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Most people in the market to buy an existing business come from one of two camps. On the one hand, you have people who wanted to start their own business, but who were daunted by the amount of research and paperwork. On the other hand, you have people who have already started their own businesses, and who are looking to purchase another.
Some people are scared off by the amount of work required to create business plans and models, to find real estate and lawyers and willing investors, and all the other details that must be ironed out before a new business can take flight. For them, buying a pre-existing business may be the perfect way to sidestep the lengthy start-up process.
The main benefit to buying an existing business is the reduction of energy that must be expended to get a new business off the ground. Without these sleepless start-up nights, you can have more time to concentrate on making your business grow and prosper. By buying an existing business, you are also buying the client base and name recognition that comes with. If you haven't done your homework on what people think about the name of the business you wish to buy, now may be the time. The “unquantifiable equity” of positive public opinion can mean the difference between a success and a failure.
Another bonus that comes with purchasing an existing business is that the return on your investment begins immediately. With a start-up, you must wait until your business is completely set up, and for customers to start coming in before your cash flow can begin.
On the down side, many existing businesses have higher purchasing costs, due to the fact that you are purchasing the successful (hopefully) business model in addition to the inventory, branding, previous advertising, and positive public opinion of the customer base.
With a start-up, the success or failure of the business model is still unknowable, so the total price is usually less, although securing financial backing may be much harder.
One other option is to purchase and open a franchise from a pre-existing company. The costs involved with buying a franchise are usually lower than those attached to buying a successful business outright.
In the end, the decision of whether to buy an existing business or to start up your own business model depends on yourself. Do you mind making business models and analyzing potential cost/revenue differentials? Can you make connections and secure loans? How is your credit? Do you have a potentially successful business model under your hat?
Ask yourself these questions before taking the plunge one way or the other.
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