Because it has good will, is up and running, has customers and customers, employees, systems, suppliers and financial history, one or more locations, and you may be able to get the seller to finance it, buying an existing company is undoubtedly inherently less risky than starting one from scratch. According to 12 years of monitoring by the Small Business Administration, 80 percent of small businesses survive the first year, meaning that around 20 percent are unsuccessful. This can be compared to the report according to which one in 12 small businesses close each year, representing about 8 percent. If a business has held out for the first five years or more, chances are that the original owners did something right or found a product or service from a verified marketplace in the community.
When you buy a business that's already successful, you're likely increasing your chances of success compared to a startup that hasn't been tested. A company's established brand reputation can be a double-edged sword. From poor customer service to legal problems, customers, employees, and the general public can have negative associations with the company. As a new business owner, you'll have to overcome those perceptions. Buying an existing business has a lot of advantages compared to starting from scratch.
Buying a business can be a good way to avoid some of the initial costs and growth issues involved in starting a business from scratch, such as launching a product or service or building a customer base. For example, if you have a lot of experience working in the retail sector, then buying a retail store or boutique may be a good fit for your skills and experience. Business owners who know they will retire or sell the business in the near future may not be motivated to invest in new technologies, equipment and processes. Don't limit your information to what the current owner submits; go out into the community and talk to sellers, customers, and anyone else who has dealt with the business for sale.
The process of buying a company involves identifying the company that is for sale and gathering the funds to make the purchase. By strengthening the business and adding a new perspective, new owners can expect to increase sales and profits. For example, if the company loses sales to a more popular competitor or has a bad reputation, you could face an uphill battle from the moment you take control. Increasing sales from day one also helps generate cash flow, which is vital for new owners trying to develop their businesses.
You may also consider applying for a business line of credit to manage cash flow fluctuations as you acquire an existing company and make changes to it. Conversely, a manageable level of liabilities compared to income and assets may indicate that a company has a solid foundation, ready to grow and succeed in the hands of a new owner. In addition, long-time employees who remain after the sale can provide valuable information and insight into what has kept the company alive during market cycles. Not only does your supply chain provide an important network of business contacts, but it can also offer help and advice on how to maintain or improve the business.
Potential business owners looking for a new company can choose to create a company from scratch or buy an existing company or franchise. In addition to physical assets and sales figures, a company's brand and reputation can often contribute to the value of the company.
