Starting your own business is a daunting task. It’s not just about the idea, it’s about all of the other things that go into getting started – finding a location, building a website and hiring employees etcetera. Then there are all of those day-to-day tasks that need tending to on top of everything else.
So why would someone want to buy an existing business? There are many reasons! If you’re tired of working for someone else or want more stability in your life than starting from scratch provides, buying an existing business may be right for you.
The question of whether to buy an existing existing business or start from scratch is one that plagues many aspiring entrepreneurs. It’s important you take time and consider all the pros and cons before making your decision, but we figured it best to break them down for you!
The allure of starting a company and charting one’s own path to success is undeniable. However, the reality is that it takes more than an idea with good intentions to make something successful, especially if you’re not experienced in entrepreneurship.
In fact, many people fail at their first attempt because they don’t have the knowledge or skills needed for such ventures (like understanding market dynamics). The better bet then might be buying an established business where your investment capital will go farther and produce higher returns from day one.
If you are looking for ways to start up a new venture but could use some help figuring out how best proceed; consider purchasing instead of starting!
At the 2015 Web Summit in Dublin, Australian-based Flippa CEO Blake Hutchison shared his philosophy on startup creation. “My bias is as a buyer,” he said at one point during his talk. He also noted that of all the businesses sold by Flippa since 2009, more than 260 thousand have been bought and not created from scratch (and 120k buyers).
That’s according to Flippa CEO Blake Hutchison who was speaking at the Web Summit conference in Ireland about what has become an increasingly popular trend: buying rather than creating startups via platforms like Flippa. According to Mr. Hutchinson over 250K potential entrepreneurs are interested in purchasing existing companies
Starting your own company can be costly and complicated, but it gives you the freedom of being an entrepreneur while also providing stability with its assets already in place.
Table of Contents
1. When Buying an Existing Business is Smarter than Starting from Scratch?
There are many reasons that someone would want to purchase an existing company rather than start their own from the ground up. One reason for this could be when you can see yourself or your partners adding incremental value because then there’s less pain and cost in establishing the new organization and more potential upside. For example, if you find something which has history of performance matching what you’re looking for as well as benefiting from your knowhow, typically those businesses have serious potential upside – making them worth buying into! This way it saves time on setting up the company while optimising its trajectory afterwards with these valuable skillsets without having done all that hard work already themselves.
2. How to Vet a Company’s Finances Properly?
All new companies should be checked thoroughly before you invest. One of the most important aspects to check is their finances, and this can even give a good indication as to what kind of company they are in general. The first step would be examining how transparent they were with all their current year profit and loss statements.
If there’s any information missing then it might not necessarily mean something shady was going on but could make things more difficult for your research process overall; also asking them about past tax returns will help get an idea as to whether or not that business has been around long enough (and without too many major hiccups) so that you know where those profits came from in the first place!
3. Why We Suggest Looking Over the Marketing Budget?
How do you know whether your marketing is working? This can be difficult to determine, but some key questions should help reveal the answer.
First of all, what channels are being used and how much money is going towards each one?
Secondly, does any channel appear more effective than another – are they getting higher conversion rates or a better return on investment (ROI)?
Lastly, look at where potential new audiences might exist and run appropriate ads in those places. You want to make sure that if there’s an opportunity for growth it isn’t missed due to lack of knowledge about different demographics or areas with high purchasing power!
Asking these three main questions will give owners insight into their current marketing situation as well as provide direction for future marketing opportunities.
4. What if you’re Strapped for Cash and Looking to Buy an Existing Business?
Additionally, consider seller financing – offer some of the cost upfront with smaller instalments over time in exchange for partial ownership.
5. If a Business is Profitable, what are the Most Common Reasons the Owners Would Want to Sell?
There are many reasons for selling a business, but it is typically for personal reasons. Business owners either have fallen out of love with their business, have other projects they are working on or want to cash out as a means to reinvest elsewhere.
Each situation is different and being an owner can take up all your time and energy, which could be regained when the right buyer comes along who has new ideas that could reinvigorate your business in some way!
