First of all, if you decide to be your own boss, there are usually 3 options: to start everything from scratch, buy a franchise company or buy an established business. There is much more risk involved with building a startup. Recent research by Small Biz Trends shows that about 90% of new businesses fail. Those startups shared the same characteristics, such as incompetence, lack of experience in the line of goods and CEOs personal problems, originated by going into business for the wrong reasons. Even if it’s very risky, but building your own company might be the most exciting experience in your life. Buying a franchise company or an established business are pretty similar because somebody has already done the hardest work for you – they’ve created a recognizable brand and entered the market with some product or service. So, there are several reasons why buying a business is sometimes better than building a startup.
The very beginning of the business requires a lot of work and a bunch of money. Even if buying an existing business is usually more expensive, there is plenty of work you don’t need to deal with anymore. There is no need to channel all the energy into getting the business off the ground. The previous owner has already developed a product or service, identified potential customers, figured out how to deliver the product to the customers and made some advertising. There is also existing competent employees, who already know how to do their job, so it saves time on hiring and teaching. After this business basis is done, the new owner can focus on improvements and growth. In fact, if you already own a business, this is one of the best ways to expand your enterprise by merging 2 companies together. Find out more about business growth through acquisition and other ways how to expand your existing business at https://www.bmmagazine.co.uk/in-business/future-growth-organic-growth-vs-business-acquisition/.
Instant cash flow
Another reason to buy a business is instant cash flow. First months or even years for most startups are called the ‘starvation phase’ when business is working without making any profit. The picture below represents how business revenue depends on specific startup stages. As we can see, the beginning of startup financial existence is called ‘Valley of Death’, which means business is not able to generate positive cash flow. Just after some time business reaches break point and enters ‘Early Stage’. After surviving ‘Valley of Death’, a new owner can be sure he could pay himself a desired salary and focus on business widening. Of course, there’s not only profitable businesses on sale in the business market, so if you decide to buy an enterprise, which is not making a profit yet, this section is not applicable.
Existing customer base and relationships with providers or business partners
Create good relationships with customers, suppliers and business partners is hard and even harder to sustain. It also takes a lot of time. When buying an existing business, a new owner is instantly getting access to a customer base and usually is able to maintain previous relationships with business partners. These basics give new owner some sort of superiority, so he can focus on attracting more customers and building a better, bigger supplier list.
One of the reasons why most startups struggles at first are high barriers to entry. Market leaders are trying to protect their position as a leader by building those barriers. That’s why startups need to either come into the market at a large scale, have a different product than their competitors or spend large sums on advertising. To overcome these barriers can be incredibly hard and time-consuming, so buying a business, which is already in the market and have their unique brand, means you don’t need to put in so much money and your energy just to enter the market. If you want to learn more about how to break barriers to market entry you might like this post.
As we mentioned earlier, there’s only 10% chance, that new business will survive. Of course, chances of becoming a multi-millionaire are much higher when starting everything from scratch, because your unique idea can turn into millions of dollars costing business. Otherwise, with an established business is way much easier to get financing rather than with a new idea, where no one knows if it will buy off. Banks or investors are more willing to lend money for a business, which has already been in a market for a while because they see less risk that this business will bankrupt.
Buying a business is also a risk. Taking over an enterprise means adopting all the good and bad sides of the business. There might be some gaps the previous owner forgot to complete or some not very wise decisions he made. But with good analyze and due diligence comes a better understanding of the business cons and pros. Dotexit.com is an online brokerage firm, which helps both sellers and buyers to arrange and get the best business agreement for both sides.