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Four Advantages of Buying an Existing Business Vs. Starting One from Scratch
By Quiet Light
For ambitious entrepreneurs, there are several key advantages of buying an existing business compared to starting one from scratch. Not only does the right acquisition opportunity allow you to enjoy immediate profitability, but it also enables you to skip many of the hurdles that start-up founders typically encounter.
In this article, we discuss four critical advantages of buying an existing business compared to bootstrapping one from the ground up. When combined with additional research, this article can help you make an informed decision about which path is best for you.
1. Less Risk
Starting a business from scratch entails substantial risk. In many cases, launching a new venture requires a considerable financial investment without any guarantees of realizing a return.
Additionally, in almost all cases, starting a business takes a lot of time and energy. Any founder knows that the start-up grind can be an all-consuming process, often eating up nights and weekends. If everything goes well, your efforts could pay off. However, success is far from guaranteed. Often, founders end up losing all of the time and money they invested in the business. Needless to say, this makes the start-up process highly risky from an investment standpoint.
Buying an existing business, on the other hand, is far more predictable. During a business takeover, there are still no absolute guarantees that you’ll succeed, but you can skip many of the potential pitfalls that founders must endure.
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For example, one advantage of buying a business is that the business model is already validated. There’s no guessing about whether or not the business has established a product-market fit. You can simply look at the business’s sales history to see revenues, expenses, growth trends, and other key details.
Together, these variables tell you the business’s story and instill confidence in its future potential. In turn, this reduces risk for you as the prospective buyer. This holds true whether you’re buying a SaaS business, content site, Amazon business, or another type of business model.
“One advantage of buying a business is that the business model is already validated.”
2. Reduced Setup Time
When you start a new business, it typically takes quite a bit of time before it’s established. Even in best-case scenarios, founders need to wait for one, two, or even several years before the business has proven its viability in the marketplace. During the initial period, a business owner may work for little or no money. Activities such as product development, crafting a marketing strategy, and building a team can become all-consuming processes. Not to mention, starting a business from scratch can be an emotional roller coaster. Constant stressors and uncertainties riddle the path before it’s off the ground.
For individuals who are cash-poor and time-rich, starting a business may be the right approach. For those with working capital or funding sources, on the other hand, buying an existing business has its advantages.
When you buy an established business, much of the heavy lifting has already been done for you. For example, the business may already have a network of suppliers and an established product line that generates consistent sales. Additionally, it likely has reliable advertising strategies, proven systems, and a skilled team of employees or contractors. Together, this infrastructure may have taken several years to build, saving you significant time and energy.
“When you buy an existing business, much of the heavy lifting has already been done for you.”
The degree to which acquiring an existing business can reduce the startup period varies greatly depending on both the business you buy and the business you are considering starting. When looking for businesses to buy, it’s important to have an effective strategy and avoid common business buying mistakes.
3. Owning an Established Brand That Has Reliable Revenue
The shorter setup time associated with buying an existing business is accompanied by nearly instant profitability.
Purchasing an existing small business allows you to skip the initial stages and own a proven and profitable business with immediate cash flow right out the gate. For example, let’s say you purchase an existing small business that generates $40,000 per month in profit. As soon as the business is transferred, you’re the person who gets to enjoy those profits. Of course, if you purchased the business using outside financing such as an SBA loan, you’ll need to account for your monthly repayments, but it’s pretty safe to say that you’ll have existing cash flow from Day 1.
Compare this to the path of starting a business yourself. When you build a business from the ground up, it might take three years or more before your business has the same earning potential or can establish good business credit. Assuming you’ve financed the deal properly, you don’t need to walk the thin “financial tightrope” that founders need to traverse.
“Purchasing an existing small business allows you to skip the initial stages and own a proven and profitable business right out the gate.”
If instant profitability is important to you, buying an existing business from a previous owner has clear advantages over starting one from scratch.
4. Access to an Existing Customer Base
Another key advantage of being a buyer for an existing company is the ability to access an established customer base. In many cases, this alone can make acquiring a brand well worth the investment.
“When you acquire a business that has an established customer base, you can leverage that asset to launch new products or services quickly.”
Building a loyal customer base typically requires significant time, energy, and financial expense. Often, companies invest heavily in social media, paid ads, email marketing, content marketing, and other acquisition strategies just to establish relationships with potential customers. For brands that succeed in monetizing their audience and keeping customers satisfied, the potential can be enormous.
When you acquire a business that has existing relationships with existing customers, you can leverage that valuable asset to launch new products or services quickly. This enables you to quickly scale your business in a way that would be impossible if you were starting from scratch and didn’t have loyal customers.
Combined, the advantages of buying an existing business mentioned above make business acquisitions a great path for the right entrepreneur. If you’re interested in learning more, the next step is to establish your purchasing criteria and strategy, as well as to look at listings that can help you achieve your acquisition goals.
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