Starting a new business can be very exciting, and for many people it is a lifetime dream. Unfortunately, it can also be daunting, time consuming, expensive and a very risky endeavor. The reality is that 20% of all businesses fail within their first year, and 50% within their first 5 years, according to data from the Bureau of Labor Statistics.
If you have an entrepreneurial spirit and dream of becoming a business owner, this isn’t meant to discourage you, but rather put things in perspective. You still have an excellent path towards reaching your goal faster, with less startup costs and much less risk. This can be achieved by purchasing an existing, proven business.
Generating Cash Flow and Profits
Most people who go into business do so with the goal of making money. They want to earn profits as soon as possible, so they can reap the benefits of owning their own company and continue to grow it. Many new business owners fail to realize that it could be a while before they see their first profits. Starting from scratch means having to pay out of pocket for unexpected costs, setbacks, hiring new employees and much more. It could be several months, or even a few years, before you stop operating in the red and move into the black.
By purchasing an existing business, you get a company that has already matured past this initial phase of operating in debt and is already producing steady profits. It will have an established customer base and various income streams to produce the cashflow needed to operate the business. Cashflow is also needed to grow a company. By investing in one that has already passed the startup phase, you have the opportunity to seek growth instead of just trying to get your head above water.
An Established Customer Base
When you’re looking to invest in a business that has some longevity, there’s a good chance that it has established a foothold in the market. Companies that can endure and stay profitable for long periods of time do so because they have recurring customers. It’s one thing to be able to find new customers, but keeping existing ones is critical to the long-term success of a business. This is often the difference between success and failure.
If you decide to start building a business from scratch, you will have to invest a lot of time and money in advertising and marketing. While you’re waiting to grow your customer base, you still have to pay your other bills. When you acquire a company with an established customer base, you can make money right away without having to invest a ton of it in generating new business.
A Proven Business Model
Existing businesses have a proven revenue model. Their products and services have been tried, tested and gained approval within the market. As a result, they can successfully sell and generate recurring revenue making them less likely to fail. The riskiest part of starting a business from the ground up is figuring out if your model will be profitable. Purchasing a proven model prevents you from having to invest more time and money in establishing one.
Infrastructure, Systems and Employees are in Place
For new businesses, particularly those with a brick & mortar presence, a lot of startup time is spent on procuring furniture, fixtures, equipment, vehicles, and several other physical components. You must also find a suitable location for your business, which means either purchasing property or finding a reasonable lease in an ideal spot. A online presence is also a requirement, which means you’ll have to invest in a website, create a digital media presence and procure reviews. Established businesses have these operational necessities in place already.
If you start a new business you also need to hire and train employees. You’ll have to go through all of the growing pains of creating new systems and processes and getting everyone to abide by them. With a new company there is likely to be a big adjustment period when your staff learns to see your vision and do things your way. If you purchase a business, you may experience some of this due to a change in ownership, but for the most part you will already have an experienced, well-trained staff from the beginning. They will have insight into processes and systems that will help things run smoother. In addition, you won’t have to worry about writing payroll checks before your business starts to see any profits with an established business.
Customers gravitate towards businesses they recognize and feel they can trust. Reputation building is done over a long period of time and requires a lot of work in marketing, social media presence, getting referrals and establishing endorsements. When you purchase an existing business, you are also buying an established brand, which can save you more startup costs in having to develop one.
Lenders look at many factors when reviewing an application for business financing. One of the things they look at is the applicant’s history. It can be very difficult to get financing for a startup because the company has yet to establish any history. Meanwhile, there are plenty of loans and capital available for buying existing businesses.
SBA and bank loans are readily available, and often come with incentives for purchasing an established business. This is because they come with a documented financial track record that lenders can use to predict its future performance and risk. Loans may even include additional capital to help grow the business. In some cases, business sellers may also be willing to finance the business, if they are looking to sell quickly, or eager to retire.
New businesses require a large investment, with no immediate return. To start one, you’ll likely have to put a significant amount of your own money on the line and have to endure a lengthy period of preparation and startup time. This means it could take several months to even open the business, let alone start to see profits. While buying an existing business may seem like a big investment, it comes with much lower risk. Existing businesses can be valued, so you know exactly what you’re paying for. While starting from scratch offers you a chance to do things entirely your way, using a proven model may be the faster and more reliable method of getting what you want out of a becoming a business owner.
If you want to become a business owner, consider the benefits of buying an existing business with a record of success. Corporate Investment Business Brokers (CIBB) has been helping Southwest Florida entrepreneurs buy and sell businesses of all industries and sizes since 1986. Check out some of our exclusive listings or contact us to discover exciting new opportunities in Fort Myers, Sarasota, Naples and all of the surrounding areas.
Looking to Sell a Business?
Complete the form below to find out what it’s worth with a FREE, no-obligation, 100% confidential business valuation estimate.