For a lot of people, owning and running a business starts with three things: quitting their job, developing and testing out a great new idea, and building the company from the ground up.
But it isn’t as cut and dry as a lot of people would have you believe — there isn’t a single trajectory motion to owning a business. Some people succeed by building their business from scratch, and others fare better by buying an already established one.
So, which route is right for your entrepreneurial appetite?
We weigh in by listing 4 ways that buying a business is better than starting one from the ground up.
1) You get an already established infrastructure
The first few stages of building your business are the most difficult. Nevermind coming up with a great idea for the masses, that’s the exciting part. The grunt work lies in shaping the business and having it work like a well-oiled machine.
In a way, buying a business helps you bypass these painful stages.
After all, when you buy a business, you will be taking over the operations of an already-functioning enterprise. All you need to do is to assume responsibility over developed procedures, CRM systems, established policies, suppliers, etc.
For the most part, this already covers a huge chunk of a business plan. By taking over an established business, you no longer have to focus your energy on developing the foundations of one. You can reinvent, sure, but you will already be working with a formula that has already been set in place.
2) The bank is likely to loan you money to buy a business, and it may be less than you would need to start one.
Ok, it’s true: buying an existing business may require you to shell out more money at the
get-go, but this is because you usually get the full business “package”. Protocols, an established customer base, even office furnishings — all these have already been considered in the equation and the final value of the business. But most of the time a local bank with an SBA loan will fund up to 90% of the purchase price!
As daunting as the initial shell-out for investment may be, there are far lesser financial risks to buying a business than starting one.
How do we know this to be a fact? The bank’s vote of confidence alone is a big indicator. They’ve done their due diligence, gathered enough data, and have established their preferences when it comes to loaning out money to hopeful entrepreneurs. Their prevailing verdict? Taking over a business is more likely to succeed financially.
The reason for this is better explained in the next item —
3) You get quicker ROI
In most cases, taking over a business also means inheriting an established customer base. This translates to cash flow and profits that is often missing in the first few months (even years) of starting a new business.
If you build from scratch, you need to work on so many things at once. . .and you’ll be doing so without the guarantee of profit. In fact, you might often find yourself coming out of pocket just to keep the business afloat at the beginning.
If you want to hit the ground running with your investment, buying a business yields financial results right away. People already know that you’re there, and they already have a pretty solid idea of what you have to offer. Your job now is to offer more value and drive up the sales for more profit.
4) The brand is already established and the market already approves of your product or service
A lot of new ventures fail because their main offer doesn’t quite address the needs (or wants) of the masses. It could be innovative and genius, sure. But if it doesn’t captivate an audience, then the business will have a hard time taking off.
Buying an existing business is one way to subdue this uncertainty. If it has already been operational for quite some time, this often means that their products or services have been properly market tested.
For example, if you’re thinking of buying a restaurant, you will be buying the menu and the patronage that comes with it. If there’s patronage, then this means that the food has already attracted the palate of a chunk of the market. This is good, take this as a positive sign.
Of course, if it seems like the business is dying and has a not-so-rosy reputation, then it might be time to hit pause on this venture. Unless, of course, you’re willing to work on a fixer-upper and drum up the quality of the product while reversing the reputation. As some might say, “bad publicity is still publicity.”
Is buying a business for you?
When it comes down to it, making the decision between buying a business and starting one from scratch will rely on your already-existing skill set and the vision that you have as an entrepreneur.
If you have a business idea for a product or service that you are committed to, then starting your own business may be your best course of action. It is, admittedly, harder to incorporate a strong, new idea into an established business. This often requires an overhaul in the system that might prove to be more work for you.
If, however, you find an existing business that aligns with your interests and principles as an entrepreneur, then we say go for it. With an eye for a great opportunity and the proper due diligence, you can take over an already established business and make it your own.
Our final thoughts —
Before you jump headfirst on a venture — especially when taking over an existing business — always make sure that it is a good fit for you. Everything may already be neatly packaged in a fully functioning business, but you could face challenges in the transition.
So, regardless of what people may say, there is a wrong and right way of acquiring an already existing business. The right way is to seek out a support system in mentoring and guiding you from start to finish.