You are an entrepreneur or small business owner or aspiring small business owner and you want a new venture. Do you buy an existing business? Do you start your own business?
Buying an existing business can be safer than starting your own business from start-up. Business startups unfortunately have a fairly high failure rate * Many figures on failure are passed around and it depends on what numbers to believe, but the rate is fairly high (*Statistics I’ve seen from the Small Business Administration (SBA) show that 56% fail within 4 years.)
If you buy an existing business, you’ll have dramatically improved your chances of success. Again, failure/success rates are up for interpretation but your odds are greatly increased. Many businesses for sale have passed the crucial 5 year mark. The owners have run their business successfully for many years. Why would someone want to sell a successful business? There are many real reasons for people wanting to sell a successful business – Retirement, illness, relocation, burnout, etc. There are a lot of good businesses available for sale www.sellabusinessflorida.com that have real value and I have had personal first hand experience with this fact.
Below list reasons and benefits in buying an existing business vs. starting your own business.
Business Startups versus Existing Business Acquisitions
- Actual results rather than pro-forma – Sure, business plans and income projections look great on paper…. With an existing business, you already KNOW the ACTUAL performance of the business – you can look at the tax returns, P&L, etc.
- Immediate cash flow – You may step into a business that’s already returning a nice cash flow to the owner every month immediately. Start-ups could take years to positive cash flow.
- Trained employees in place – Most of our businesses for sale come with well-trained employees already in place. Many have been doing this for years and are experts at what they do. As a new owner, this commodity is invaluable, especially if you don’t know much about the business yet.
- Established suppliers and credit – Instead of having to prove yourself and your ability to others in order to get accounts set up, you already have them.
- Established customers and referral business – The acquisition will have an established customer base, an asset that can take years to build.
- Existing licenses and permits – Licenses can be difficult to obtain. And it may be difficult to learn all that you do need. Existing businesses have learned and instilled what is required . And it turns into a matter of transferring those into your name.
- Training by the seller – Very often the seller will help you in the learning process. You benefit from their previous trial and error efforts. Owner can show you the ropes of the business, introduce you to everybody, and make sure its a smooth transition (especially if they are financing your purchase!)
- The Owner may provide owner financing – They can kind of become your bank. It is difficult to find a bank to loan money to a startup. Banks have little or no security available in a startup. The reality is that owner financing creates “an interested almost partner type relationship” that has a vested interest in your success. You are on your own- but not really. In startup businesses you are on your own and with all due respect to bankers, I have never been able to view a banker as a partner that would have hands-on assistance in my efforts.
DON’T buy or start a business if your immediate goal is to “be able to spend more time with my family” – long hard hours are usually needed, or “I want to be my own boss and don’t want to have to report to anyone” – even bosses do have to report to IRS, Inspectors, Insurance Co, employees, etc, and “I want my own business because I know it will be easier than my job” – probably wont be.
But if you are seeking a new business venture buying an existing business vs starting a business can greatly increase your chance of success.
I remember when my father, who had been exceptionally successful at launching a bakery, decided to buy an existing donut shop. He did everything that you mention above, Scott. He looked at the books. He estimated the cash flow.
The shop was a one-man show, so there were no employees. But the owner trained my dad, who trained me. The existing credit lines with suppliers remained intact and the same customer accounts kept the business going. The owner migrated all licenses and permits and even provided financing for a portion of the business price.
However…
There is one thing that my father overlooked, which I never forgot. In a rush for starting your own business you should never forget it either. And this one thing cost us this one venture. He failed to have an exit strategy.
Never buy a business without one.
SYOBO- great comments and story and thanks for reading. You know so many start their own business only once and dont have the benefit of hindsight provided by your fathers experience or from you sharing the story with others. Exit strategy- usually the last thing one thinks of when caught up in the excitement, energy, and involvement of starting a business. Scott