Is Buying a Business a Good Idea?
Buying a Business - 3 Reasons Why it is a Good Idea
Data and business predictability
Existing structure
Convenience
Buying a business is a large undertaking. However, it's in fact often easier than creating a startup and can carry much less risk too, done right.
If you're asking yourself "Should I buy a business?" then you have a good deal to consider.
That's why we've put together a guide to help you determine if a given purchase is a good idea (because it very much could be).
Buying a Business vs Starting Your Own
For many entrepreneurs, there are two options: purchase a business or start your own. While there is no one right answer, there are a few factors to consider when making such a choice.
First, the best business strategy for you will depend on your goals. For most business owners, the primary goals are going to be profitable and to avoid unnecessary risk. Whatever your goals, they will guide the rest of the process.
Most startups fail. While that fact can be a bit misleading in isolation (many "fail" but don't cause the owner any major financial loss) it's worth noting. Starting your own business is difficult and can be a serious risk.
While purchasing an existing business has its own risks, those tend to be far more manageable. The simple fact is there are fewer unknowns than with starting a business from scratch.
Starting a business rather than buying one tends to involve a great deal of estimation. While experience and thorough research can get you far, at a certain point, an entrepreneur can only push through, hoping their estimates are enough.
Hard Data and Predictability
Perhaps the biggest advantage of purchasing a business is the substantial pool of records one can look at to determine how risky the purchase is.
A company that has been around for multiple years has records of its expenses, profits, and more, all helping to illustrate the company's value (or lack thereof).
While this information alone isn't enough to determine whether the company would make a good purchase, it is still an invaluable tool. While past results don't guarantee future performance, they do hint at it.
This also helps illustrate why "Is buying a business a good idea?" is something of the wrong question. It's too broad. The real question an entrepreneur needs to ask is "Is buying this business a good idea?"
Looking at a companies financials combined with good market research can help one understand the future profits a company might offer. From there, one can start to estimate at what price a company becomes a good deal.
Preexisting Structure
While it's rare a company will be identical after purchase (at the very least, the highest leadership has changed) much of the company's core will remain.
This often allows a purchaser to "hit the ground running" when it comes to their purchase. If they don't intend to change much, they may be able to start pulling in a normal profit even just weeks after buying.
This ability to have a pool of employees who are already trained and ready for their duties, a network of suppliers and manufacturers who are willing to work with you can lead to huge savings over starting a new business.
Even if a purchaser instead wants to restructure the business they've bought, this preexisting structure still offers some distinct advantages. It is unlikely a purchaser will want to radically restructure a business that interested them.
The disadvantage of all this is that, should a purchaser decide they do indeed want to radically restructure, it can sometimes be more expensive than having started from scratch.
Quality due diligence will help ensure a purchaser will be happy, for the most part, with a company's preexisting structure. If they want a company but think it needs heavy reworking, that will need to factor into the price.
Convenience
Most entrepreneurs find purchasing a business convenient compared to starting one. The draw of convenience cannot be dismissed as laziness; time saved is money saved.
Briefly touched on in the previous section, starting a business involves a great deal of planning and then enacting that plan. Everything from hiring to marketing to your production line must be fully formed.
It can take months or even years to take a new business from the planning stages to a point where even mild profit can be drawn. While this doesn't mean it is always a bad idea to start a business, it needs to be considered.
When one purchases a business, someone else has already done this work for you. Even if there is a transitionary period where the business is shut down, it is almost always much faster than if one started a new business.
Moreover, if there are things a buyer doesn't like about a business, they can still be changed. Buying an existing business does not prevent you from shaping it the way you want so long as your approach is careful.
Buying a Preexisting Business is Worth Considering
It would be objectively wrong to say buying a business is always better than starting one's own (or pursuing a different investment approach). Every opportunity is different and some businesses aren't worth their price.
At the same time, buying a business already turning a profit or with strong potential can be an excellent entrepreneurial move. It can be easier to predict than starting one's own business and more convenient, all while making you money.
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