Why Business Acquisition Is Smart Investing
Is Business Acquisition a Smart Investment?
9 reasons why it is smart investing!
Business Acquisition - 9 Reasons Why it is a Smart Investment
Positive income opportunity
Greater appreciation potential
Easier access to cash
Established expectations
Established brand
Promote goodwill in the community
Acquire with other’s people money
No more foundation work needed
Many business owners want to sell
Smart investing is about taking calculated risks with a bigger upside than a downside. Financial advisors will point you toward slow-growth index funds and conservative stocks as the key to getting rich.
However, business acquisition can be an even smarter investment decision with a far greater upside. In the following article, we'll discuss why it makes sense to buy an existing (successful) business. First, let's look at your options.
Online Businesses
Business models like online courses or software as a service (SaaS) give entrepreneurs like you a chance to establish ongoing passive income from proven informational products. The info-boom is a huge business with players like Udemy and Clickbank opening doors with existing online infrastructure.
Brick-and-Mortar
A brick-and-mortar business gives you better access to built-in brand recognition that helps you stand out. Geographical location also opens doors to impulse buyers in a way that you just can't enjoy online. The overhead is usually much larger though, with employees, payroll taxes, utility bills, and real estate to pay for.
Once you establish the type of business to buy, it's time to reap the benefits. Here are nine reasons that business acquisition makes for smart investing.
Buying a Business Can Be a Passive Income Opportunity
Establishing a business isn't passive. Working in your business isn't either. However, buying a business that's already got a track record of success and the support system to keep it going can offer the buyer total passivity.
At the very least, it will be a business investment that you don't have to constantly worry about. One that provides you with ongoing access to liquidity and growth potential.
Businesses Have Greater Appreciation Potential
The ROI on buying a business is not guaranteed, but neither is the return on a stock, mutual fund, or cryptocurrency. That said, stocks and mutual funds often are touted as better investments because of their long-term returns of 7-8 percent per year.
You might save enough money to retire that way, but you're not going to be on the fast track. Successful businesses can produce year-after-year returns that are exponentially higher.
It Provides Easier Access to Cash
One of the big benefits of buying a business is that there is already some record of liquidity established. The business wouldn't be operational without customers. Customers wouldn't be customers if they weren't spending.
Owning a previously established business gives you quicker and, more importantly, predictable access to cash if you need it. Investing in a retirement account, in contrast, ties your money up for several years. During that time, you can't access it without paying state and federal taxes along with an early withdrawal penalty, which is usually 10 percent.
Business Acquisition Gives You Established Expectations
If you were starting from scratch, everything would be a hunch. Hunches have a harder time finding investors, lenders, or any other source for getting your business off the ground.
Investing in a business that's already established gives you direct access to past sales. It shows you what has worked and what hasn't. Using this data, you can map out what to expect from the current performance and future growth.
It Removes the Challenge of Brand Building
It's said that it takes 5 to 7 impressions per person before they will remember your brand. Impressions, meaning that your branding is placed before a potential customer.
That means finding just 1,000 customers requires that you connect with them 5,000-7,000 times. That's a lot of work to be doing on top of everything else that your business requires of you. Acquiring a business allows you to inherit your existing customers and any continuing word-of-mouth marketing they might provide on your behalf.
It Can Help Promote Goodwill in the Community
Buying the right business gives you some built-in goodwill with your community. This especially is true if you plan to keep the existing jobs in place and any record of charitable activity.
It's a smart business strategy to become an active part of your community. That's why many new businesses will join the chamber of commerce and sponsor events from which they will receive no direct revenue.
They know that establishing themselves with their neighbors will spread brand awareness and goodwill, and it will set them up for future profits. Buying a business means inheriting that goodwill from the previous owners' efforts and committing to continue it forward.
You Can Buy Using OPM
OPM stands for other people's money. One great thing about buying a business is that you can use it instead of your own if the numbers make sense.
This is much tougher to accomplish with an unproven idea that has no development or track record. Using OPM is easier in the business acquisition scenario because you can point to a history of past sales and profits to convince lenders to pony up the cash.
You Do None of the Foundational Work
Starting a business requires a lot of groundlaying work. You have to develop the product or service, market it, hire workers, deal with bookkeeping. Buying a business means there is some template for all of this that you can use or adjust to suit your needs.
Many Business Owners Want to Sell
Not every business owner is ready to get out but many would for the right price. One need look no further than the trillions of dollars worth of companies that are currently being represented on the open market.
The reasons for wanting to sell your business can be many. One common driver of it is that too many owners never make the leap from working in their business to working outside of it.
It consumes too much of their time. Their constant mental and sometimes physical energy is required to keep things on track. Pretty soon, that dream of "being your own boss" feels like you have too many bosses.
Smart Investing Is About Calculating and Minimizing Risks
Smart investing means embracing risk in a sensible way. As you can see, buying an established business allows you to calculate your returns, set realistic forecasts, and skip many of the steps that go into starting your own business.
Good luck, whatever you decide! For more helpful tips and information on starting a business through acquisition, subscribe to our newsletter today.
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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.
