When most “first time entrepreneurs” think about having their own business – they quickly default to the position that they have to start a new business from scratch. They feel that they must create a completely new entity, of their own design, in order to satisfy their dream of business ownership. However, the truth is that the vast majority of first time entrepreneurs would be far better served by acquiring an existing business and then making that business their own.
There are a number of benefits and advantages to buying an established business, particularly for the first time entrepreneur. All of these benefits and advantages can be quite significant and can set the foundation for a long-term, successful business operation. The following are three key reasons why an individual new to business ownership should consider buying versus starting a business.
- Transfer of Knowledge: The current business owner will often remain in the business for a set period of time and will transfer to you the knowledge that it takes to operate the business. They will not only be imparting knowledge about their specific business, but they can provide you with general guidance about simply operating a business. The key here is that you can learn from their mistakes and not your own – which can be costly when trying to establish a new business.
- Established Revenue Stream: By acquiring the business – you also acquire access to all of the current customers of the business. This provides you and your business with a baseline of revenue that you can use to not only sustain the business, but that you can use to leverage and grow the business. Most first time entrepreneurs fail to appreciate just how difficult it is to recruit their first customers. By acquiring your first business – you simply bypass this significant challenge.
- Easier path to Financing: Financing the purchase of an existing business is often easier than securing the financing needed to start a business. Existing or established businesses come with a financial history – one that can quickly illustrate not only the viability of the business, but the current and possible future value of the business. These factors assist potential lenders in getting comfortable with the prospect of providing the funds required to purchase the business. Also, most businesses sell with some level of “seller financing” – an option that is not available to you if you start a business from scratch.
Buying an existing business should by no means be seen as taking a shortcut to business ownership or that is somehow diminishes the position of being seen as an entrepreneur. You will become an entrepreneur post acquisition, because you will not simply be satisfied with how the business is today. You will make improvements and you will place your own identity on the business. That is what makes you an entrepreneur – not the manner in which you came to be in business.
Mark Butler is the Area Director of the UGA Small Business Development Center at Savannah.