If you have a goal of owning your own company, you have options. You may have a great idea for a business and want to build that idea from scratch, developing it into a new and thriving enterprise. But this approach is filled with risk and with upwards of 90% of new businesses failing within the first 18 months, starting a new business from scratch might not be the best idea.
Your other option is to purchase an existing business. There are drawbacks with this idea including; you have to put aside your own original ideas for the business (although there may be room to include many of your own ideas), you will inherit any existing problems the business may have, and you may have to overpay to get into a thriving existing business or one with real potential. Mark Leder who has built a successful career buying businesses will advise that in spite of the potential drawbacks, buying an existing business is always the better option. Here are some of the main reasons why:
You Get a Working Business
As mentioned above, upwards of 90% of new businesses fail within the first 18 months. There are variety of reasons for these failures including a bad business concept, lack of adequate funding and poor management. Whatever the reason, starting a new enterprise is the riskiest thing you can do in the business world. When a business has passed that critical stage or is on its way to, and all of its important pieces are working, your risk of failure drops dramatically. So perhaps the most important benefit you are receiving is a proven business idea that is operating successfully.
Existing Cash Flow
There is always the hope when starting a new business that money will start coming in immediately. When you buy a business this will definitely be the case. Having an existing cash flow that can be counted on allows you to plan. Also this money will be needed because you will have debt from the purchase and the cash flow from the business will assist in servicing that debt. In fact this need can be structured into the purchase terms because you are buying a business with cash flow.
A Trained Team
When you buy an existing business you get immediate access to a trained team of employees who know how to operate the business. With a new business you have to build a team and hire and fire until things work. Yes there may be some changes that need to happen with the team you acquire in the purchase, but the base should be in place allowing you to hit the ground running.
An Established Brand
If a company is operating at any level of success, it will have already established some form of brand recognition and this is a key part of what you are purchasing. Brand recognition can provide you with many benefits in terms of marketing. With a new business the majority of your spending would be on trying to get people to know who you are, in the case of an existing brand you can focus solely on your products or services. You will also gain benefits in hiring and working with vendors who will trust a name they know over a newcomer.
Your money will not only get you some inventory, business license and a team, you will also get a database of existing customers and vendors. The hardest part of building a business is acquiring customers and when you buy an existing business, it will come with customers (or it should). Additionally, you will acquire relationships with vendors who may provide favorable terms to you because of the company’s long term relationship with them. This can save you money and increase your profits.
When you compare starting a new business or buying and existing one, the choice is clear. So go out today and start looking for an existing business to purchase.