The Risks and Rewards of Acquiring an Existing Business
No one can deny that both buying an existing business and creating a new one from scratch have several advantages and disadvantages. However, when acquiring an already established enterprise, the rewards can outweigh the risks considerably; the failure rate is much lower, and you can save a lot of time and energy because you are bypassing the initial stages. Finding a business that’s worth your time and money isn’t easy, but it’s definitely worth the effort for the following reasons:
1. Avoid many start-up hassles.
When you set up your own business, the first years are always the hardest. There are numerous things you have to juggle: creating a business plan, developing an effective marketing strategy, finding the right location, hiring employees—and the list goes on. An existing business gives you a head start as a lot of these tasks have already been completed. As a result, you can focus your efforts on improving your strategies and promoting growth.
2. Lessen risk.
No venture comes without considerable risks; however, in a business with an operating history and past financial statements, you can make more accurate predictions. By contrast, a start-up has no history and therefore presents a much higher risk. The reduced risk of an established operation comes with several perks: it’s much easier to borrow from banks or raise money from investors. The reliable income that comes from the existing customer base is appealing to financiers, and there is also data available to them to predict the business’s performance in the future.
3. Establish cash flow.
If you are starting a new business venture from scratch, you can’t estimate cash flow with any certainty. You don’t know how quickly you’ll make sales and generate cash. With an existing business, you have a useful track record that can help you make more accurate estimations. More or less predictable cash flow can relieve a lot of stress for a new business owner. What’s more, you can concentrate your efforts on boosting profitability instead of worrying about whether your coffers will remain empty.
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4. Enjoy the benefits of an already established brand and customer base.
One of the most significant advantages of an existing venture is that you don’t have to create a new brand and come up with new slogans and a new logo. You can reap the benefits of previous marketing and networking efforts in an established market. Moreover, there is a customer list with loyal customers to whom you can continue to be of service.
Not having to recruit every single customer but rather expand on this customer base can save you a lot of work. Remember to do your best to meet their needs and provide high-quality products and services, and you can build long-lasting relationships that will result in increased sales and prosperity.
5. Increase profits by adding value.
As a new owner, you may see the business’s untapped potential more clearly. Since there’s a solid foundation, to begin with, you can start working immediately on the improvements you have in mind and also focus on business growth. However, there’s a pitfall here you should try to avoid: you could get carried away by all the possibilities and end up facing a high acquisition price. You should aim for a fair price for the business’s current value and not for its future development after all your hard work.
6. Leverage trained and experienced employees.
Hiring and training new staff can be a complicated and lengthy process, especially when a company is still trying to stand on its own two feet. On the other hand, a business that runs smoothly already has high-quality employees who can also provide useful advice and insight to you, the new owner, as they are very familiar with day-to-day operations. The right people can be a valuable resource, and taking advantage of the existing workforce will free up a lot of your time.
The Bottom Line
Acquiring an already established enterprise means you don’t have to start from scratch. Nevertheless, there are some dangers you should be aware of. Finding a good business available on the market may not be easy as many such companies stay within families and never reach the market. Even if you find an exciting prospect, it’s also important to know when you shouldn’t buy it. Apart from the value and potential of the business, you should take into account things like your goals, available resources, and personality. These are essential factors that will contribute to your success or failure.
About Universal Funding
Universal Funding is a private funding source that has funded thousands of businesses and more than $2 billion since 1998. We turn your accounts receivable into the funding you need through invoice factoring and can have capital in your hands in a matter of days.