Every entrepreneur desires to own their business. Some choose to start their businesses from scratch—and only a few of these businesses succeed. Statistics indicate that around 20% of new businesses fail within the first two years of their inception, 45% within the first five years, and 65% within the first 10 years. Interestingly, only 25% of new businesses celebrate their 15th birthday.
Because of this, most entrepreneurs desire to buy existing businesses, rather than starting from scratch. They believe this will make it easier for them to get started since they won’t need to deal with the challenges of starting a business.
However, the decision to buy a working business has its pros and cons—and that’s what we shall discuss in this post.
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Pros of buying a working business
There are numerous benefits of buying a working business—from convenience to a faster and safe ROI. And an entrepreneur needs to know the advantages of this business strategy.
Easier to access better financing options
A working business has an established revenue stream, which helps the business to cover the cost of operations. However, a startup has to seek different financing options to cater to certain expenses, before the business even gets into operation. However, a working business has an established relationship within its area of operation, as well as customer base.
This makes it easier for banks and other financial institutions to provide the business with the needed financing options—which come at the best possible rates. Besides, you can use the inventory and assets of a working business as collateral when securing financing.
You’ll buy an already established brand
Brands play an essential role when establishing and growing your market presence and customer base. But, it’s not that easy to start a new brand in a jam-packed marketplace. When starting a business, most people have a challenge in growing their new brand, as well as attracting new customers to their products or services.
While your brand can gain momentum, you are not assured how long this should take. However, buying an existing business gives you the privilege of inheriting an established brand and market presence. This can save you time and money you’d have spent marketing the business.
The benefit of an established customer base
Because the business will be operational, you will have an existing customer base, which will continue buying your products or services. However, it can take some time for a new startup to grow a customer base. That means you don’t have to wait for long to start earning your profits when you buy a working business.
Readily available staff
New businesses have to deal with training costs, in addition to the hassle of finding experienced staff. That’s why most businesses focus on reducing the rate of employee turnover—which is very costly. When you start a new business, you need to train your new staff. However, you won’t have to incur the cost of training new staff if you buy an existing business.
Cons of buying a working business
Buying a working business also comes with its challenges. Yes, you might save some money in one aspect, but you will lose it in other areas. Therefore, it’s essential to understand the potential risks of buying a working business. These risks include:
It’s costly to buy a working business
Buying an existing business requires a considerable financial investment. This cuts across all the industries, including online businesses. So, if you want to buy a working business, be ready to spend more money than you’d have spent starting a new business.
Besides, buying a highly-profitable business will cost you more than when starting a new business. However, if you choose to start a business from scratch, it will be much cheaper, and you will have the option to start a smaller business and grow it with time.
You must be experienced in that industry for the business to succeed
Yes, you’ve now purchased an existing retail store or restaurant. However, what will happen if you don’t have the experience to run the business? There’s a higher risk of the business failing. Thus, it’s always a good idea to gain the needed experience first before buying a business. With this, you don’t have to risk spending your money on a business you’re not sure will succeed.
The challenge of implementing new ideas
You might have new and good ideas as the new owner—however, how will your existing customers and staff take your ideas? The last thing you’d want is your customers and employees to start resenting your new ideas. This can be a big setback, as you will have to deal with the problem first if you want to achieve your goals.
Bottom Line
Just like any other investment, buying a working business has its benefits and drawbacks. All you need to do is to research the business comprehensively before making your final decision. Although trust is essential during this process, you shouldn’t depend on the information you get from the business owner. Go the extra step of talking to the customers, vendors, as well as anyone else who deals directly with the business. You can also opt to consult Orlando Business Broker and other financial experts to get more information about the business.
