Building or Buying: When You Should Acquire a New Business vs. Building Your Own
The decision to buy or build a new business is one that may make you successful or not. Here are a couple of factors to consider when making the decision.
Many startups are thriving and posting astronomical profits in the US in 2021. This has made starting a business from scratch seem alluring to many entrepreneurs as they seek to be the next big thing.
Starting a business from scratch can indeed be quite rewarding. You get to introduce your new concept or product to the world and have much more control over your brand. Yet no one tells you about the dedication, passion, and large amounts of coffee that you need to work 16 hours a day.
Another option would be to acquire an existing business. Buying a business means you get an operational entity that already generates profits. You will also have an established customer base, brand positioning, and a pool of talented staff to work with. Your staff will be acquainted with the operations of the business, which means you will not have to set new policies or procedures. That said, it is important to take the right steps when acquiring or building a business. Here are a couple of tips to keep in mind when deciding to buy or build your business from scratch.
Building Your Company From Scratch We’ve all heard the grim statistics that reveal the high failure rate of new businesses. Not all newly formed companies succeed no matter how revolutionary their services are. According to Fundera, about 20% of businesses never get to celebrate their first anniversary while 50% of companies close shop by their fifth year. With that out of the way, there are a couple of benefits that you get from building your company from scratch.
One of the main reasons why people prefer to start their firms is that they get to build their dreams. You may have a burning desire to start a certain business and will feel fulfilled if you did. Building a business allows you to create a brand with your values and principles, unlike buying an established business. Of course, you can always change what you don’t like when you acquire an existing business, but this will likely take you a lot of time and money.
Building your company may take much longer before you see an ounce of success, but it requires a smaller financial investment. It gives you the option of bootstrapping, which simply means investing small amounts of money and putting in additional funds on a need-by-need basis. If you can use your minimal resources to start your business, then you will not need to seek a loan or find investors.
You can also create a unique brand and company culture when you build from the ground up. You will have the freedom to hire the staff you want and create the organizational culture that best works for you.
On the flip side, it can be difficult to get funding when you are not an established organization. While banks offer SBA loans backed by the government, they can be small. Other investors may not be comfortable funding you as they risk losing their invested funds. Aside from the lack of funding, it may also take you a while before you see any profits from a new business.
Buying a business There are a couple of reasons why you should opt to acquire an existing business. Having a well-established brand and customer base is one of the reasons why many prefer to buy an existing business. You may already have lots of loyal clients that know about your business and are active purchasers. If you build a company from scratch, then you may have to spend loads of money on marketing before even getting your first client.
Banks and other investors love financing businesses that pose minimal risks to their funds. An established business that has its financials in order shows investors that you are in a position to pay them back. Another reason to buy a business is that it gives you the ability to expand into frontier markets. You do not have to set up a new business when looking to grow your market share. Acquiring an existing business is a way to expand and enter new markets without having to go through all the motions.
3 steps to take when acquiring an existing business There are no sureties in life, and acquiring an existing business is not an exception. You should look out for certain things when making an acquisition deal. These are some tips to consider.
Choose the right type of business: You should only get into an industry that you are familiar with. Ensure that the business you are looking to acquire can benefit from your experience and skills before proceeding with the acquisition. You may also consider the location of the business, size, and revenue.
Use your networking skills: A business may not be listed, but this does not mean that you can’t buy it. If you know a couple business owners in your area then, you can chat them up to find new opportunities. The owner may agree to sell to you if you offer them a decent price.
Come up with an acquisition team: You may need the help of professional advisors to ensure you do not get a raw deal. They will help you conduct due diligence and verify all aspects of the business, including financial status, legal status, liens against property, and performance ratios among others.
Work with our trusted advisors to acquire an existing business Buying a business is certainly better than starting one from the ground up. An already established entity has loyal clients and you will not have to wait for long before you start to realize profits. That said, a lot goes into an acquisitions deal, and one wrong move can cost you a lot of money and time. This is why you should work with trusted professionals to ensure your deal goes through smoothly. At SF&P advisors, we have several professionals that will work around the clock to help you acquire legitimate businesses. Contact us today for a quick consultation.