Buying An Existing Business Vs. Starting From Ground Up

There are plenty of advantages to buying an existing business.

Do I Buy and Existing Business or Build a New One?

Many savvy investors understand one thing: it is much easier to buy an existing business, grow it and sell it, than it is to start a new company from scratch. Starting your own business from the ground up requires a lot of time, money and energy that unfortunately will not return on its investment, potentially for many years to come. The most challenging part is undoubtedly covering start up expenses at the beginning without much recuperation in the beginning. Finding an already established business presents much more opportunity right away from the beginning. The purchase of an up-and-running, established business will save you valuable time and money that would otherwise be delayed while you are building, hiring, designing and signing documents, all before you’ve even announced your grand opening.

Purchasing an established business does come with a lot of risk however, so it is of utmost importance to perform the necessary due diligence when you are looking for the right opportunity. With all different types of businesses, a very important skill to have in this process is a keen eye and an immaculate attention to detail.

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There are plenty of advantages to buying an existing business.

Buy vs Build:

There are plenty of advantages to buying an existing business:
  • There is an immediate cash flow, the business is currently operating and revenues and expenses should be clearly presented to the buyer and potential lenders.

  • The business model is implemented into the marketplace and they already have an existing customer base.

  • Real estate, buildings and locations are already in place.

  • The brand name already exists and it is recognizable to your customers.

  • Equipment and personnel infrastructures are in place, so you should see money come in from day one.

There are risks to buying an existing business.

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Don't Assume Buying a New Business is Easier.

There can also be guaranteed risks to buying an established business. Certainly, not every business on the market is a good investment. Many owners sell their company because it is not profitable, or underperforms. Someone who has properly exercised their due diligence might see an opportunity here, one that others may have missed. However, buying a business that is struggling could nearly be as difficult as starting a new business from the ground up. Struggling businesses may require more financial investment and time before the company starts turning a profit again.

Throughout the entire due diligence process you should have looked at all of the key areas of the business for sale:
  • The financial records and documents.

  • The business plan.

  • Customer sales data

  • Material contracts.

  • Tax issues.

  • Employee and management staffing issues.

Granted that your investigation found mostly positive, (or workable) answers, you might have found yourself a strategic fit. You potentially have found a wonderful business opportunity to purchase and help facilitate growth. Now comes the negotiation with the current owner about the overall purchase price.

Negotiation is somewhat of a lost art form. Americans today are used to purchasing products for the price that is clearly displayed or advertised. We rarely negotiate anymore for goods and services, except when purchasing an automobile, house or when buying a business for sale. Effective due diligence will give you major strategic advantages in the negotiation process because you will know precisely what the seller is offering. It is crucial to prioritize key points in the process so you don’t inadvertently waste time on things that do not make a huge difference. It is always better to speak about these important matters in person or over the phone. Personal communication can go a long way in business negotiations. This will positively impact your standing in the deal and can help you stray away from impersonal and impulsive decisions.

Once you have successfully negotiated your purchase, you will want to shift the focus onto how to grow your new business into a successful one. You will want to first understand the business that you are getting yourself into. This is where a complex attention to detail will come in handy. There are thousands of factors that go into operating a business successfully. Your own personal involvement will be crucial if you want to truly grow the business. Planning and communication are essential, as your personal effort must continue well beyond the first day. Many business brokers have a narrow view of simply closing the sale. Shawn Davis and his team at LINK Business will be there every step of the way, making sure the deal is a good one for both the seller and the buyer.

For more information on how to successfully operate a business, please check out the blog section:

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