From a recognized brand to a proven trading history, find out why an established enterprise is a safer, less stressful route to entrepreneurial success.
Is it better to start your own business or buy an existing one? The smart solution is arguably to purchase a proven enterprise and make it your own over time. Here are 10 reasons why doing so it's generally less risky, less stressful and more likely to generate a higher income, more quickly.
1. Everything's in place
Buying a going concern means you purchase an actual working model rather than a theoretical concept: you can buy a solid financial track record, not a hopeful projection; inherit legal contracts instead of drafting and negotiating your own; and inherit solid relationships with suppliers.
2. Choice of commitment
A new business has to worry about buying the basics to get started like premises, phones and office furniture — none of which will directly earn you dollars. Starting from scratch is nearly always a big commitment, but you'll probably have to start small. Purchasing an existing enterprise gives you a choice about the size of business — and therefore the level of commitment — you want to take on at the outset. Whether you buy a convenience store
or a manufacturing firm
, all the equipment, staff and inventory are in place. You won't have to spend time, energy and money just to get your basic rig up and running.
3. Manageable workload
Though the reality of owning any business often extends beyond the 9-5 cycle you have just quit, running a recent acquisition tends to be less demanding, time-wise, than starting a business from scratch. Start-up businesses are often initially all-consuming for the founders because they start with nothing — few or no staff, no customers and zero revenues. It's a race against time to start making enough money to cover your overheads and loan repayments. With an established business, by contrast, you inherit key personnel to share the load, proven processes and existing revenues. As a result, you needn't take on every role in the business singlehandedly and you're better able to achieve the right work-life balance.
4. Recognized brand
Your existing business will have a ready-made brand reputation built up over years of trading. There are no shortcuts to establishing a good name, so this is a major advantage. Bear in mind that 'reputation' is more than just good repute; it is also a very tangible concept embodied in your logos, trademarks, patents and copyrights. It's also evident in the customer reviews left online and associations — hopefully more positive than negative — that people have with your brand.
5. Income and cash flow
With an established business, income and cash flows are immediately available and much easier to predict, based on trading history. A new business on the other hand has no track record to base projections on and often struggles to achieve profitability during the early days. Business experts warn that start-up costs can pose cash-flow problems for new businesses, and some may take up to three years to attain a stable pattern of profitable trading.
6. Low-risk option
It's widely believed that around 40% of start-ups fail in year one and about 90% will have gone to the wall after five years. This unwelcome data nevertheless has positive implications for those purchasing a pre-existing business. Provided there is proven evidence of sound financial performance, lenders will be much more likely to offer a loan to support the purchase, and on considerably more advantageous terms than someone seeking a loan for a new business.
It really is true that a business is only as good as its people. Buying up a business with a skilled team already in place is therefore a major bonus. Don't underestimate the time it takes a start-up entrepreneur to hire, train and motivate a high-performing workforce. Buying a going concern not only allows you to delegate with confidence; it also gives you peace of mind during any time spent away from the business.
8. Supply chain
Setting up viable supply arrangements and associated lines of credit is a tough task for new business owners. Purchasing a well-established business thus gives you an immediate advantage. With a secure supply chain in place, you can rely on smooth trading relationships with existing customers and quote terms for new business with confidence that you can deliver on your promises. You will also find the commercial world much happier to trade and conclude agreements with an existing business rather than an unproven start-up — and on much better terms.
9. Existing customers
Customers are, of course, a business essential, and an existing customer base means you're not reliant on the slow, gruelling task of finding new customers and converting promising prospects into loyal customers. Persuading consumers to switch to your brand is obviously harder than keeping existing customers. Brand loyalty and the effort involved in cancelling a subscription or setting up a new online account means customers take a lot of persuading. And it's easier to attract customers to an established brand because existing customers provide referrals, customer reviews and testimonials.
10. Focus on growth — not survival
As a purchaser of an existing business you will avoid the energy-sapping aspects of kick-starting a new business into life: buying inventory and equipment, the wasteful trial-and-error period where you hone your products and processes and persuading customers to buy from a business they've never heard of. That means you can adopt a longer-term strategic focus and spend more time planning how you wish your business to develop. Rather than starting with a grand dream which subsequently turns into a nightmare, the smart money says you will have plenty of time to shape your new acquisition so it eventually becomes that dream. By Adam Turnbull, Managing Editor of BusinessesForSale.com, the market-leading directory of business opportunities from Dynamis. Adam manages content across all titles in the Dynamis stable, as well as well as being a regular contributor to other industry publications, both print and online.