An existing business will mean immediate revenues and an established customer base.
Buying an existing business can come with benefits that far outweigh starting your own. For starters, an existing business will most likely have a set of functioning systems in place, a dedicated and experienced staff not to mention an existing customer base.
All these factors will allow any new owner to immediately start to see revenues once the sale is completed. Although, there are countless benefits associated with buying an existing business, here are the top 5 based on our research and experience.
1. Easier to secure finance
Most lenders are more inclined to lend money for the purchase of an established business rather than supporting an unknown start-up.
From their point of view, there is less risk involved in financing a business that has already proven it is able to generate an income.
An existing business is a known entity. It has an established and historical track record. It has a customer or client base, established vendors, and suppliers. It has a physical location and has furniture, fixtures, and equipment all in place.
The term “turnkey operation” is overused, but an existing business is just that, plus everything else. New franchises may offer a so-called turnkey business, but it ends there. Start-ups are starting from scratch.
3. An Established Staff
A business is often only as good as the people that populate and support it. Starting up your own business means that you have to go out and find all of your own employees. This process is much more than sifting through resumes.
A resume only reveals so much. A resume doesn’t reveal if a candidate will be a good fit for the business, and it certainly doesn’t factor in chemistry. As any good coach of any team sport knows, chemistry is one of the greatest factors in winning a championship.
4. Proven Cash Flow
Another massive benefit of buying an existing business is that an existing business has proven cash flow. You can look at the books and, in the process, determine just how much money is flowing in and out. With a new business, you simply won’t be sure how much it will generate. This can make it tricky when you’re trying to figure out how to not only pay your business expenses, but your personal ones as well.
Source: Deal Studio
Even with all these advantages, some entrepreneurs believe it is cheaper, and therefore less risky, to start a business than to buy one. But risk is relative. A buyer may pay $1 million, for example, for an established business with strong cash flows of approximately $200,000 to $300,000. A lending institution funds the transaction because historical revenues show the cash flow can support the purchase price. For many people, however, that is far less risky than taking out a $300,000 loan with an unproven concept and projections that may or may not be realized.