Why Buy An Existing Business ?
June 24, 2012 2 Comments
Once you have made up your mind to enter a certain line of business , the next question is whether to start a new one on your own or buy an existing business. Both options are doable. Yet, buying an existing business might be an easy way out. Here are the advantages of selecting this alternative:
No waste of time and effort:You are spared the time and hassles of getting approvals and licenses.
Ready-made systems: When you buy an existing business you get employees with on the job experience.They are familiar with purchasing,marketing, selling, billing, financing and so on. You also take over a pool of customers who are time-tested and whose credit history is known. In addition, there are suppliers with whom workable deals have already been cut.
Managerial knowledge: You will have details of financial, operating and marketing performance; you are appraised of your staff, customers, suppliers; you have ideas about existing bankers and financiers. You don’t have to begin from scratch and work on the basis of guesstimates .
Cash flows from day one:Unless you have bought a loss making business with a view of turning it round, an excellent plus is the way cash-flow begins. You buy the business and immediately afterwards you see cash coming in, in correspondence with the business activities continuing unabated.New businesses often burn cash or go nowhere for a while before catching on.
Business reputation: The next advantage rests on reputation of the existing business. They have track experience and a name in the industry to go with. In common parlance it is known as goodwill. You buy a business associated with the kind of reputation in which it is recognized by the wider society.Building a reputation takes time and by buying a business you gain time.
Foundation is laid: So you can focus on product improvement, profitability enhancement, widening the customer base , diversifying capital sources etc.
Risk of absolute failure is reduced:Most businesses do not last past the first year much less the first decade.So older businesses have some innate strengths.By buying one of them you reduce your risks.
Finance available: Another key positive is that you can finance the purchase of an existing business much easily than getting money for a new start-up. Banks generally lend part of the purchase price when it changes hands. The existing bankers of a business are generally inclined to continue their relationship with the new buyer by supporting him.
Good investments:Berkshire Hathaway grew by investing capital in small but strong local businesses.If you are looking for good investment avenues,putting money in good small businesses might be better than risking capital in small businesses that will burn money before catching on or might never take off ,