Why Should You Buy an Already Operating Small Business?

So you’re thinking about buying a business- congratulations! There are few things more rewarding in life than the opportunity to take the sum total of your business acumen and leadership experience and to instill your personal values on a business. As you experience personal growth, so will your business. You have the opportunity to shape not just your future, but the future of all the employees whom you acquired in the process. And because most of us don’t have the time and resources to dedicate to building something from the ground up, purchasing an existing organization can help eliminate some of the stress and avoid many of the pitfalls that so often befall new businesses. That isn’t to say that buying an existing business isn’t also rife with potential hazards, and you need to do your best due diligence first and foremost in understanding if you have the right temperament and don’t overestimate your ability to run the new business. Uncontrolled ego has sunk more businesses than anything else. But the key differentiator in buying an existing business is having the luxury of having a clearer picture when it comes to assessing “risk” vs “reward”.  If the business you are looking to acquire can’t give you proper financials, books and records and an optimistic feeling of future growth potential, go on to the next one.

Five Key Reasons to Buy an Existing Business

If you have conducted the necessary soul searching and determined that you have the proper temperament and managerial set of skills to operate a business, not to mention the necessary finances in place, matched with an ambitious, Type A will to succeed, you are ready to buy a business. Generally speaking, buying an existing business is considered a less risky proposition, particularly if you have done the proper due diligence. It is strongly encouraged that you consider seeking the help of a professional Business Broker to shepherd you through the process. They are an invaluable partner when it comes to the proper due diligence, financial analysis, regulatory proceedings and negotiations for the best possible bang for your investment buck. Consider these five advantages of purchasing an already established business:

The Heavy Lifting is Done

While not every business you acquire is guaranteed to be completely turn-key, the majority of the most difficult work and the growing pains often associated with a start-up should be gone. A good company should be able to provide you with the past three years of financials which include, tax filings and well-delineated sales and expense data.  Efficient systems and processes in place should make for ease of transition and the consistency and stability of the underlying business. The riskiest stage in a business’s life is in its infancy when capital is deployed for an idea that hasn’t been fully proven yet. Will the customers show up? Is your service necessary and going to gain traction? Would an outside investor find your business appealing and want to add developmental capital if needed? With an already established business, you are able to evaluate and mitigate all these risks and explore the many options available to finance the acquisition, especially if you consult a qualified Business Broker.

Access to Immediate Cash Flow

If you have done your homework properly, buying an established business means access to immediate cash flow. The market has already been established for your product or services, and you should be seeing revenues on a consistent and predictable basis. Now before you go raiding the piggy bank, take steps to ensure that the revenue is consistent and growing. That it isn’t reliant on only one product or customer. Or that you just bought the new, “It Thing” of the moment which is already losing its luster. Increasing already existing revenues are a lot easier than generating it from scratch because you already have a loyal and consistent customer base. One of the easiest ways to increase revenues is by packaging already existing products and increasing the per customer invoice. Make sure that the business complements your skill sets so you can unlock any synergies to enhance that cash flow.

The Past Can Help Predict The Future

While there is never a guarantee that past performance is a guarantee of future success, the financial history of the company will give you a very clear basis of understanding of what to expect in the future. The clarity will allow you to secure financing for expansion or to buy equipment to increase efficiencies. This is why it is so important to know what you are getting when you analyze the financial data. And if you aren’t sure of the bookkeeping details, have a professional review them for you. There is nothing to be gained by throwing good money after bad.

Understand What you Inherited

From the moment you sign the contract to acquire the business, you now have gained everything with a stroke of the pen. Existing customers, vendors, employees, equipment, product and a business legacy. It will be your job to determine the most judicious use of all these new resources, and ideally, your skillset will allow you to find synergies for cost reductions- better-negotiated deals with vendors, getting rid of outdated equipment, enabling better systems or CRM software for smoother processes.

Never Discount Experience

Acquiring an existing business means you just gained the cumulative years of experience of all your new employees. Listen to your management and see where you can unlock potential synergies or short cuts to enhancing your revenue stream or cutting out unnecessary expenses. Make sure your employees are properly motivated and incentivized to avoid any unforeseen snags or hiccups, particularly during the transfer period.

Remember… If a deal sounds too good to be true, it most likely is. There is an old saying that if both sides feel like they came away from the transaction a winner, then it probably was a good deal. And remember to consult with a professional Business Broker like the team at Capital Business Brokerage to help you through the process. You wouldn’t perform surgery on yourself if you didn’t have to; making a bad choice in acquiring a ?business could be significantly more damaging to your health!