Many people with an entrepreneurial spirit assume that they need to start a business, but it turns out that buying one is often much easier and simpler.
In this guide, we look at some of the key advantages of buying a company that already exists over starting one yourself. By the end, you should have a better understanding of which option you should choose. Before doing anything, it's wise not to make assumptions.
Immediate cash flow
Perhaps the biggest and most practical advantage of buying a business over starting one is that you don't have to deal with cash flow issues early on. Instead, you already have a proven model that works and is generating income. Usually you won't have to deal with venture capitalists, banks, or anyone else looking to lend to you. Instead, you'll be able to jump right in and start managing the firm from the ground up. This takes off a lot of the pressure while also allowing you to be the business leader you always wanted to be.
Lower risk and higher success rate
Buying small companies also brings with it lower risk and a higher success rate. You are much less likely to crash out when you have a model that already works. Businesses that are bought usually keep running at a rate of around three quarters after five years, with some analyses suggesting that survival rates for five-year businesses can be as high as 90%. That's very different from start-ups, where around 50% of them are dead after five years.
Proven track record
You also get the benefit of existing companies having a proven track record. You can delve into the data that they've collected about their own performance to see what they're worth and their likely potential in the future. For example, it's trivial to look through their accounts and see the cash that they're generating. You can also look at:
the number of customers they have
whether they are able to retain customers
the lifetime value of their clients
their other performance metrics
You can use this to assess what you can potentially fix about the business and what's already working well for you.
Existing customers and brand recognition
Another benefit of buying a business instead of starting one is that you get a pool of existing customers and pre-established brand recognition. People already know about the company, and they are willing to buy from it, presumably because it offers them some value. For this reason, you don't need to spend heavily on marketing to begin with. Instead, customers naturally come to you because you have that base of reputation and experience in the community. You also have vendor deals, supplier networks, and core clients who will keep coming back week after week, month after month. These relationships are what help avoid going through the valley of death that many startups experience.
So there you have it, some of the reasons why it's worth buying a business instead of starting one. What will you do?