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When we think of entrepreneurship and owning a business, we often think of starting a company from scratch and working long hours. But what if there was a way to get a head start?
Entering the world of entrepreneurship offers many options. One of them is purchasing an existing business. Going this route can save you startup time, costs, risks, and a chance to build on a foundation already created.
If you're a small business owner or aspiring to become one, here's an in-depth look into why purchasing an existing business can be an intelligent choice.
Reduced Startup Risks
There may be unexpected startup costs and long hours spent building a brand. Starting a new company also means that it may take some time before a business owner sees consistent cash flow or profits.
Additionally, with no proven track record or established financials, starting a business from scratch can make it challenging to find funding. Lenders may be more comfortable offering a loan to a borrower looking to acquire a business rather than start a new one, as they see this as a lower-risk option.
Should you choose to buy an existing business rather than begin a new one, you can avoid risks like:
Market uncertainty
Time spent building a brand
Cash flow challenges
High startup costs
Long lead times before making sales
Difficulty obtaining funding
You may also ask the existing owner if they will provide seller financing. This funding option can ease the financial burden of purchasing the business. A California business broker can also help you discuss some options and guide you in the right direction.
Established Customer Base
Purchasing an existing business gives you a valuable asset: An existing customer base.
When you start a business from day one, it's difficult to know if customers will buy what you're selling. An existing business has a track record to prove that sales are already happening, allowing you to capitalize on an existing income stream.
Having customers who already know, like, and trust the business you're purchasing matters because:
It creates immediate revenue
Less of your budget needs to be spent on marketing costs
You receive existing customer loyalty
Word-of-mouth from your existing customers can attract new customers
Also, an existing customer base allows you to research current consumer experiences. Existing customers provide valuable insights into what's working and what can be improved. Consider ways you can better these experiences and attract new customers.
Existing Supplier and Vendor Relationships
When you build your business from the ground up, finding and establishing supplier and vendor relationships can be challenging. An existing business, however, already has these connections in place, which can simplify operations, reduce costs, and ensure that your business runs smoothly from day one.
There are many benefits to receiving established supplier relationships, including:
Smooth operations from the consistent flow of goods and services
Possible discounts or special pricing from the vendor due to the existing business connection
Time-savings from not needing to track down new suppliers or vendors
A trusted source that knows what you need and delivers it on time and consistently
A good supplier or vendor can act as a partner to you as you continue to grow the business. They can also give you valuable insight into what improvements need to be made or how you can scale the company.
Experienced Staff in Place
One of the most significant advantages of buying an existing business is that the workforce and operational systems are already in place. This can save you a lot of time as you won't have to hire, train, and create processes like you would in a startup.
Purchasing a business with experienced staff and systems in place can provide benefits like:
Retaining a team of employees who already know the ropes and can keep the business running smoothly while you transition into ownership
Less time involving hiring and training new staff
Keeping loyal customers who have developed relationships with existing staff
Institutional knowledge that comes from long-term employees
Efficiency and consistency in product or service quality due to the well-defined processes already in place
A boost in employee morale that comes from the retention of employees during the transition of ownership
As you consider purchasing an existing business, also talk with the current owner to see if or how long they would be willing to stay on and train you. The more educated you can be about the business, the smoother your transition will be as its new owner.
Immediate Cash Flow
Bringing in sales from day one is a major benefit to purchasing an existing business. Many startups may go months before being able to generate a revenue stream. This lack of revenue is often what puts startups out of business.
The Small Business Administration reports that one in twelve businesses close every year. If you can purchase a business that's already made it past the challenges of being a startup, you have a larger chance of succeeding in your new endeavor.
Immediate cash flow also provides:
Financial security that you won't find with a startup
The revenue needed to cover various expenses
Less of a reliance on borrowed funds since the business is already making sales
A quicker road to profitability
A chance to reinvest some of the funds back into the business to make improvements and help the company grow
Ultimately, having cash flow is a significant advantage that allows you to focus on growth and profitability, knowing that your business is financially stable from the get-go.
Smaller Need for Marketing and Branding Efforts
An existing business is already known in the market and has brand recognition and loyalty. While there are ways to tweak the existing brand, you won't need to spend as much of your budget on marketing efforts when you take over as owner. It's much easier to change a brand when you already have a following of devoted customers than to establish a market presence from scratch.
Other benefits to buying a company with an established brand include the following:
Instant recognition as customers are already familiar with the company's name, logo, and offerings.
Existing customer trust
An already defined market position
The use of current customer loyalty programs
An established competitive advantage since you are not new to the marketplace
Purchasing a company with an established brand and marketing plan allows you to build on a foundation already laid. You can adjust and tweak as necessary without beginning as a new player in the marketplace.
Are You Thinking About Buying an Existing Business?
As an entrepreneur, the path to success is often filled with challenges and uncertainties. Purchasing an existing business, however, can be your shortcut to a smoother and more successful journey.
If you're ready to explore opportunities and learn more about existing businesses in the Sacramento area, contact us today. Our team of business brokers is here to guide you and help you take that crucial step toward achieving your entrepreneurial dreams.