6. Other than Financial Problems, what Other Hazards Does a Potential Buyer Need to Look Out For?
The best way to make your business successful is by making sure it will be financially stable.
A potential buyer needs to look for any hazards that could affect the company in future years – not just now. Don’t underestimate how difficult running the business and incubating new employees can be. Double what you hear an existing owner say before buying into this venture!
It’s also important to ask about advertising channels: one may work great right now but if they’re too dependent on them, their revenue stream becomes unstable when times change or competitors emerge with better offers next year.
7. Is There Any Way to Ascertain Brand Equity?
Brand equity is an important measure of success in business. There are many ways to gauge the strength or health of a brand, but one way that can be very helpful for small businesses in particular is Net Promoter Score (NPS).
NPS asks survey respondents how likely they would be to recommend their company’s products and services on a scale from 0-10; promoters score 9-10 while detractors typically rate between 1-6.
A high percentage among these two groups determines if your company has strong customer loyalty which indicates it must have something appealing about its product or service – otherwise customers won’t come back!
Good tools for measuring NPS include Promoter.io and SurveyMonkey, so consider using them when evaluating a brand you’re considering buying.
8. What’s the Best Way to Gauge How Competitive Your Industry Is?
You could start online with some keyword research. It will give you an idea about what other businesses are bidding on, and that in turn can help determine if it looks like there may be more competition than usual for your business.
Beyond this step though, take advantage of Google Alerts! Set them up so they’ll tell you whenever something new pops up online related to your company or products/services.
Reach out directly (in person!) to customers by asking where else they buy from as well as why and whether their perception has changed since switching over to work with you instead.
9. What Should You Require the Seller to do in Terms of Transitioning the Company’s Leadership?
When buying an existing business, transitioning staff is a key piece of negotiation and due diligence. Who is coming, who is going? What are their respective skillsets and what does your business need for success.
Ask them about everyone they work with on day-to-day operations before taking control so there aren’t any surprises once that happens. Lock up parts of this transition by having more discussions with important members like those named above as well as locking down certain employees from leaving (a few weeks or longer) depending on negotiations (i.e., it helps if one person isn’t worried about losing his job).
10. What Size Should the Business Be and Other Factors to Consider?
The sweet spot depends on your budget and needs. If you have more money available for investing in companies, then picking up an established older one is best as they will have already had their “growing pains” sorted out by this point.
On top of that, if given enough resources or capital early-on you can drive efficiency/automation and focus where there is need instead of having less margin for error with budgets being tight at first! When starting off leaner though (with not much invested) going for something younger may offer some advantages because once again: less growing pains solved – just start solving them now while the stakes aren’t so high.
11. Are Weird Business Niches the Best Thing to Consider Buying?
If you want something that is not going to be copied, then yes. Defensibility in a niche market can make for very wise investments and often companies who get into these markets are rewarded with both loyal customers as well as high profit margins.
If you’re considering buying an existing business in South East Queensland, or starting one from scratch, it’s important to evaluate your options. A new business may be the right choice for many people and will require less upfront investment in some cases.
However, there are also smart ways to properly vet a business for sale and the industry it operates in before making that decision which can help minimise risk. If you need assistance with evaluating these different choices this is where a professional business broker comes in, feel free to email or call Marc Philips by clicking the button below!
Buying an Existing Business VS. Starting from Scratch
Sydney born, having spent six years serving the community as a New South Wales Police Officer before deciding to relocate to the UK where he pursued his passion for sales, the financial markets and the real estate industry.
15 years as a licensed agent, ten of those years in fast-paced markets of the USA and the UK, Marc is an expert in business brokerage.
Business owners are invited to consider Marc when seeking a business to buy or sell in Queensland with local knowledge in the South East Queensland market including Brisbane, Gold Coast, the Sunshine Coast and the Darling Downs.
Local knowledge and surgical negotiation skills mean a keen eye on every detail. Marc has a profound knowledge of legal frameworks in all aspects of business acquisition and sales process.