One of the benefits of buying an existing business, as opposed to starting one from scratch, is you hit the ground running. It's there and ready to go.
Another benefit can be that it presents an opportunity for you to "turn it around" and make a profit from selling it again once you have 'fixed it up'.
While this can represent a risky proposition in the current market climate, it has been a very profitable strategy for entrepreneurs with a skill to:
- Identify businesses with potential for improvement (getting rid of problems and enhancing the business strengths);
- Work towards a plan to achieve the required improvements and business changes;
- Restructure and take the necessary actions – often aligning the business more closely with customer wants; and
- Know when to sell.
The benefits of buying an existing business include:
- Steady cash flow
Subject to proper Due Diligence, you should know what to expect when you open the doors. - Customers, team, suppliers, systems, and all that's required to maintain the business
It may not grow, but it should be able to continue as a going concern – that's why it has value! - A solid foundation from which to grow
Ultimately you are buying a system which will drive you towards your financial goals.
A few reminders when buying an existing business
Where possible, you should buy a business that:
- Has good prospects
Buy the future not the past. While the business history sets the scene for what the future may look like, you need to buy businesses that have a strong future. - Is profitable and has strong cash flow
You are not buying sales. Your focus should be on the net return to you as an owner. Not the turnover or assets. You are interested in your return on capital. - Will survive regardless
That is, it has a solid core of customers and a good market offer/position. The business will continue as is for some time and will provide you an opportunity to develop your recovery or enhancement plan as required. Any problems or issues are not urgent or reached crisis point. - Has a team in place that can run the business for you
Remember the KIS (Keep it Simple) principle. It's a matter of getting the right product, to the right customer, at the right price. A simple business that sells things people want to buy and are buying. - Is not doing everything right
'Shortfalls' which represent your opportunities to improve the business. Take a good business and make it better. - Represents a good investment
This is not just about price. But also needs to include the terms of the deal, the location and related benefits, how it fits into your strategy, etc.
Try to avoid the emotional rush. Get advice and build your skills at identifying and exploiting good opportunities.
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