Why Start a Business When You Can Buy One? Here’s What You Need to Know.

Opinions expressed by entrepreneur Contributors are their own.

The process of starting a business from scratch can be very daunting and time consuming. There are many things to consider such as B. Business structure, marketing, R&D/product development (if you are creating something), raising capital, finance, legal issues, etc. One of the first things to look at when starting a business is simply the amount of money it will take to start it to get the business off the ground. It can be difficult for many people to make or raise the initial investments required to start a business from scratch.

Let me be clear here, I’m not advocating that anyone start a business or start a new business at all. I’ve conceived at least 15 different business ideas and have been able to bring a handful of them to life, although many didn’t go to market or even go to market at all.

I think all entrepreneurs should at some point get their hands dirty to create something from scratch. I think most will probably come up with an idea or two that they want to bring to market because it might be the next biggest “thing” in their specific target market, and they will have a great learning experience in the process – and some will inevitably do it achieve the success they envisioned.

Also see: 5 Reasons to Buy a Successful Business Instead of Starting a New One from Scratch

The many advantages of buying a company

However, with that in mind, I think the idea of ​​buying an existing company might be a much better option, both from a tax responsibility standpoint (and pragmatically for that matter). When you buy a business, you acquire a customer base, established systems and processes, potential assets (physical and digital), and much, much more!

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Another reason why buying a company makes sense is that you can usually get it at a discount. This is because businesses are often sold below their true value as the owner(s) may be motivated to sell quickly for personal or financial reasons. Finally, an established business brings with it an established reputation and good will, which can save you a great deal of time and money on marketing and advertising expenses.

These factors alone can give you a significant advantage over companies starting from scratch. But the key to success when buying a business is finding “the right company” to buy. It’s subjective, I know, but there are some general frameworks that you can use to guide and assist you on your way to evaluating and eventually completing your first business acquisition.

Today there are more companies for sale than buyers

As you may or may not know, businesses for sale have grown exponentially over the past decade. There are many reasons for this, including the current economy, retirement, and a few others.

In some cases, business owners face financial difficulties and are unable to continue their businesses. Even if it doesn’t seem good, in a weak economy there is an opportunity for those looking to buy a business. I’m not suggesting it’s time to take advantage of anyone, but I’m saying you can acquire businesses at fair prices, well below market value in some cases.

There is a significant cohort of business owners who are close to or aspiring to retirement. They may not have family members or children to pass their business on to, so in some cases companies simply go out of business or cease to exist. Herein lies an opportunity for you as someone who aspires to become a business owner.

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See also: 10 questions to ask yourself before buying a business

It is easier for existing businesses to generate cash flow

Simply put, cash flow is the lifeblood of any business, big or small. It’s money that comes and goes, and it needs to be managed carefully to ensure the company is healthy and profitable.

It is generally easier for an existing business to generate cash flow than it is for a startup or brand new business. This is because an existing business usually has streams of revenue from customers and other sources, while a startup or new business may not have any of these things yet. An existing business should generate revenue through existing channels or specific sources that it is currently using.

Increasing cash flow is just as important as reducing expenses when it comes to increasing profitability. A business can only grow when it has enough cash to invest in new opportunities. Remember: Increasing cash flow is essential to long-term success in any business.

You buy a proven model

When you start a business, one of the inevitable questions you will ask yourself is, “How will I (or how will we) make money?” Luckily, this isn’t necessarily a question you need to answer if you’re starting an existing business to buy. Existing companies usually have proven revenue models. This means that they have successfully sold and continue to sell their product or service. The repeatability of this model is what you look for when buying a business.

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A startup company, on the other hand, may not have a proven revenue model because it hasn’t sold its products or services yet. This can have various reasons, for example because the company is new and therefore does not yet have a track record or because the products or services are not yet ready for the market. In any case, the lack of a proven revenue model can be a major obstacle for a startup company.

Related: Not a great startup idea? No problem. How to buy a company.

There are many reasons to buy an existing business rather than starting one from scratch. Perhaps (as I mentioned earlier) the most compelling reason is that you are buying a proven business model. The riskiest part of starting a new business is figuring out if your business model actually works and is profitable. With an existing business, you know that the business model works and that the business can be profitable.

Hopefully I have inspired you to start your journey to acquiring your first existing business! Remember that you must be fully trained in the business before attempting to acquire them. There are inherent, built-in risks associated with owning businesses that so many fail to recognize or understand. This is not to discourage you, just let you know that the details in the business really matter, so don’t overlook them!

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