Are you considering purchasing an existing business over starting one from scratch? If you are, you aren’t alone because in 2018 there was a three-year record run with over 10,300 businesses reported as sold. That grew 4% from 2017 where just under 10,000 businesses were sold and was up 31% from 2016 where the record was set at 7,842 businesses sold.
There must be a reason so many people are deciding to buy an existing business. But what goes into their decision making? What benefits are they seeing in taking over a business? If you are a business owner looking to sell, what chances do you stand of finding a buyer quickly?
All of these questions will be addressed in the following article. Read on to find out the benefits, drawbacks and a little about the process of purchasing an existing business.
The Benefits To Buying A Business
The most obvious advantage of buying a business that already exists is that your business starts the day the previous owner hands over the keys. They would necessarily have all the required machinery in place, and you may not have to spend even a single penny unless you want to make a change. For instance, if you have plans of buying a cannabis business, and if the previous owner already has the licenses required; a POS system such as that offered by posabit; and employees well-versed about all the products, then taking over that business would be a cakewalk for you.
Sure, you can make some changes like adding something to the product menu, changing the wallpaper, or getting a new sound system, but all these would be just minor changes. Whereas, if you are starting from scratch, it may mean finding real estate, designing the building, finding a construction company like Multi-M Contracting to take on the work, waiting for the construction process and after all of that, the place would be yours. It may seem like a long time for this development, but it would be worth it if you want to build, figuratively and literally, from the ground up.
Value of The Business Is Already Established
A huge benefit of buying an existing business is that you will have a good idea of the value of that business based on the previous employer’s records. Predicting how much money is required will come much easier this way. It’s also important to note that if you’re offering the same services as the previous owner, the revenue flow will begin immediately. An immediate revenue stream will help to cover the costs that you might have otherwise had to get a loan for if you purchased a new business.
Buying An Existing Business Saves You Time, Money, and Effort
Taking over a business saves time, money and effort. Having an established location, brand and stream of customers gives you a huge head start over someone starting from the beginning. That means you don’t need to market the new business to get customers. You can change the focus of your business and market it after you have already hit the ground running.
It can take years to build up a market presence for a startup. But with an existing business, you can start making money immediately, paying back loans and implementing changes slowly.
The Drawbacks To Buying An Existing Business
Higher Price Tag
Just as you stand to benefit from the previous owner’s hard work, they stand to ask a higher price tag for their business. A well-maintained business in a great location with a steady stream of loyal customers is not going to go for cheap.
Buying an existing business tends to be more expensive due to these factors. You aren’t only buying the business but the equipment and supplies as well. With buying a business, a lot of the work is done for you, but you end up paying for it.
An Existing Business Requires More Research
Although buying an existing business puts you in the owner seat faster than building a new one, the process still requires a lot of research. Gathering enough information and resources about the business you intend to buy before you sign on the dotted line is paramount. Researching the business’s history, finances, lease and building are all very important.
You May Have To Make Some Sacrifices
Purchasing a business often means making some sacrifices in terms of layout, location, type of customer the business attracts and other factors that are out of our control. While the business you buy will probably not match the perfect image you had of your business before you started looking, keep in mind you’ve saved yourself a lot of trouble by going the existing business route. Having a stream of revenue from day one is a golden ticket to starting a new venture. Changes can be made easily and walls can be knocked out with a building permit.
Get Help From Professionals
If, after reading this blog, you still think buying an existing business is the right choice for you, know that there are professionals who have expertise in buying. An accountant can help you review the previous owner’s books to see if there are any red flags. An attorney can look over the documents with you to be sure you understand the ins and outs of the agreement. Many other specialists help facilitate these types of sales every day.
