The start of a new year has many people itching for a change, especially those with an entrepreneurial spirit. After all, who hasn’t dreamed of being their own boss, building something they can be proud of, and seeing that great idea come to fruition? If that’s you, it could be time to jump feet-first into the exciting world of business ownership. But before jumping in, you might consider throwing on a life vest.
Too many metaphors? Well, here’s the reality. An average of 4 million new businesses are started each year in the U.S., but only half of those still exist five years later. Lack of planning and insufficient funding are among the top reasons that new businesses fail. That’s why entrepreneurs with an eye for stability and profit should consider buying an existing business rather than starting from scratch.
Access to Financing
An established business with a historically functional business plan, existing revenue stream and current customer base will be more appealing to banks and investors than an unproven business that might take years to start generating income. Lenders can take comfort in the business’s potential to provide a return on investment, and knowledgeable business brokers can frequently help smooth the path to financing when the business being purchased is a known entity. The alternative is to raise the capital yourself, crowdsourcing (or, more often, family-and-friends-sourcing), cashing in retirement or savings accounts, and trying to secure a business loan–hoping your business plan is up to snuff.
Immediate Cash Flow
The fact is, it can take 2-3 years for a new business to become profitable, but all businesses require cash flow to keep running. Where does that cash come from? Financing, obviously, and sales, when they eventually start coming in. But what if your new business had immediate access to pre-existing cash flow? When you buy an existing business, that cash flow and customer base are already there, providing a needed lifeline as you spend time growing, improving and investing in the business to the point that it suits your vision.
Recognizable Brand
Have you been on social media lately? The sheer volume of ads from brands you’ve never heard of is eyewatering at best, nauseating at worst. Several years ago, Forbes estimated that the average American sees more than 4,000 ads each day, and it’s only getting worse as we spend ever more time online. One huge benefit of buying an existing business is name recognition, especially if you’re local to a specific region. Investopedia reports that businesses that score highly on brand and customer loyalty grow 2.5 times faster than competitors, and 65% of revenue in most companies comes from repeat business with existing clients. A recognized brand and existing customer base means you can spend less on marketing and more time solidifying those customer relationships.
Functioning Infrastructure
It might seem obvious, but a big benefit to buying an existing business is that the basic infrastructure (real estate assets, location, equipment, and even staff) is already in place. Unless the previous owners ran it into the ground (in which case, a good business broker would steer you elsewhere), the business is already up and running, making your job a million times easier. Of course you’ll have your own vision and will likely find areas for improvement, but just as with a house, good bones go a long way towards providing return on investment and value. Not only will an existing business have operational systems in place to track things like inventory and sales, it will also have an established supply chain, the aforementioned customer base, and ideally, a well-trained staff who can keep things running smoothly while you take your business to the next level.
Is 2023 Your Time to Buy a Business?
As business owners ourselves, the brokers at Murphy Business Sales of Ohio feel a kinship with entrepreneurs of all stripes. Our 30 years of experience have shown us that for many people, the best path to entrepreneurial success is one that’s already on solid ground.
If you’d like to learn more about how we can help in the purchase or sale of an existing business, call us at (330) 650-9000 or contact us here.
