Why Buy An Existing Business Instead Of Starting A New One?

When you sit down to evaluate whether you want to buy an already existing business or start a new one, you take into consideration the following th...

  • Why Buy An Existing Business Instead Of Starting A New One?
    Lisa Fletcher Image Lisa Fletcher

    Why Buy An Existing Business Instead Of Starting A New One?

    • Friday 24th of July 2015
    • Buying

    When you sit down to evaluate whether you want to buy an already existing business or start a new one, you take into consideration the following three things: Do you have any experience in business; what is the nature or the kind of business that you want; and are you open to undertake the various possible financial risks. On settling the above issues you can easily arrive at a conclusion which will help in making your decision for you.

    Do you have any business experience?

    It is comparatively a much greater risk to start a new business of your own than to buy an already existing and established business. According to the estimated percentage as recorded by Michael Gerber, author of The E-Myth Revisited, about 40 percent of the new businesses fail in the very first year of their operation itself and about 80 percent record a decline in the following 5 years. Other than the risks, a new business also requires high financing, expenditure for infrastructural development and cash flow. By purchasing an already existing business, irrespective of whether you are an experienced owner or otherwise, you get to retain the previous relationships that the company you bought has earned over the years. These relationships are with the former owner, the employees of the company, the vendors and most importantly its loyal customers.

    In case you are an inexperienced operator of the business you have just bought, you also have the benefit of being assisted in the transition process by the previous owner which will not only help you in learning the integrities of the business but will also provide you with the experience and exposure that you lack. The employees of the company that you retain from the old business will be better informed of the company’s policies and mode of operation and hence will be able to work properly giving in their best. The vendors with whom there is an already existing relationship will provide you with the best available offers and specialized orders. All this will help you gain a more insightful perspective of the company.

    What is the kind of business you want?

    What kind of business do you want is the next question that you need to attend to and arrive at a conclusion that will help answering the question. Will it be more beneficial for you if you bought a business that already exists or will buying a new one prove to be a good choice is something that you can only evaluate once you are able to answer the question about the kind of business that interests you or the kind of business you have the calibre and potential to operate. If you plan to start your own business it will require time and money. You will have to start from scratch, framing company policies and strategies for operation, designing the structure of the company, hiring employees, approaching vendors and customers. Whereas, if you purchase an already existing business all you need to work at and invest all your time and money is on its growth and development.

    Are you open to undertake the various financial risks?

    The initial payment for buying an already existing business may be more than what starting a new business might cost you initially. Often due to the low initial cost of starting a new business, people prefer to start a new business without realizing that after its establishment you might incur losses for the next couple of years, which might also require you to forgo your salary, due to the inexperienced nature of the company. Acquisition of a new business also allows for loan payments, salary and business investments. Moreover, the established position of a company is an incentive for the banks to grant loan much easily than what a new business is likely to convince them off as a new business poses more financial risks than an already existing business.

    Further an already existing business does not have to incur the costs of hiring new employees, infrastructural cost, developing a customer base, advertising and developing a product as one can forgo these initial costs and aim at moving forward towards the development of the company. The cash flow in an existing business will also be constant and you will not face the deficit problems that you might have to if you started your own business. This is so because the inflow of money for a new and recently established business is a rare story and often requires the infusion of money by the owner himself to keep the business afloat. It is also of advantage to buy an already existing business because you can also easily draw an estimation of the future growth of the business and its future prospects for development by analysing the current traffic and records so documented.

    It is not easy to become an entrepreneur. Becoming one requires high doses of investment of time, effort and money. An entrepreneur must be patient as he or she needs to realise that no business pays off in the initial stages and it is with time that it grows and prospers. There is also no 100 percent guarantee that your business will succeed and develop just like you plan for it to. The chances of incurring high financial risks are also great. If you are the kind of person who believes that one’s business should be his or her own personal reflection where each brick is set according to his or her desire and the base of its foundation is the outcome of long term efforts, time and money then you should start your own business.

    However, if you believe in acquiring an existing business and investing in its growth and development along with concentrating on those areas that require a personal attention than you must choose the option of buying an already existing business. It also has more advantages such as the already established customer base, consistent payoffs, cash flow, employees, already operating policies and schemes for its operation along with minimal chances of incurring any major financial losses.

    Finally it is wise to conclude that buying an already established business has better prospects to offer you than starting a new business.