Advantages of Buying an Existing Business vs Starting a New Business
Top reasons to consider buying an existing business:
- Existing cash flow
- Established customer base and market share
- Proven business model
- Brand identity
- Functioning infrastructure
- Trained employees and established vendors
Existing Cash Flow
As we all know in business, cash is king. For the small business owner, it can be a lifeline! Imagine starting the business of your dreams only to find that it will take two years to break-even and then another two years to become profitable.
In the meantime, how will you pay your bills or invest back into your business so it can grow? This is the type of scenario that can kill many new businesses. You start off with a passion for your business, but you become deflated by financial reality.
When you buy an existing business, the money is already flowing and has been for a number of years. There will likely be no break in cash flow unless something disastrous happens or is on the horizon. All in all, with existing cash flow, you’ll have one less stress to deal with when trying to establish your business as a success.
Established Customer Base and Market Share
If you are looking to purchase a business that has enjoyed longevity, there’s a good chance they’ve also enjoyed strong sales and a decent amount of market share. If the owner has been paying himself and others while keeping the business afloat, there’s sufficient evidence that the business has a steady stream of customers and sales.
If you decide to start a brand new business, you’ll have to put money, time and effort in your marketing strategies with no doubt. Also, while you're waiting for your “book of business” to materialize, you’ll still have the pay the bills. All businesses require some sort of working capital in order to operate.
A Proven Business Model
An existing business that’s been around for more than a few years, essentially has a proven business model. As a start-up, you are trying to prove a hypothesis: customer will want my XYZ. But the existing, established business has proven that customers will buy. It’s the reason they remain in business.
This can be especially true of franchise operations. They have replicated success probably thousands of times over with a system and formula that works. For example, a Subway restaurant that is successful in Chicago can also thrive in San Francisco or Atlanta. With franchises, not only are you buying a proven business model, but you are securing vendor relationships, general business support and marketing opportunities that can help make your franchise successful.
The less you have on your plate as a small business owner, the better. Trying to start a new business with the burden of having to generate sales, maintain sufficient cash flow while training employees to competency and vetting capable vendors could be a recipe for not only failure but total burnout. Take the stress off and consider buying a valued existing business establishment instead of starting from scratch.
A Recognized Brand Identity
Another benefit of buying a business is also buying a name brand that’s already recognized by the business community. Over a period of time, the business has built a reputation through marketing, social media, endorsements, and referrals. It has credibility, and unlike a start-up, it doesn’t have to convince new customers to try an unfamiliar brand.
An Infrastructure That Is Already In Place
Compared to startups, which can require an enormous amount of time and money establishing a functioning business, an existing business is already up and running. One of its most appealing attributes may be its ideal location. Whether it’s in a thriving business district or in a popular shopping center, its location may be a key element to its success.
In addition, an existing business already has operational necessities, such as furniture, fixtures and equipment needed to provide products and services. Most established businesses also already have some sort of internet presence, such as a website, social media followers, and referrals from online reviews and recommendations.
Trained Employees and Established Vendors
Having trained employees and vendors at your disposal will help your business hit the ground running. People and other businesses already familiar with your industry and business can be a huge help while saving you time and money.
Typically, trained employees have great insight to processes and systems that will help your business run smoother. Existing vendors will know your business cycles and product ebbs and flows so they can be available and ready to serve your business without interruption.
The less time you have to spend hiring, training and grooming your employees and vendors, the more time you can spend improving other parts of your established business.
Startups require an investment with no immediate return
Starting a new business requires working capital for operating expenses, such as rent, materials, equipment, not to mention advertising and paying employees. A start-up doesn’t have any customers either. It has to spend time and money promoting itself and convince customers to buy its products or services from them instead of someone else.
Buying an existing business offers many advantages over a startup. If you’d like to know more about buying an existing business, read The BizBuySell Guide to Buying a Small Business for more information. Then, go online to BizBuySell, the Internet's largest marketplace for buying and selling a small business, and find your next business venture.