Buying an existing business with an established customer base, sales, financial history, supply chain, website, trained employees and many other attributes can actually generate a stronger foundation to grow much faster than a ground zero start-up could. Taking a business from $500K in sales to $1 million in sales is probably much less expensive and faster than getting from $0 sales to $1,000,000.
First generation entrepreneurs typically find that jumping in to an existing business is far more advantageous, personally gratifying and offers a quicker financial return than building from scratch. Michael Gerber, author of The E-Myth Revisited found that 40 percent of new businesses fail in the first year, and 80 percent fail within five years. This would be a big leap of faith for most budding entrepreneurs.
If reducing the investment risk and creating opportunities for bigger profits sounds like your career path to be your own boss, then consider purchasing a successful, existing business.
Benefits of Buying an Existing Business
1. Cash flow is king.
If you buy an existing and profitable business with a sensible deal structure, the business will generate a reasonable salary for you as well as some excess cash that you can invest in growing the business. Start-up businesses are famous for burning cash for years and most run out of cash before they get to breakeven.
Buying a profitable business with proven cash flow for a fair price means you can likely buy the business with an SBA Loan Guaranty. This means, if you qualify, you could own the business for as little as a 15% down payment. A business selling for $400,000 could be purchased for $60k down or maybe less.
3. Don’t repeat mistakes
The seller has likely made a lot of mistakes you won’t have to make. That takes some risk out of the deal, as well as pain.
4. Apply your skills
In all likelihood you’ll bring some skills to the business the seller doesn’t have. Evaluate the business. Revise systems and processes. Keep the good and transform the bad and you could see a quick boost to profits. Most people think it’s easier to fix a business than start a business. I’ve done both and I agree.
The seller has figured out what their customers want. You are buying an existing customer base that probably took years to cultivate. Nurture these relationships. Embrace and foster new ones and you’ll experience an even wider community support base.
6. Energy for Action
New energy applied to a stagnant business is a great opportunity. You as a buyer will likely be more motivated and enthusiastic than a seller who’s been clipping coupons for years. Energy is highly rewarded in businesses.
Buying an existing business can be a mass of confusing information and opinions but keep in mind, that you are taking a calculated risk which eliminates many potential challenges and the hazards associated with startups.
If you have the will to go through the process it could be the best move you make professionally. As someone once said:
Your worst day as a business owner is better than your best day as an employee.
Mr. Elliott is Managing Director of Sunbelt Texas Business Sales & Acquisitions with more than 20 years experience in mergers, acquisitions and business broker. Mr. Elliott purchased Sunbelt Houston in 1996 and has managed the sale of over 500 companies from very small businesses to companies with revenue of more than $30,000,000. Mr. Elliot has provided Business Broker and merger and acquisition adviser services to privately held business in Houston, Austin, San Antonio and throughout Texas.
Over a 20 year career, he has handled a wide range of industries including manufacturing, distribution, medical, machining, construction, and contractors. Mr. Elliott has completed transactions with Private Equity Groups, strategic buyers and a wide range of regional companies executed plans to grow through acquisitions.
Mr. Elliott has been recognized as a “Thought Leader” by Sunbelt Business Brokers Global Network. Mr. Elliott is frequently interviewed in various media and is considered an expert in the field of buying and selling privately held businesses.
Mr. Elliott has received the professional designations of Certified Business Intermediary (CBI) and Master Merger & Acquisitions Intermediary (MMAI).