One of the faster ways to grow your business, out of the many alternatives available, is to by an existing business. There are certainly pros and cons to both starting and buying a business. With careful analytics, you will see that the reward ratio is tipped in your favour when purchasing an existing business.
It’s common knowledge that the majority of start up business fail. Hence when doing a startup it’s important to know the risks involved. However it does, at times, pay great dividends. Statistics show that 40% of startups fail in the first year and 80% fail within their first 5 years of operation.
Purchasing an existing business reduces the risk of failure while also creating opportunities for growth and profit.
In this article we will discuss the many advantages of acquiring an existing company versus starting a company from scratch.
Advantages In Buying An Existing Business
One of the first advantages to consider when buying an existing business is time. The ability to move directly and quickly is drastically increased due to the physical and legal infrastructure already in place.
A Tested Concept
As a buyer you can already see that the concept has been well tested and works.
Financing the purchase of an existing business is easier achieved than attempting to get financing for a start up.
Brand Equity and Market Position
Purchasing an existing business means you are buying a brand. The major advantage we see here is all the benefits of previous marketing and advertising done prior to your purchase transfer directly to you. This helps you to continue building your company from the get go.
Customer Base and Relationships
When buying an existing business you are also buying the customer base that might of taken years to build. This is very important as gaining new clients can be both costly and challenging. When doing due diligence we at CREF have the customer’s reliance on the owner checked. In a lot of cases the seller will stay on during the transition period in order to transfer his/her relationships with customers to the buyer.
Focus On Improvement
When starting a business from the beginning a lot of time and money gets spent on tools of operation that don’t usually generate money. Also there can be a great deal of focus on getting operation in order. When purchasing an existing business the vendor has already laid down a foundation on which the business runs. Hence, you will have more time to focus on ways of growing and improving that business.
In almost any business we place great value on our employees. When buying an existing company you also buy the company’s employees. In a lot of cases the seller took a great deal of time to select, groom and train a well functioning team. A big advantage in buying an existing company is the direct access to well trained staff. However, it is very important to have the teams quality well checked to be sure that they do indeed possess the required skills and knowledge needed.
In the end getting access to qualified staff is one of the key advantages when buying an existing business.
Less Research on Formalities
When buying an existing business less time on researching formalities need to be spent, when compared to starting from scratch. For example, setting up things like the tax systems and Legal Systems in compliance with local government regulations are made a lot easier when buying an existing business. Should your investment be a greenfield investment, hiring an outside firm to handle this for you would be the better alternative to doing it yourself.
In conclusion if you have done your analytics well, you will see the obvious risk ratio being in your favour when buying an existing business. However choosing the right business to buy is another procedure entirely. During the due diligence process and valuation process the business of interest will be checked thoroughly. This will give you a greater understanding on whether the business you are considering is a risky investment or not. Should a business be started from the beginning there is always greater uncertainty whether things are going to work out.
Should you want to know more or have any particular questions feel free to contact us.