As economic development professionals, when someone comes to us for information about starting a business, one of the first questions we ask is whether they’ve considered buying an existing business rather than creating a new one from scratch. Many who are contemplating starting a business overlook the numerous benefits of buying instead. Here are a few of them:
1) Eliminating a Competitor
It’s unlikely your business idea operates in a sector with zero competition. When you launch a startup, you’ll face existing rivals who will probably respond to your market entry (e.g., price cuts, new products, easier payment options, etc.). The best way to avoid this is by purchasing a company. This way, you remove one competitor and boost your odds of success.
2) Easier Financing
Obtaining financing is generally simpler when acquiring a business than when starting one. Even though the amount needed might be higher, there are also more potential lenders. A startup typically seeks funds based on hypotheses alone. Despite thorough market research, your business plan is still ultimately speculative, and you’ll need to convince lenders of its feasibility. The financial world hates uncertainty. By acquiring a company, you’re buying a tangible financial history. It’s far easier to demonstrate your project’s viability to lenders with actual figures.Some lenders or loan programs don’t fund startups. Hence, purchasing a company that’s been running for a few years may grant you access to a broader range of financing options.
You can also leverage the newly acquired business financially— in some cases, you can use its assets to reduce lenders’ risk. For instance, you might sell off certain unnecessary assets after the transaction, generating working capital and reducing your loan amount.
To facilitate the sale, the seller can be part of your financing by agreeing to a vendor take-back (VTB). This approach lowers the sum you need from traditional lenders and provides the seller with extra income in the form of interest on the balance.
3) Human Resources
It’s no secret that labor is scarce, especially skilled labor. Buying an existing business gives you immediate access to expertise you don’t have to build from scratch. More and more, the quality of the workforce factors into a company’s valuation. As the buyer, you need to ensure the key employees will stay on board after the transaction.
4) An Existing Clientele
By purchasing a business, you’ll have customers on Day One, meaning guaranteed revenue right from the start—this greatly eases cash flow management. You’ll also save significantly on marketing costs associated with a new startup. Don’t underestimate the value of a customer database (purchase history, contact info, etc.) that you’ll gain by acquiring a business. This data holds undeniable worth, letting you approach existing clients in a more personalized way and potentially boost sales.
5) More Time to Operate the Business
Buying an existing company saves you a great deal of time and money on tasks typically required at a startup’s inception: creating a brand identity (name, logo, website, etc.), picking the ideal location, developing products (trial and error), finding suppliers, hiring key employees, and so on. Of course, even if you buy an existing firm, you’ll have to revisit these elements at some point, but while you’re doing so, you’ll already be generating income—unlike in a brand-new venture.In short, purchasing instead of launching presents a range of advantages, though this doesn’t hold in every case. Make sure to evaluate the business you’d like to buy and the asking price, which are two major factors to weigh before making a decision.
Does reading this article make you want to start searching for your future business, but you don’t know where to begin? Feel free to contact us—we’ll be happy to assist you with your search!
