If you’re a would-be entrepreneur, the idea of owning your own business is certainly an attractive one. Perhaps you have dreams of being the next Daymond John, who turned a $40 budget into a multi-billion dollar fashion brand. Or maybe you just want to be your own boss and make a living doing what you love to do. No matter what your motivation, one decision you’ll have to make is whether to start a business from scratch or look into buying a business that already exists. Both approaches have their upsides and downsides. But if you’re an inexperienced entrepreneur, the latter option may make the most sense.
Here are a few reasons why.
Proven Concept or Brand
One of the biggest hurdles in starting a new business is learning what customers want. Another is figuring out how to deliver it in a cost-effective and attractive way. What this means in real terms is there’s a lot of groundwork to be done upfront — market research, writing a business plan, creating an advertising strategy, and then testing it all out.
But when you buy an established business, all this groundwork is already done. Certainly, you’re going to want to make changes. But starting out with a product or service you know people want and a proven strategy to deliver it is a huge leg up.
Established Customer Base
From the outset, buying a business eliminates much of the groundwork that can overwhelm an inexperienced entrepreneur. While you will obviously need to do your research and make sure the business you’re buying is sound, you will have the luxury of skipping one of the hardest parts of building a new business — finding customers who want what you have to sell. An existing business has an established client list. It may not be as long as you want it to be, but it’s a great place to start.
That said, don’t be fooled into thinking that a long list of customers means the business is a customer relations success. Take some time to look at how people engage with the brand. Although it doesn’t hold true in every industry, a long list of customers who buy once and never return might be a red flag.
Perhaps the biggest upside to buying a business is that the infrastructure you’ll need to get started already exists. This includes things like physical space, business equipment, and technology, as well as human capital in the form of experienced employees who are familiar with operations and workflow. An existing company will also have developed policies and procedures, an established supply chain, and relationships with vendors, all of which add up to a huge plus.
The downside to all of this, of course, is that is doesn’t come cheap. But even if buying the business costs as much as it would cost to start from scratch, the time you save and the expertise you acquire may prove invaluable to your success.
Access to Capital
Brand new businesses typically find it very difficult to obtain financing. Even lending programs specifically for minority and women-owned businesses want evidence of financial solvency or collateral before they are willing to hand over a loan. And if you don’t have either of these things, you may find it very hard to get the financing you need to get your business off the ground and keep it afloat.
An established business, on the other hand, has a history of financial performance. This gives potential lenders something to look at when making a decision about a loan. They have also developed a reputation with suppliers who may be willing to extend credit — another big plus. Additionally, the assets of the business (real estate, business equipment, even intellectual property) can be used as collateral when you apply for a loan.
The Carmoon Group Ltd. is a full-service insurance broker located in Hicksville, New York. Our seasoned professionals have over 20 years of experience servicing the needs of businesses across the United States. We offer comprehensive insurance programs, risk management plans and access to capital to qualified businesses. Just give us a call today to schedule your free consultation with one of our staff. Or if you prefer, reach out online and we’ll get back to you as soon as we can.