|
MEDIA - PRESS RELEASES |
 |
|
|
 |
Buying a Business Has Benefits Over Start-Up
Guest article by Scott M. Bushkie, CBI, M&AMI
SOURCE: GREEN BAY PRESS-GAZETTE
When people think about becoming their own boss, they often look for an idea and start-up a new business venture. Sometimes that risk pays great dividends. In most cases, however, those start-up businesses falter and then fail.
According to Michael Gerber, renowned author and entrepreneurial consultant, 40 percent of new businesses fail in the first year and 80 percent fail in five years.
That’s why many people have found the best way to become self-employed is to purchase a going operation. With the correct due diligence, purchasing a business is not only generally less risky, but your return on investment can be greater.
Here are six reasons why purchasing a business may make better sense and provide a greater value than starting one:
Proven Concept. Buying an established business is less risky because you already know the process or concept works. Dick Pigeon, senior vice president and commercial banking manager at F&M Bank’s Green Bay office says getting financing for a purchase is often easier than getting funding for a start-up because the bank will have historical results, not just projections. He said, “An existing business has some established momentum that we can rely on.”
Brand. You’re buying a brand name. Any marketing or networking the prior owner has done will transfer to you. Having a proven or well-known name in the business community will provide more credibility and make it easier to place cold calls or attract new business.
Relationships. You’ll get an existing customer and vendor base that has taken years to create. We normally recommend the seller stays on and transitions with the business for a short time to transfer those relationships to the buyer.
Focus. When you buy a business, you can focus on improving it right from the beginning. Starting a new business means spending a lot of time and money on details like the computers, phone systems, furniture, and policies that don’t generate cash flow.
People. A company’s people assets are one of the most critical components of success. It takes time to train people and create a culture. If you buy a business with a great team in place, just about anything is possible.
Cash flows. Typically a sale is structured so you can cover the debt service, and take a reasonable salary, and have a bit left over to take the business to the next level. Start-up owners, on the other hand, often “starve” at first. Some experts say businesses aren’t expected to make money for the first three years.
Even with all these advantages, some entrepreneurs believe it’s simply cheaper to start a business than to buy one. But “cheaper” is relative.
For example, a buyer may pay $1 million for an established business with strong cash flows of approximately $200-300K. Many people will find that paying $1 million for a proven business is a lot less risky, thereby “cheaper,” than taking out a $300,000 loan for an unproven concept.
Becoming your own boss always involves a risk. When you buy a business, you take a calculated risk that eliminates a lot of the pitfalls and potential for failure that come with a start-up. |
|
|
|
