If you're reading this article, it's probably because you're one of millions of people who dream of breaking free of indentured servitude to make it on your own in a business of your own.When it comes to making break from paid workforce to business ownership, you basically have two choices: to start a new business from scratch (often in your basement during wee hours since you have to continue to work full-time in your Just Over Broke J.O.B. to pay bills until your business gets off ground) or to acquire an existing business.
In this article, we look at advantages, disadvantages, traps (and how to avoid them) and issues to be borne in mind when buying an existing business.
ADVANTAGES
There are many advantages of acquiring an existing business rather than creating one from ground up, including:
=> Less Risky
If business has been around for a reasonable length of time, it's survived dreaded first cut - that alarmingly high proportion of new business ventures that fail within their first couple of years.
=> Proven Concept
One of most nail-biting parts of starting a new business is worry that, while you THINK your idea will fly, you're really not sure until it's time to leave nest. Acquiring an existing business should give you comfort that idea behind business works.
=> Existing Customer Base
Without a doubt one of most difficult, expensive and time- consuming duties of a new business owner is cultivating a customer base. When you acquire an existing business your customer-base is ready-made and you can hit ground running.
=> Predicting Future Growth
An existing business has a track record. You can review profit and loss reports, prior year tax returns and other financial information to see how business has developed over time. This gives you an informed basis from which to predict future growth of business.
=> Reduced Need for Working Capital
With an established business you have immediate cash flow from business's existing revenues. This means you only need enough working capital to meet day to day requirements, not a great wad of cash to see you through first slow, painful months until you start generating cash which is invariably case with a startup.
=> Existing Suppliers
Just as an existing business comes with a ready-made customer base, so too it comes with a ready-made supplier base and history of dealings. These suppliers will be keen to retain your business and so you will probably save a lot of time and expense that you would otherwise have had to expend to sort through competing supply terms. Existing suppliers are more likely to give you a good deal off bat.
=> Capital Raising
Obtaining finance will also be less difficult (note I didn't say easier!) since you will be able to point to a track record.
DISADVANTAGES
The main disadvantage of an established business compared to a start up is cost. At first blush, acquiring an existing business is more costly than a startup. Over time, of course, it may turn out that a startup is a much more costly venture, especially if that startup venture fails.
ISSUES
Assuming that you decide an existing business may be for you, what do you need to think about?
=> Deciding on Type of Business That's Right for You
This is a very personal decision and will depend on your answers to following questions, among others:
* Why do you want a business as opposed to a job? * What special skills and background do you bring to table? * What is nature of your work and/or business experience? * What are your hobbies and special interests? * How much can you afford to invest as a downpayment? * How much money do you need to generate to meet your living expenses?
=> Finding Business That's Right for You
Once you've decided on type of business that you want to acquire, it's time to start hunt. The most efficient way is to engage a business broker. Most vendors of businesses list their businesses with brokers rather than attempting to find buyers themselves. For this reason, you'll most likely find that business that's right for you is listed with a broker.
You could, of course, also directly approach owner of a business you're interested in buying to see whether there is any interest in selling. Depending on whether you're in a buyer's or a seller's market, you may put yourself at a negotiating disadvantage by doing this. Only make such an approach in a buyer's market.
=> Financing Your Business Acquisition
Probably biggest hurdle you will face is getting finance for your small business acquisition.
Here are your basic options: