ENTREPRENEURSHIP THROUGH ACQUISITION
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Buying vs Starting a Business: Which is the Better Option?
If you decide that starting a business is not the route you want to take, the better alternative is buying an already established business.
Buying vs Starting a Business
Which is the Better Option?
Wondering whether to buy an existing business or start a new one? Read through to learn why the former is the superior alternative.
Buying vs starting a business
Are you wanting to own a business but don’t know where to begin? So many questions and options such as, “what should my business be?” or “should I buy a business or start one?”
These are all good questions! Let us help show you why buying vs starting a business is really the better option!
Starting a Business
While starting a business can seem like an enchanting idea, it poses several major disadvantages as opposed to buying one.
When you start a business, you must build it from the ground up. Starting from scratch is definitely not for the faint of heart. Here is a list of just a few of the difficulties you will face if you start a business from scratch:
Creating and keeping your customer base
Acquiring a patent if it’s for a product or novel idea
Hiring employees
Marketing your business
A large amount of capital is available
Not having an established reputation
Starting a business is very risky. Statistics show that about 2 out of 10 start-ups will fail.
When you are starting a business, you have to create your own value for your product or company, whereas part of buying a business that is already established includes purchasing their already established value.
Buying a Business
If you decide that starting a business is not the route you want to take, the better alternative is buying an already established business. Here are several advantages to buying a business:
Known brand—having a known or popular identity
Existing infrastructure
Employees who are trained
vendors who are already established
Existing funds
The business model that is proven and established
Existing customer base
Check out this video if you are looking to buy a website, eCommerce, an app, or SaaS Company
Buying vs Starting a Business
When buying a business you have a proven business model because customers are familiar with the business or product and are purchasing already. They have established customers.
Starting a business requires you to produce a proven business model as if it were a hypothesis. “My customer wants my product because of ABC.” This is what you are trying to prove.
Buying a business means you have trained employees meaning you can start immediately generating sales because you don’t have to waste your time on the training and hiring process.
These already trained employees will help your business to run smoother with their expertise and prior experience.
Starting a business means wading through piles of applications and interviews and then taking the time to train each of the employees you hire. You also will have to factor in a learning curve and be prepared to have a slow start when it comes to generating sales.
One Final Thought
When considering buying vs starting a business, if you really have your heart set on starting and developing your own, we suggest you first buy an established one to get a feel for how a business is run.
Once you have bought a business and have taken a few years to turn a profit and understand the nitty-gritty of the business world, then maybe consider starting your own.
While starting a business can at first seem inspirational or enchanting, we promise you will soon become disenchanted. When that untrained employee sets the kitchen towel on fire, you will think back to this post and wish you had instead bought your business.
Want to learn more about owning your own successful business? Contact us today to see how we can help.
BizNexus -Learn More From Our YouTube Playlist:
BUSINESS ACQUISITION
Have you checked out our podcast?
THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.
5 Tips on Financing the Purchase of an Existing Business
There are a number of methods you can use when financing the purchase of an existing business. Here are a few that we suggest you try.
Purchasing an Existing Business?
Here are 5 tips to help you finance the acquisition
There are a number of methods you can use when financing the purchase of an existing business. Here are a few that we suggest you try.
Financing the purchase of an existing business
More businesses are being sold than ever before. In fact, a record number of small business owners are selling their companies. According to this data, the number of business listings increased by 8 percent from the prior quarter.
In a world awash with excess capital and with demand for reliable cash flow returns on the rise, prices for existing businesses & assets have been on the rise.
Popular acquisition targets typically have reliable, recurring revenue and cash flow, with an established brand and loyal customer base. With prices continuing to trend up, you’ll need to have your ducks in a row before you decide on the best way to finance an acquisition.
Read on for a guide to financing the purchase of an existing business. Explore 5 tips for purchasing a business that is highly effective.
1. Apply for an SBA Loan
The United States Small Business Administration (SBA) is a great resource for entrepreneurs. They work with lenders across the nation to guarantee loans against default.
Lenders are willing to take on more financial risk due to the government’s backing. SBA loans offer more favorable terms and rates than conventional funding sources.
There are a number of different loan programs to apply for. The most popular are the 7(a), 504, and microloan programs.
2. Consider Seller Financing
In some deals, the seller is willing to finance a portion or all of the deal. The benefit to the seller is that they can turn a greater profit.
There are also a number of advantages to the buyer. Perhaps most important is the ease of access to capital.
Also, another benefit is the speed of the financing deal. Seller financing is proven to be a faster alternative than conventional loans.
3. Make a Sizable Down Payment
A significant down payment is an effective method for reducing company risk. Like purchasing any asset, a down payment improves your financial position in the company. It reduces the amount of interest that you will pay over the life of the loan.
