Why is Buying an Existing Business Better Than Starting From Scratch?

Start a Business

Think of buying one instead

If you want to become a business owner, it's tough to decide on whether buying an existing business or starting from scratch is better. Here's what we think.

Buying an existing business

Have you been thinking about starting your own business?

Do you know buying an existing business is sometimes more profitable than starting from scratch?

Entrepreneurship through acquisition is a current business trend. It is also one of the most exciting ways to begin your business empire.

When you are buying an established business that has cash flow, your entrepreneurship dreams are only a step away. But there are important questions to ask and ways to proceed that are vital to set in motion before you buy.

The questions are vital because their answers help you decide if you should proceed with buying or walk away to the next business on your to-do list.

Buying an Existing Business

When you buy an existing business, you are selecting an establishment that has already endured good times and maybe some bad times too. But it is still in business, and that is what is important to understand.

Businesses that produce income can be steady and solid. Bankers, investors, customers are all easier to attract and keep if you redevelop the existing business with smart moves and steadying ways.

But there are some important steps you need to take before you write your check to buy the business. 

Important Steps in Buying an Existing Business

It's important to know why they are selling the business. Sometimes the owners of the existing business want to move on to the next great thing in their lives. But their answer may tell you they are having legal and financial issues.

It may even reveal a pending lawsuit.

The business owners may have problems with vendors or employees. These issues are relevant facts you need to know for your business analysis and decision.

Determining the Price of the Business for Sale

Ask the current business owner how they determined the price of their business for sale. How the business owner determined their price is important due to the following:

1. If the business owners cannot substantiate their current asking prices through their financial records you have a decision to make. Also, you may negotiate a price reduction.

2. If they can substantiate their asking price through their financial records, make sure you are looking at the past two to three years.

The financial records of the existing business you might think shows dull but steady growth. Perhaps the financial records reveal it is more flashy with great financial ups and downs. You need to understand what works and doesn't work before you sign the dotted line and buy the business.

Statistics and Funding for Businesses for Sale

Every year, there are more than 500,000 businesses sold and bought. The number of businesses that are listed for sale each year is expected to go up as the baby boomer generation retires.

One of the most important things you need to ask yourself is how are you going to finance your small business purchase? There are great financial options in the market, but you have to know where to look.

Entrepreneurship Through Acquisition

You now know you are going to move forward with buying an existing business. It's important to find a small business that fits your life and your skill sets. If you manage your new business right, you can keep the businesses' old customers, vendors, employees, and more.

When all your questions have been answered, and your financing obtained, all that waits is implementing your unique business skills. Your extensive research, knowledge, and business skills will help you grow and develop the business of your dreams.

Business growth can lead to a business empire if you want. Log in and let's start building your business dream together.

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.

How to Buy a Business | Four Vital Questions to Ask

How To ACQUIRE A Business

Four Important Questions to Ask

It can take a lot of time and effort to develop a business from scratch. This is why people savvy enough to tap into available public and private resources decide to buy an existing business. However, going forward with the purchase is not an easy decision to make. Here are four important questions to ask during the process of buying a business.

Where to Find A Business to Buy?

The initial step is to find a place where you can buy a business. Many people go to brokers seeking help to identify the right business for them. Others check industry publications, newspaper advertisements, or various online business for sale platforms.

Online marketplaces can be a great way to find a business to buy, especially if you’re looking to focus on digital business and e-commerce startups that are increasingly putting themselves up for sale.

Is That Business the Right Fit for Me?

Here are three key questions every entrepreneur like you should ask themselves when vetting an acquisition:

1. What are my skills and interests? – You would be more motivated to succeed with a business in a niche that you are passionate about. Needless to say, you want to make sure you know the industry enough to take over the business effortlessly.

2. What is my budget? – The price tag of the business needs to fit your pro forma budget. Furthermore, the business should generate monthly sales to cover the cost of operations with the potential of making a profit. If you need additional capital, you can consider getting a business loan from a financial institution like your local bank.

3. Do I have time and resources? – There is no point in buying a business if you are going to neglect it. You need to have enough time, effort, and energy to ensure that your business has the right allocated resources to become a profitable investment.

What Will You Get for the Price OF THE BUSINESS?

The chances are you will have some wiggle room when negotiating the purchasing price, but before you do that, ask the business seller exactly what assets will transfer for that price? Yes, you will become the owner of the business & manager of the team in place, but will you also get its inventory, social media accounts, a functioning website, and other relevant items?

Do You Have Accurate Historical Financial Reports?

The general rule of thumb is to stick to buying businesses that generate profits for at least a couple of years. The current business owner needs to be ready to provide financial statements and reports for at least that period. This includes a detailed overview of revenues, expenses, and debts. Also, it would be great if they include a projected financial statement.

Learn More About Business Management

While you should have general knowledge about managing a business, we are talking about the day-to-day operations of the business you are acquiring. For example, you may need permits and licenses to continue operating the business. There may also be operating procedures that you can adopt as that can make you a better manager.

Here are some more general questions related to the business operations:

• If the business that you are buying is digital, the product or service will be sold through a subscription model, or use one-time payments?

• Are there any employees whose salary you are expected to pay?

• Are there any contracts with vendors or other suppliers or providers? How long do they last, and is there an extension option?

Are you an entrepreneur?

An Austrian economist defined entrepreneurship as the “competitive behavior that drives the market process”.Thus it creates value for both market and society. Entrepreneurship is the process of creating something new of value by devoting the necessary time and effort, assuming the accompanying financial, psychological, and social risks, and receiving the resulting rewards of monetary and personal satisfaction and independence.

What problems can small businesses face in terms of entrepreneurship?

America's small business owners' optimism took a modest downturn in June, according to the NFIB Small Business Optimism Index, slipping 1.7 points to 103.3. While optimism remains at historically high levels, the June figure reverses the gain posted in May, with six components falling, three improving, and one unchanged.

Fifty-four percent reported capital outlays, down 10 points.

The net percent of owners reporting inventory increases fell two points to a net-zero percent, indicating no further building in inventory stocks in June.

The net percent of owners expecting higher real sales volumes fell six points to a net 17 percent of owners.

Twenty-seven percent of those reporting weaker profits blamed sales (down three points), 12 percent blamed labor costs (up five points), 11 percent cited materials costs, and nine percent cited lower selling prices (down two points).

Final Take On Buying A Business

As you can see, purchasing a business is both challenging and fun! You want to ensure that you pick the right business, which is why you should carefully evaluate all the details related to the purchase. Take as much time as necessary to ensure you are making the right decision as this can be the difference between success and failure down the road.

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.