Advantage of Buying a Business vs Starting a Business

At first blush, it might seem like buying an established business lacks the romance often associated with the entrepreneurial dream. But buying an established business can put you on the road to success faster and with fewer risks than you’ll have when you start your own business from scratch.

Advantages of Buying an Existing Business

Getting a startup business off the ground means planning and executing everything to the smallest detail. The time it takes just to get a brand-new business up and running means you’ll have to find a way to pay the bills and keep the lights on well before you make your first sale. But most of the heavy lifting is already done when you buy an established business. There’s no ramp-up time, and you’ll have cash flow from day one.

Unless your business idea is so new and different that it requires setting up a new venture, entrepreneurship through acquisition will save you time and money.

Here are some of the other benefits purchasing an existing business will buy you.

Existing Customer Base

Customer acquisition costs time and money. When you buy an established business, you’ll have an established customer base sufficient to generate a dependable cash flow. That’s not to say you won’t want to expand your customer base or acquire new customers. But when you buy an existing business, you’ll have loyal customers you can depend on to keep the lights on so you can focus your efforts on expanding your market.

Reliable Cash Flow

A startup can take a year or two to generate enough cash flow to break even and even more time to turn a profit. In the meantime, you’ll have to use personal or borrowed funds for working capital.

But small business owners can use an established business’s revenue for working capital without dipping into their savings. When you don’t have to worry about having enough working capital to sustain your business, you can focus on other business metrics, like increasing profitability.

Name and Brand Recognition

When you buy an established business, you’re already ahead of the game when it comes to marketing. You can use existing marketing strategies, including the company website and social media, to connect with customers and further build brand recognition instead of spending time convincing customers to give you a try.

Systems and Processes

Systems for routine operations like processing orders and handling returns can wreak havoc on a business when they don’t work how they should. Creating these systems and processes from scratch usually has wrinkles that must be ironed out. But you’ll get systems and processes that have already proven successful in an existing business. You won’t have to reinvent the wheel and risk the setbacks of developing new systems.

Trained Employees

When you buy an existing business, you won’t have to take time to recruit, onboard, and train a team or figure out how to pay them. Trained employees can get you through the ownership transition, help orient you to your new venture, alert you to problem areas, and buy you time as you implement your growth strategy.

Existing Infrastructure

Think about all the things it takes to run a business. Unless you are operating a home-based business, you need a facility to conduct business along with furniture, fixtures, and equipment. You must install a phone system, computer hardware and software, and security systems, and you’ll have to set up accounts to run them. When you buy an existing business, you’ll usually be able to transfer the existing real estate lease for the premises, along with contracts for phone service, utilities, and all the other systems you need.

Established Vendor Agreements

Just about any type of business needs a network of suppliers and vendors, whether it’s for packaging, products, equipment, supplies, or shipping. When you buy an established business, you won’t have to do the legwork to research vendors or spend the time and money negotiating agreements that would be required for a startup business.

Access to Financing

Banks and other lenders, like the SBA, usually require borrowers to have an established revenue history before they agree to finance a business. When you buy an established business, you’ll likely be able to borrow more money with better terms than if you were starting a business from scratch. Having an established business might also help you avoid putting up personal collateral like your home to borrow money or giving away equity to investors in exchange for financing.

Pros and Cons of Buying a Franchise Business

Think of buying a franchise business like buying an established company on steroids. When you buy a franchise, you’re buying a proven business model with a track record of success many times over. Your new company comes with well-established regional or national name brand recognition and a soup-to-nuts blueprint for operating it.

But, ensuring that the business model continues to succeed also requires franchisors to exercise great control over business operations. That means that franchisees must follow established processes and systems, exclusively use an existing vendor network, and adhere to strict guidelines for marketing and advertising, among other requirements.

As a franchisee, you’ll likely get more business support, training, and resources than you would if you acquired an existing business from an independent owner. But you also won’t be able to mold and shape the business however you want.

Tips for Choosing the Right Business Acquisition for You

Buying an existing business has significant advantages over starting a business from scratch, but finding businesses for sale takes some effort. When deciding to purchase an existing business, it's important to evaluate if the opportunity aligns with your interests and abilities.

It’s a good idea to consult with other small business owners to understand the time and commitment required for a startup business. A business broker can help you to understand the pros and cons of buying an existing business.

Once you’ve decided on the path for you, you’ll need a team of professionals, including an attorney and a CPA, to advise and guide you through the process of setting up or buying your new venture.

If you decide to buy an existing business, learn it from the ground up. You’ll need a thorough understanding of how the business runs, not just to manage it, but to make changes down the road.

If you're looking to buy an existing business, sign up for a free BizQuest account and create a custom search to compare businesses in your industry of interest and your local area.