For business acquisitions, a large down payment is required. While mortgages require 20 percent, a business purchase usually takes even more.
The more cash you bring to the table the better. Many small business owners use personal funds for a down payment. For larger acquisitions, the down payment may require multiple investors pooling their resources together.
4. Angel Investors
There are increasingly common scenarios today where wealthy investors, feeling flush after 10 years of public market gains and looking to diversify into something reliable & attractive going forward, are interested in financing entrepreneurship through acquisition (ETA) as a viable investment vehicle. If you can sell those types of investors on your personal “why” story and your credentials to run a business, this can be a great option if you can get access.
5. Getting Creative
To finalize a business purchase, sometimes you have to get creative. These cases may call for a leveraged buyout or assumption of debt.
In a leveraged buyout, you trade-off existing assets in lieu of capital. An assumption of debt means that you are acquiring the company’s liabilities as well as their assets.
A Recap of Financing the Purchase of an Existing Business
Starting a business from scratch is hard work and risky. Many entrepreneurs choose to purchase an existing business instead and fund their entrepreneurial efforts from the existing cash flows of an operational business.
This option allows an entrepreneur to acquire a proven business model. Entrepreneurs turn to methods like SBA or seller financing to close a deal. If you want to learn more about financing the purchase of an existing business, Login to get matched.
BizNexus -Learn More From Our YouTube Playlist:
BUSINESS ACQUISITION
Have you checked out our podcast?
THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.
Spend Money to Make It: Financing Options for Buying a Business
If you've found the business you want to purchase, but aren't sure how to pay for it then this guide is for you. Keep reading to get the money you need.
Want To Buy A Business?
Financing Options For Buying A Business
If you've found the business you want to purchase, but aren't sure how to pay for it then this guide is for you. Keep reading to get the money you need.
Financing options for buying a business:
It doesn't matter if you're a solopreneur or a budding business owner who will employ hundreds. Starting a business requires capital.
On average in the United States, it costs a whopping $30,000 to start a small business from scratch. That's averaging out the big guys with the little guys. You can imagine how much some entrepreneurs might be risking on their startups.
If you're unsure how much it will cost to start your business, you can check the estimated cost of your startup with Entrepreneur.com's calculator tool. There's more to consider than you might think.
Once you know how much you need, how are you going to get the money? Like dad says, "money doesn't grow on trees." Let's explore some financing options for buying a business and get you on your way to success.
Angel Investors
If you can snag an angel investor, you're in great hands. These guys know the risk of a budding startup and are willing to take it. They typically own more than $1M in assets which affords wriggle room for more risky investments.
The biggest downside to an angel investor is their need for even more detailed plans. You need to convince them of your credibility. Just because they are willing to take risks doesn't mean they're wanting to throw their money in a hole.
Do your research. Gather competition analysis, create detailed sales and marketing plans. Essentially, show your expertise in your market.
Your idea needs longevity. If you're just sniffing out a trend but don't know how your product or service will fare in the long run, you won't attract an angel investor.
Lastly, be passionate. If you truly believe in your vision, that's infectious. If you've done your research and your idea has a long half-life, go all-in. Your ardent enthusiasm will help lubricate their pockets.
Micro-lending
If you've ruined your credit on previous passion projects, you may not be able to get a traditional loan. If you really think your business will take off, you might try a microloan.
Micro-lenders are another group of risk-takers. But the return on their risk is higher. They charge a higher interest than a typical loan.
How much higher? You could see APR as high as 30% in some cases, although that's rare. No need for collateral either which balances out the high interest rates.
One such example of micro-lending is peer-to-peer lending. Cutting out the gatekeepers gives more people access to small business funds than traditional means provide.
A few examples of P2P lending companies:
Upstart: a group of ex-Googlers started a platform that judges borrowers not on FICO score but on education, academic performance, and work history.
Funding Circle: After the founder's loan was rejected for the 96th time, they created Funding Circle for U.S. and U.K. small business owners.
Prosper Marketplace, Inc.: This is the original U.S. P2P marketplace. It now serves over 800,000 people.
A Few Other Financing Options for Buying a Business
There are a few more financing options for buying a business outside of traditional loans from either the government or the bank. Self-funding is one of them. Tap into your 401ks, use a credit card if you have a large credit reserve, or start a crowdfunding campaign (that last needs a previously existing fan base or really great marketing).
If you're ready to get financed, let us know. We'll show you how it's done.
BizNexus -Learn More From Our YouTube Playlist:
BUSINESS ACQUISITION
Have you checked out our podcast?
THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.