A Look at the Benefits
We can all remember the days as a kid where we wanted to be a cowboy or an astronaut when we grew up (I still think being a cowboy would be kind of cool). Then the year after that, maybe you’d have the desire to be a pro hockey player or an movie star. Eventually, we’d all grow up and some of us would go to college while others entered the work force. With that, our childhood dreams evolved as well. For some of us, they evolved into running their own company, the desire to work for yourself as opposed to working for someone else. Now, a lot of you here are already in the driver’s seat cruising down that path, you own your own business and somewhere along the line the thought of buying an existing business has strolled through your mind. If you’ve ever found yourself in that position, you’ve probably asked yourself questions like “Is it right for me? If so, where do I start?†There are a lot of things to think about and the choices you make can greatly impact the outcome. In a series of upcoming articles, I’m going to touch up on some details of buying a business.
You Don’t Exactly Need a DeLorean…
Alright, so you may not be able to tell the future (…yet. Great business idea here, folks.), but there are ways around that, which can prove equally as beneficial. When you’re looking to purchase an existing business that is up and running smoothly, you get the chance to know what you’re getting into before you actually get into it. The opportunity to look at all of a company’s bookwork allows you learn a lot about the company besides just the numbers. The more organized the bookwork is, the better the chance that the company itself is well organized and properly structured. Just like buying vegetables at the supermarket, you get to look for what you want without having to spend the time growing it and not knowing how it will turn out.
Go fish…
Even if you don’t fancy yourself a gambler, you can’t argue that you minimize your risk by purchasing an existing business. With the business, you also purchase an existing track record and a stable system already in place as the building, equipment and staff are all operational. Not having to worry too much about current sustainability allows you to focus on growth. We all know that starting a business from scratch involves a great amount of risk and a lot of businesses fail in their early years. Someone else has already done the leg work for you by creating a stable business foundation and going through the stress of starting a business and developing it into prosperity, thus giving you a much better probability of success.
Then there are the high rollers that play the high risk-high reward game. In the way that investors buy a rundown house and flip it for a profit, business investors to the same with companies. A business in the dumps is a great opportunity to take over a company for a deflated price and rebuild it into profitability. With little equity invested, this road can lead to a very big payoff, but it takes experience, a keen eye and a lot of guts. It’s not really something you can bluff your way through.
Sorry Kermit, it IS easy being green…
When creating a business from the ground up, it’s really rare that a positive cash flow occurs out of the gates. However, by taking over an already proven business, you assume the cash flow it’s already generating. Even with financing payments, an established business will have a client base in place allowing a near instant positive cash flow.
If you’re looking for a turn-key operation, purchasing an business presents an opportunity where the key has already been turned.
A sweet slice of the Pie…
Market competition can be a business maker or breaker. In a highly competitive industry, starting a new business is incredibly difficult because of the fight for market share. Existing companies have an already established market share and unless you bring something revolutionary to the table, you’re not going to make a profit off the hop. For example, Company A, B, C and D each have an equal market share of 25%. By acquiring Company B, nothing changes, you still have an equal share. However, by starting Company E, a 20% market share is what remains. Now that’s a stretch considering that a new company entering the scene probably won’t enter with a 20% market share without taking the time to develop a brand and generate a customer base.
It’s common knowledge that owning your own business presents a unique opportunity with countless ways to achieve your goals. Of course things are rarely as easy as they seem, there are some avenues that alleviate difficulty when it comes to business ownership. Now, don’t get me wrong here, I’m not saying every time, but more often than not, once the transition of ownership is complete, buying a business is an excellent way to simplify the road to business ownership. The beauty of purchasing a business that’s up and running is that with it, you get the stability of a moving locomotive, and that momentum can bode very well in your favor. It’s a great way to minimize your risk, because no one wants to end up in a train wreck!
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