5 Reasons to Buy a Successful Business Instead of Starting a New One From Scratch
Are you considering starting a new business? Maybe this is your first or maybe you're a serial entrepreneur with a few successful businesses under your belt and your next brilliant idea just hit. You’ve got your ducks in a row, business plan mapped out, motivation at an all-time high, and you’re ready to go full speed ahead. But...maybe you shouldn’t.
The harsh reality is, most new businesses fail. According to data from the Bureau of Labor Statistics, about 20% of small businesses fail in their first year, 50% fail in their fifth year, and 70% fail by their 10th year.
A CBInsights analysis of 101 startup founders found these are the top reasons why new businesses failed:
● 42% of small businesses failed because there’s no market need for their services or products.
● 29% failed because they ran out of cash.
● 23% failed because they didn’t have the right team running the business.
Clearly, there are several reasons why new businesses fail. As an entrepreneur gearing up to start a new business, there’s a lot of uncertainty ahead of you. But what if there was a way to mitigate that risk?
Most entrepreneurs’ goals include reaching financial freedom, working on their own schedule or making an impact -- or all of the three. Whichever goal you resonate with most, there is a better, faster way to reach it.
Buy an established business.
Most books, resources, and training courses you’ve consumed to this date have probably taught you one thing -- how to start a new business. If you want to reach your goals faster than you ever knew possible, here are 5 reasons you should buy an established business instead of starting a new one.
1. Pay yourself and profit faster.
Most entrepreneurs start a business with a clear goal in mind: make money. They set out to put good coin in their pockets as quickly as possible so they can use the money to take care of their family, travel more, give more, spend more time with their kids, etc. However, what most entrepreneurs fail to recognize when starting a new business is that they will be bootstrapping for an unknown length of time.
You’ll be paying out of pocket to cover unexpected costs, unpredictable hurdles, hiring a team, and more. It’ll take several months -- maybe even years -- before you ever get a single dollar back from your efforts.
Instead, buy a business that already exists. Buying an established business means you’ll be able to profit immediately and be well on your way to reaching the kind of financial freedom you have in mind. You can spend your time working on the business instead of in it, and increasing your existing profits even more.
2. The groundwork has already been done.
Another huge benefit of buying established businesses is not having to worry about building an entire foundation. Just like a home, a business must have a strong foundation to survive. Standard operating procedures, policies, and the right employees are only a few to name. All of these pieces take years to build from scratch.
When you buy an existing business, you’re buying a fully operational ecosystem with all of that already in place. You can step in as the new owner knowing the most time-consuming groundwork has already been done, and your business is already profitable.
As the buyer, it is your job to do your due diligence to make sure you have all necessary information before buying, so if you feel as though any data has been left out during negotiations with the seller, ask more questions until you’re confident.
3. You don’t need to use your own money to buy a business.
After speaking with entrepreneurs in my network who’ve never bought existing businesses, I found the no. 1 reason why they haven’t is that they think it will set them -- and their bank account -- back. A lot.
The truth is, you don’t even need your own money to buy existing businesses. Most entrepreneurs aren’t aware of this, but there are hundreds of strategies you can use to purchase existing businesses without using a single dollar of your own money.
One way is to make the seller of the business part of the deal. This means you can negotiate with the seller to pay them a set amount of the company’s profits per month until an agreed upon balance is paid off.
Another tactic is to use the acquisition of target assets. Investopedia defines this as, “When one company purchases most or all of another company's shares to gain control of that company. Purchasing more than 50% of a target firm's stock and other assets allows the acquirer to make decisions about the newly acquired assets without the approval of the company's shareholders.”
In a phone conversation, Moran Pober, founder of Acquisitions.com and owner and investor to multiple businesses, explained, “Growing client by client and bootstrapping alone won’t get you to your goals quickly and effectively."
4. People actually want to sell their (successful) business to you.
One thing I oftentimes hear from entrepreneurs interested in buying businesses is that they don’t know why the owner of a successful business would want to sell it.
The truth is, there are thousands of wildly successful businesses for sale right now, with owners desperate to sell them ASAP. To name just a few reasons why people sell businesses: they’re looking to retire, their kids don’t want to inherit the family business, or they simply no longer want the stress that comes with owning a business.
With that said, there is a right and a wrong way to approach the owner, or seller, of a business. Buying a business is all about developing a relationship with the owner, and earning their trust long before a deal is signed. In a phone conversation with entrepreneur Diana Mandell, a dating and communications expert, she explained, “Similar to dating, it is so important to communicate to the seller of the business about their concerns and needs.''
5. You can buy with confidence knowing you’ll profit long-term.
If you’re still unsure if buying an existing business is for you, you’re probably wondering how you’ll be able to ensure the business you buy remains successful and profitable for a long, long time after you buy it.
The way to make sure that a business will remain successful is by choosing businesses from sectors that are what I like to call “recession proof”. Profitable Venture expands on this idea by saying “Recession-proof businesses, as the name implies, are businesses that are not affected by during an economic meltdown." Think food, health care, finance. Businesses that provide products and services that people need, not want.
Takeaway: Take your skills and the great business ideas you have right now, and implement them into existing businesses. Buy an existing business and you’ll not only see profits faster, but you will reach your long term goals faster.