Entrepreneur: 5 Great Reasons to Buy a Business versus Starting a Business
“There are many routes to becoming an Entrepreneur and buying your own business is a great way to lower risk and work for yourself”
We’ve all heard great success stories of entrepreneurs who had a great idea, at the right time then take the plunge go all in and focus all their time and efforts to building on that idea. There is a lot to be said about great startup stores, but with most success stories, you don’t always hear of all the failed ideas, or failed attempts. People don’t consider day to day small and mid sized businesses, that might seem boring, but also form the back bone of most economies. According to a Forbes Article, without the funding or cashflow of larger businesses, 20% of most small businesses fail in the first year, and 30% in their second year. This statistic is even higher in true start up businesses that are trying to fill a gap in the market.
Sadly, people don’t consider the option to buy a business that already exists as much, mostly because they feel they don’t have the money, or don’t know how to go about buying their own business. Here are a few quick reasons why buying your own business can be a great passage to being your own boss, but also potentially making more money than some average corporate jobs.
1. Lower Risk
When you plan to buy a business of your own, it might actually be lower risk than setting up your own business. While this isn’t true for all industries, owning your own business is very advantageous as you have a proven track record, proven sales, strong brand name in the market, and repeat business. Buying your own business also takes the thinking out of figuring out what’s working and what’s not. The current business owner has already worked out a formula that serves their clients, employees and supplier relationships.
2. Employees
Any business owner will tell you that employees can make or break a business, and it can sometimes take just one bad apple to ruin things. When you are looking to buy a business of your own, employees, and employee turnover forms one of the pillars when evaluating a deal. If employees have been with the business for some time, that helps any buyer tremendously as there may not be a drop in service, or quality of work. Clients and suppliers may not be completely impacted as there may not be a change in who is servicing them, of course this is different for owner operator businesses.
3. Proven Cashflow
Existing businesses have proven cashflow, this means there’s a large element of predictability, which is why a new buyer is paying a premium for the business. This predictability is vital when looking at financing options, as banks will very often look for the same things. At the same time, you get a great idea of seasonality, and cyclicality of the business, and their clients. Having proven cashflow also means that you have a high degree of repeat business from clients, which is key when buying a business. Our article on leveraging cashflow and financing has more information on what banks look for in a deal.
4. Established Name and Reputation
When you buy an existing business, the multiple that you are paying is for the brand name, or “Goodwill” which comes from a proven track record and building a good reputation in the market. Most business clients want to deal with a familiar person, or brand name, and are used to a certain level of service. If they are happy it can take a lot for an existing client to switch to a new untested business. Our article on leveraging cashflow and financing has more information on what banks look for in a deal.
5. Mentorship and Support
When buying your own business, most transitions include the current owner taking the time to train the new buyer, anywhere from a few months to a full year. All sellers want to see the new business owner succeed and look after their employees. In many cases, the owners themselves stay available to help the business owner out even passed once the training period is completed. The business owners have spent years figuring out the ‘secret sauce’ to their business and are imparting that knowledge to you, usually no filter.
In conclusion, buying your own business can be a very lucrative way to owning your own business, with potentially lower risk, proven brand name, and cashflow. It can be especially appealing if the owner is no longer involved in the businesses day to day operations and has a management team in place. Come talk to us about owning your own business, you would be surprised to learn what you can actually afford, and why some deals are better than others.
If you’re interested to connect with one of our M&A Advisors, Click Here and some one from our team will reach out within 24 hours.