Why Should You Buy an Existing Business?
Written by Keith L. Scott, MBA
Clients often ask me to review their grandiose business plans that they have worked diligently to create. Thinking that their idea is new and niche, I have the difficult task of telling them that there are existing businesses that perform the same function and serve the same market. Even more surprising is what comes next, I tell them to buy an existing business and do not start from scratch. Entrepreneurs like the idea of birthing a business, but adoption is just as good and it is far less risky. There is a high mortality rate of new businesses. Within the first three years, a new business fails at a 50 percent rate and 70 percent within five years. Why such a morbid picture? Well, it’s simple. When starting a business, you are faced with daunting tasks such as raising start-up capital and acquiring new customers and clients, and really establishing a new brand.
Acquiring start-up capital for aspiring entrepreneurs is a major challenge. Start-up capital usually comes from an entrepreneur’s life savings, 401K, or leveraged assets such as their home. If that source is insufficient, aspiring business owners often look towards friends and family, financial institutions, or angel investors. Operating capital is the life blood of the business and starting a business takes time to build a customer base. You must spend a significant amount of money in marketing to build awareness and convince prospective customers that they should spend their money with you versus your competitor. Building a loyal customer base takes time and hopefully it doesn’t take more time than it takes to burn through your operating cash.
Buying an existing business is far less risky. An existing business has a proven track record of profits, cash flow, and a customer base that will continue after the acquisition. When you acquire a business, you are buying the existing infrastructure such as suppliers, employee expertise, and financial relationships. Because the business has a proven history of success, it is easier to receive financing. Often times, you can receive owner financing with very favorable terms and a vested interest from the seller that you are successful.
Buying an existing business doesn’t make you less creative or less of an entrepreneur. You should never let an ego get in the way of a smart and sound decision. You still have the opportunity of expanding and personalizing an existing business with your own ideas and creativity. Moreover, you are buying an entity that has a higher probability of providing you with the financial freedom that you seek.
If you are an aspiring entrepreneur who is seeking to buy a business, contact our team at K.L. Scott & Associates, LLC. We will guide you through the process in selecting the right business for you.
Keith Scott is the President and CEO of K.L. Scott & Associates LLC (www.klscottassociates.com). K.L. Scott & Associates is a management consulting firm headquartered in Atlanta, GA. Contact us at firstname.lastname@example.org or (404) 692-5552.