Small business ownership is the primary means of wealth creation in America. As a result, many people dream of owning a business to reap the rewards that come with it. If you decide to become a small business owner, then remember that starting a business
is only one option. Buying an existing business might actually be a better idea.
One of the reasons you might want to buy an existing business rather than creating a new business is that often it costs less to buy one than to build a new one. The fact that the assets are used means their market value has decreased although the equipment may be fully functional. Lower cost of an existing business means you have less money to raise and less money to lose if things don’t go as planned.
Customer, Supplier, and Employee Relationships
Another potential advantage of buying a business is the existence of customer and supplier relationships. Because there is a ready customer base, the start-up curve is shorter. Having suppliers lined up means that trade credit and expectations are already in place which frees your time to develop the business rather than starting it. Perhaps the most important relationship is with employees. Trained, reliable employees are extremely valuable to any business.
Risk and Uncertainty
The risk of business failure for startups is legendary. For any new business there is a “Build it and they will come.” mentality. You never really know if you will attract a sufficient number of customers to make a profit until you try. An existing firm has a track record making it considerably easier to predict future sales and future expenses. Eventually this will translate into more access to credit because most lenders use credit history as a major factor in lending to businesses. A startup, without any history, is at a major disadvantage when it comes to debt financing.
Training and Support
Often you can negotiate an agreement with the seller of a business for him or her to provide training for you or your new management
. This type of support can last a few weeks or several months. Customers may feel more confident in buying from your business when an established business expert is still available for consultation.
The decision to create a new business or buy an existing business should be based on careful consideration of the advantages and disadvantage of each. The excitement and novelty generated by a new business is enticing. But rather than give in to the allure of a new business, you should weigh which business will meet your long-term goals.