You’re looking to take things in a new direction and you’re ready to take the plunge into owning your own business. You want to be your own boss!
In our final instalment of our month-long Succession Planning Series, we’re going to look at why buying an existing business is a great idea.
Of course, you may have a product or service that you’re ready to launch or, perhaps, the entrepreneurial bug has bitten in such a way that you’re looking for a business already proven, has the foundation in place, and is located in a place you’ve always wanted to live.
Not an unusual Kootenays entrepreneurial story, for sure!
So, why is buying an already existing business the way to go?
Without doubt there are cons to go along with the pros of purchasing an established business. However, if you do a careful analysis, you’ll learn what many seasoned entrepreneurs have discovered…the risk-to-reward ratio is tipped in your favor when you purchase an existing business.
Starting a business of your own can pay great dividends, but it’s important to understand that the risks are significant. Most start-up businesses will falter and eventually die. According to Michael Gerber, author of The E-Myth Revisited, 40 percent of new businesses fail in the first year, and 80 percent fail within five years. On the other hand, purchasing an existing business reduces an entrepreneur’s risk while creating opportunities for tremendous profit.
There are a number of reasons to consider the purchase of an existing business rather that starting one:
- Concept is proven. It is less risky to undertake an established business than a startup. There are numbers confirming that the concept of the business is sound and working. Financing a purchase is often easier than securing funding for a startup – the business comes with a track record.
- Brand established. You’re buying a known entity. The on-going benefits of a known brand along with the marketing or networking of the previous owner fall to you. When you have an established name in the business community, it’s easier to place cold calls and attract new business than with a startup as yet unproven.
- Relationships established. With the purchase of an existing business, you will also be buying an existing customer base and vendor base that took years to build. It’s not uncommon for the seller to help transition with the business for a short time to ensure the seamless transfer of those relationships to the buyer.
- It’s about the work, improvement and growth rather than start up. When you buy a business, you can start working immediately and focus on improving and growing the business immediately. The seller has already laid the foundation and taken care of the time-consuming, tedious start-up work. Starting a new business means spending a lot of time and money on basic items like computers, telephones, furniture and policies that don’t directly generate cash flow.
- People in place. When it comes to acquisition, one of the most valuable and important assets you’re buying is the people. It took the seller time to find those employees, develop them and assimilate them into the company culture. With the right team in place, just about anything is possible, and you will have an easier time implementing growth strategies. Plus, with trained people in place you will have more liberty to take vacation, spend time with family, or work on other business ventures. When start-up owners and independent contractors go on vacation, the business goes too.
- Cash Flowing. Typically, a sale is structured so you can cover the debt service, take a reasonable salary, and have some left over to take the business to the next level. Start up owners, on the other hand, are working with a shoe-string budget. Some experts say start-ups aren’t expected to make money for the first three years.
There is always risk associated with becoming your own boss. When you buy a business, however, the risk is a calculated one where a number of the pitfalls and potentials for failure that come with a start-up are minimized if not eliminated.
Imagine Kootenay offers up all flavour and variety of existing businesses, each looking for that special individual wanting to take the helm and create the work and life of their dreams in the Kootenays, one of the most spectacular regions in Canada!
Take a look at our listings! Your next boss… could be YOU!