Is it a Good Idea to Buy an Existing Business?
Is buying an existing business better than launching one?
Forbes claims that “half of all businesses fail in their first five years.” This statistic highlights the risks involved with starting a new business. So, could buying an existing one be a safer bet? Yes.
There are risks either way, but buying an existing business can be a smarter choice. Let’s find out.
The Three Types of Business Owners
At the heart of any business acquisition is an entrepreneur trying to manage big decisions. While the concept is fascinating, those who carefully consider the pros and cons usually fall into one of these types of business owners:
Start and Get Bored Business Owners
If you excel at initiating new projects but frequently become disinterested soon after, you might be classified as this particular kind of entrepreneur. These types enjoy the excitement of launching a business, but this enthusiasm goes away once the initial thrill fades. And so they move on to the next business idea—the thrill is always in the chase.
Take It and Run with It Business Owners
Defined by persistence, these types of entrepreneurs commit to a business for the long haul. They thrive on challenges, slowly pacing themselves but steadily innovating and gaining significant success over time. If you love the management side of business and then enjoy the day-to-day tasks of running a business, you could be this type of entrepreneur. However, there’s a weakness too – managerial, take-it-and-run-with-it type of business owners do not enjoy the tasks involved in startups. They recoil at the idea of “chancing it” on a startup. These business owners should look for a business that will benefit from their discipline and management skills.
Vulture Business Owners
Are you opportunistic and strategic? You probably would be one of the vulture business owner types who excel in acquiring struggling businesses, infusing them with new life, and then turning them into profitable ventures.
Vulture Entrepreneurs are keen on matching their skill sets with the business they want to buy.
If you want to buy a business, there are two scenarios you will find. First is if you buy a healthy business and the second is buying a struggling business. We’ll look into these in detail.
Buying a Healthy Business
Smart entrepreneurs focus on the positives when considering buying a business. Here are the benefits of acquiring a successful business:
Stable Start
If you purchase a business that’s already successful, you’re lowering your chances of failing. Remember that half of all new businesses fail in their first 5 years. So, If you buy a thriving business, most of these challenges have already been worked through. The business is making a profit and will continue to make a profit after you purchase it.
For example, Let’s consider construction companies. They often have to spend much money on things like heavy equipment, tools, and vehicles. This can cause them to spend more money than they earn.
Is there a solution? Yes. Buy a successful construction company, By doing that you’re skipping over these tough beginnings. You’re getting a business that’s already making a profit, and that’s a smart move.
Lower Risk
According to the Small Business Administration (SBA), about “20% of new businesses fail during the first two years of being open.” Acquiring a healthy one instead of opening a new business mitigates some of the risks because of the established operation.
Immediate Income
New owners of a thriving business may not see immediate results, but they can anticipate continued profitability in the future.
Often buying a business includes the transfer of the business assets to the new owner. It can include tools, order of operations, software, branding, and most importantly, a customer base. Each of these assets provides the new owner with resources to run the business and make an income immediately.
Would you like to make money fast? Consider buying a successful business.
However, if you’re buying a highly profitable business, be prepared to pay higher upfront costs.
Buying a Struggling Business
When is buying a struggling business considered a good investment? Look at it through the lens of the potential to direct the business where you want it to go. The “take it and run with it” and “vulture” types can do well with struggling businesses.
Let’s look at the pros and cons of buying a struggling business:
Lower Acquisition Cost
Buying a struggling business often comes with a lower price tag, offering significant savings for entrepreneurs seeking a cost-effective entry into business ownership. Look for business owners who will sell at a very low price to exit gracefully (albeit desperately). They want to avoid penalties like foreclosures. This can be a chance to buy a business fast and at a considerably low cost.
Opportunities to Fix Issues
Some entrepreneurs look for challenges in business. These are the types of business owners who are highly motivated, often take on big chances, and roll with it. They see rescuing a struggling enterprise as an attractive chance to take risks because it offers another opportunity to understand why the business failed and address issues with new strategies. They embrace both the challenges and the results of the business acquisition.
New Direction with New Ownership
A new owner who has discipline and management skills will often be able to turn a struggling business around.
However, the serious issues that caused the business to struggle should not be overlooked. The management skills it takes to overcome and surge the business into success will take more effort than just money. You’ll need to have the skills of a dedicated manager.
Conclusion:
Deciding to buy a business is a significant step. Whether it’s already successful or needs improvement, you need to know:
- What you can handle
This includes assessing your skills, experience, resources, and capacity to handle the responsibilities and challenges that come with owning and running a business.
- What the business needs to succeed.
So, is buying a business profitable? Yes, it can be, depending on factors like the purchase price and business conditions. Take time to consider all the details before deciding.What details should you know before buying a business? Yes. Are there risks the seller may not be telling you? Yes, there could be. Because you’re spending not just money, but time on a business, you need to know all the financial details before buying. Surge makes the process easy. We make sure you know the profits, give you a projection for the likelihood of growth and make the ownership transition as smooth as possible.
Contact us for a free quote.
