When most people think of starting a business, they usually think they will start from scratch, develop an idea, and build the company from the ground up. There are some major disadvantages with starting from scratch, including developing a customer base, hiring employees, marketing the new business, and creating cash flow… all of this is done without a well-built reputation or long-standing history in place. To avoid challenges, buying a business that is already in existence usually proves to be a better solution. Buying existing can have its advantages – including, but not limited to:
The Business Is Established.
An existing business already has structure in place. There is an established track record, a customer base, and a relationship already built. There is a physical location with furniture, fixtures, and equipment in place. The term “turn-key” may be overused, but an existing business is just that, and more. A franchise might describe their business as “turn-key”, but it ends there. Start-ups are just that, starting from scratch with all of the disadvantages as stated above and others.
The Business Has Existing Relationships.
There is a lot to be said for having an established relationship in place with customers, vendors, and suppliers. Most businesses also have experience employees, and that alone can be a valuable asset to a company. A new buyer might already have a relationship with various vendors, such as banks, advertising agencies, advisors, insurance companies, banks, etc., but if not – the existing business does and that can be transferred to the new buyer as part of the acquisition. Working with a professional Chicago area Business Broker or M&A Advisor at American Business Acquisitions will help ensure that all of these details are accounted for.
The New Business Risk.
When starting a new business, it doesn’t matter how much time, money, and research you invest, there is still risk involved when starting a business from scratch. You won’t have the financial track record, along with established policies and procedures that an existing business has in place. A prospective buyer can see the financial history of a business, like when sales or high or low, what the expenses entail, how much money an owner can make, and more. Also, in almost all cases, a seller is more than willing to stay on board to help teach and work alongside the new owner – sometimes free of charge for a reasonable period of time, and for compensation longer-term in some cases.
The “Unwritten” Guarantee.
When a seller finances a small portion of the purchase price, he or she is essentially saying that they are confident that the business will be able to pay its bills, and provide support for the new owner, in addition to making any required payments to the seller.
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