When people think about starting a business, they usually consider setting up a company from scratch. But the other way you can start running your own business is to buy one that already exists. There are many benefits to doing this, instead of going through the process of starting from the very beginning. You might need the money to make the purchase, but you don’t need to come up with an idea or put in the hard work to start making profit. You can find a business that you already know makes money and take it over to get right into being an entrepreneur without many of the teething problems of a startup. Buying a business isn’t all plain sailing, however, and there are some hurdles to overcome. If you think that purchasing a company, instead of starting an entirely new one, might be the right path for you, keep reading to find out how to get started.
The Benefits of Buying a Business
There are a lot of upsides to purchasing an existing business that can make it easier than the alternative. There’s no need to build a customer base because you already have one. There’s a cash flow in place, and you can determine if the business is profitable. There might also be employees on board, and there’s a reputation among the customers. All of these things require a lot of effort to establish for a newly built company, so buying one with these essentials already in place will save you a lot of time and money. You’re cutting down on the risk of the business going bust if you already know that the model is workable and that it’s bringing in a profit. The business already has procedures and policies in place to make it run smoothly, so you don’t need to change anything if you don’t want to.
The Risks
There are, however, still downsides to buying a business. For one thing, it usually costs more than starting from scratch. But, on the plus side, securing financing to purchase an existing company is typically easier than doing so to start an entirely new venture. Lenders will see a successful company as much less of a risk than an idea that hasn’t come to fruition yet. You could also find that the purchase gets you some interesting extras, such as patents and copyrights, which can also be profitable. However, just because banks will be kinder to you, it doesn’t mean that buying an enterprise will be a sure fire success. There is still a risk in starting a business this way, and you could end up with products you can’t shift, employees who won’t cooperate or outdated business systems.
Financing Your Venture
As previously mentioned, getting finance for an existing business should be easier than doing so for a new one. However, many new businesses can be started with no capital at all, when you can’t do the same for an established company. In order to obtain a loan, you’ll need to have a clean credit record that shows that you can pay it back. Of course, there are always other ways to find the money. Crowdfunding has become extremely popular in the last few years, and people now use it to finance anything from funerals to new products. This method is one option that you could take to buy a business. You can fundraise other ways too, by asking for donations and investments from friends, family and business people. Some people also choose to set up a new business and use the profits to start obtaining other companies either to merge with or run alongside their first one.
Finding the Business for You
You can’t buy just any old enterprise, when there are sure to be plenty of them in markets that you’re familiar with. The first step is to think about the industries you know well, and which businesses best match your skills and abilities. You also need to consider the size of the company, including the number of employees. Do you want something you can run on your own or a full-scale office with an established team? One of the things you can do to help you find the site that’s right for you is to use a service like IncomeStore.com. Brokers and purchasing services can help you look for something that’s suited to you. But if you want to go it alone, you can use sites like Flippa and keep an eye out for business opportunities around the web.
Ensuring Profitability
Before you make any big moves, it’s vital that you check that the business that you’re interested in is definitely going to make a profit. There are lots of things you need to look at so that you know what you’re working with. You’ll need to consider the inventory of any products to know what’s there, what sells and doesn’t, how much it’s worth and more. Then there’s the building if there is one and everything in it. But the less physical things are essential too, such as the legal documents and registration of the business. Check the tax returns and financial statements for the last few years, as well as the sales records. There’s much more you should examine, so make sure you have a lawyer or consultant on hand to help you address everything.
Putting a Price on It
Of course, the last thing you want to do is put in much more money than the business is worth. It’s crucial that you determine a fair price for a company before you go ahead and buy it. Owners will usually use different formulas to come up with an asking price. You can use the services of a financial adviser to help you work out if the amount is fair. You should also do the same for any business that doesn’t have a set price, such as those on auction or bidding sites. In those cases, you can try to go for the lowest price possible, but make sure you set yourself a budget to avoid bidding wars.
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