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buying an existing business
versus doing a start up

Entrepreneurs Looking to Buy an Existing Business

 

The advantages of buying an existing business versus doing a start up are numerous.

  1. There is goodwill in place. Through the years, the goodwill has been built up and is a great asset to the business. Customers will continue to come and a new buyer can build upon this with new sales.
  1. There may be the ability to have the seller carry some of the purchase price. In many cases businesses will need to have the seller carry some of the purchase price in the way of a note, unless there is SBA financing. In some situations sellers are desperate to sell. However, in some cases buyers cannot obtain SBA financing or the seller’s business is not financeable.  As a result, the seller will have to take back debt in order to have the business sell.
  1. Having a location that is unique makes a big difference for retail businesses. In addition to retail businesses, sometimes there is below market rent that makes the lease and business much more valuable. For example, if a business has below market rent for 10 years this is a huge asset.
  1. You have a staff of trained employees. In many cases it may take years to train employees.  Having employees who are ready to go makes it much easier for a buyer.  Finding employees and training them is a continual problem.
  1. There are systems and processes in place. Having procedures in place is very helpful. When a business is in a start up mode it takes a fair amount of energy to put together processes and systems.  Having this in place is very helpful.
  1. It can be a faster way to get into having your own business than starting from scratch. It takes years to get a business up and running and to be profitable. Having something that is race ready is really helpful as compared to taking years to start a brand new business.
  1. There is lower risk than a pure start up. Sometimes trying a start up can be not only a time suck, but will tap your energy.  You have to be the jack of all trades as you have to sell, produce and do the accounting all at once.  In addition, it is difficult to grow a business when you have no time to sell.
  1. You have a history of financials. Having historical financials makes a great help.  When you look at a business, it is nice to be able to look at the balance sheet and financials, as well as to be able to run ratio analyses and have a long financial history.
  1. You have customers that are already on board. This cannot be over emphasized. Having customers who are on board is worth its weight in gold.  When we value a company, the first thing that we ask is how they get their customers.  Everything is secondary to obtaining a sale. Having a customer base that you can build on is invaluable.
  1. You have supplier relationships and credit already in place. When starting a business, many times new vendors will need to have purchases paid based upon COD (cash on delivery). This can really impact your cash flow. As a result, this is another great asset that you get when purchasing a business.

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