concerned
- Your supply chain has already been established
- If the business you’re considering purchasing has already surpassed the 5-year benchmark, then your chances of success increase
With the initial startup phase already complete, you’d be surprised at just how much of your initial stress is likely to dissipate.
Of course, there are pros and cons when buying an existing business worth exploring before you take that leap of faith.
4 Benefits of Buying an Existing Business
There are some compelling reasons why you may want to consider buying an existing business as opposed to starting one from scratch. Not quite convinced? Here are four advantages of buying an existing business worth noting:
Reduced Startup Time
Unless you are considering purchasing an abandoned business, then the chances are, you’re going into this deal with a brand that’s already up and running. That means most of the hard work has been done as far as the startup goes. That means you shouldn’t have much to worry about when it comes to tasks such as:
- Creating a business plan
- Finding/establishing relationships with community
With most (if not all) of these tasks already handled, you can dive right into the necessary tasks of maintaining the business and making any necessary alterations to make it your own.
An Existing Customer Base
Building relationships with your ideal customer base takes time, effort, trial and error. When you purchase an existing business, the brand has already been established and (depending on how long the business has been open) should already have a loyal following either within the community or online.
Your goal now is to maintain those relationships and continue providing them with the best services/products to meet or exceed their expectations – helping you to continue growing your customer base through a good reputation as well as customer referrals.
Easier to Secure Business Financing
One of the most difficult tasks of starting your own business is securing the necessary financing to get it off the ground and running smoothly. That’s because most financial institutions have stringent regulations that must be met for an entity to be approved for a small business loan, including:
- Proof of income to prove you will pay the loan back as promised
- Having a solid business plan in place
- Organizational skills
When you’re seeking a small business loan with the intention of buying an existing business, your chances of securing that loan increase significantly – especially if the business is in good standing. That’s because you already have a source of revenue coming in, the business plan is already in place, and the business is already well-organized.
Products/Services Have Already Undergone Testing
A vital part of running a business is vetting your audience and finding out what products or services they need to solve a pain point. Not only does this involve quite a bit of consumer research, but market research as well. When buying an existing business, that work has already been done.
That means you simply need to do some follow-up work to see if your audience is pleased with your offerings and how you may be able to improve upon these products or services to continue improving your business.
4 Cons of Buying an Existing Business You Should Be Aware Of
Of course, as with any decision, there are some things you’ll want to be mindful of, including:
Higher Initial Investment Costs
Yes – the chances are that buying an existing business is going to involve a higher initial investment on your part. Remember, you are buying an entire business – that means the rights to the name, products/services, and everything else. This is where you’ll want to make sure you are looking into adequate financing before you make your final decision.
Depending on your purchasing business, you’re likely going to run into inefficient or outdated technology and processes. That means you’ll need to develop an updated plan for everything to meet today’s standards.
Poor Existing Brand Reputation
You want to make sure you are researching the business you are considering purchasing – not only for financial reasons but also to understand what led to them having to sell. One thing you’ll need to be aware of is the brand’s current reputation. If they didn’t handle their business well, you might be stuck cleaning up the brand’s reputation, which can take quite a bit of work.
Can Be a Bit Challenging to Make it “Yours”
Small businesses are great because they let you become an active part of the community. However, when you’re a new entity coming into an established business, it can be hard to “fit in” and make the business your own. This is made especially challenging when consumers have come to expect certain things that you are looking to change.
Buying and Selling Small Businesses with Ease Thanks to Align Business Advisory Services
Sure, there are plenty of pros and cons when buying an existing business, and it can be quite an overwhelming process. If you think this is the right move for you, let the professionals help you navigate the entire process. The Align Business Advisory Services team knows how it all works and can help guide you through each step of the acquisition process.
Have questions? Then contact Align Business Advisory Services today for more information.