Investors should be aware of the benefits that can come from buying a working company. The ready-made revenue stream and pool of existing customers can create a favorable climate for investment. When buying an existing company, there are several factors that an investor should be aware of.
Cyrus Baseghi, an experienced investor, explains how buying an existing company can be a solid decision and warns readers about some pitfalls that could occur during the purchase process.
Buying an Existing Company Makes Financing Easier
When banks and lenders are looking at your prospective purchase, they are far more likely to say yes if they are presented with a successful company. They will already have the mechanisms in place to put the money to its best possible use, and they will be ready to run right away without the ramping-up period that occurs with a startup company.
Immediate Revenue Stream
One of the best reasons to purchase an existing company is that they will be making money right away. Again, it is a better situation than buying a startup because the tiresome period with no financial returns has already passed.
An Established Brand
Existing businesses have already built their brand reputation. When an existing business is sold, they bring their public image along with them. In most cases, this is positive. Buyers should be aware of any potential problems with the branding and have a plan to fix it.
One of the best things about buying an existing company is that all the websites, copyrights, and trademarks are ready to go. This means that customers will have more confidence in your company from the beginning. There can be anxiety when dealing with a startup company, but with an existing firm, this anxiety is not present.
Customers at the Ready
When purchasing a running company, the customer base is already there. This represents a huge advantage over opening a startup. Building a customer network takes time, since customers need to have a sense of trust in a company before they will spend money. Marketing strategies can help to extend the reach of the company, but an existing customer list is a valuable commodity on its own.
An Established Contact Network
Much of the work that goes into a startup company is establishing a network of contacts for suppliers, marketing, and lending. If the company’s contact network is robust already, it will be easy to get it up and running. Contractors like marketing companies and suppliers are also more likely to give good deals to existing businesses when compared to startups.
Ready Stream of Income
When buying an existing business, investors can enjoy an immediate revenue stream. Instead of spending money establishing the business, they will have profits that they can invest in the company or divert to other enterprises. The importance of a ready-made revenue stream cannot be overstated.
One of the other headaches of starting a company is finding and training quality employees. When buying a running company, businesses already have a qualified pool of talent at their disposal. In a well-run company, there should not be any break in operations when a new owner comes on the scene.
It is possible to make some changes in the company lineup, but it is smart to bring in new people slowly and gradually. If the entire management team is replaced all at once, morale and the daily operation of the company will be jeopardized.
Much Lower Financial Risk
Investing in an already functional business is a much less risky enterprise than starting a company. According to the federal Bureau of Labor Statistics, 20 percent of small businesses fail in the first year. 50 percent fail by the fifth year and 70 percent fail by the tenth year.
Investing in a startup is inherently risky, but putting money into an existing firm has a much lower risk profile. It is possible to put money into an existing company and see profits right away. There is also a much lower chance that the company will fold and lose everyone’s money and time.
Buying an existing company is much less work than beginning a startup. When people engage in building a startup company, they often work themselves very hard and sacrifice their relationships outside the business. With an existing company, this work has already been done, and the buyer can enjoy the profits without a serious impact on their life.
Ability to Focus on Growth
One of the best reasons to invest rather than starting a company is that the owner can focus on growth right away, rather than waiting for some nebulous future time when the company will be on a solid footing.
When buying a firm, the new owner has the ability to focus on the parts of the business that aren’t working, making the necessary changes to return it to full efficiency. Companies with their fundamentals in place are more agile and can respond to challenges.
Ability to Pay Yourself
When beginning a startup company, most owners are not able to pay themselves a salary right away. They go through months or years of lean times when they must rely on other revenue streams to make a living.
By contrast, when buying an existing company, there is already enough income in place to pay a salary for the new owner. This means that the owner will be more financially stable and able to support their family.
Reasons to Buy an Existing Company
Cyrus Baseghi recommends that all investors look into the advantages of buying an existing company rather than going ahead with a startup. His carefully considered points are good reasons to buy an existing company.
Strategic and financial advantages mean that existing companies are better able to succeed than their startup counterparts. Especially with a long-lived business, the owner can be in a “turnkey” situation where the business can run itself and the owner can focus on helping the company grow.