Everyone wants to be their own boss; living life on their own terms, choosing their own hours and pursuing a career they love. The obvious route to this for most people is to start their own business but as with anything in life this comes with a number of benefits as well as drawbacks. Starting your own business requires a lot of time, money and planning that can take years to organise. However, you research could well reveal that in terms of the risk to reward ratio, purchasing a pre-existing business is often a much better option. It is estimated that on average in the UK the survival rate of start-up businesses after one year is at 91% but after five years only 4 in 10 remain. This lack of sustainability is just one of the many reasons why entrepreneurs are now considering acquiring an existing business. Here we discuss 5 of the best reasons as to why you should buy a business over creating a start-up.
- One of the biggest risks with starting a business is that it will either succeed or fail and it will take a large investment of your time and money before you see any profits. In buying an already established business you will be able to see if it already works and if its growth is sustainable. Aslo, unless you have your own financial means of starting a business, you will find that financing the purchase of a business is a lot easier than securing funding to start one.
- When purchasing a business you aren’t just buying the business alone, you are also buying its existing customer and trading relationships that have been forged over the years. Even when the ownership of a business changes hands, more often than not vendors are happy to remain to ensure the business works well for you, emotionally this is often very important for them. Simply you are buying an established ‘brand’ which people trust and show a history of successful trading.
- Another crucial asset you acquire with a business is the people that ensure it runs efficiently from day to day. Each employee has been handpicked by the previous owner and has since become an essential part of the company. These employees know how everything works and how to ensure day to day success, so will be invaluable to you in the long run. With the right people in place you will be able to implement ideas and strategies for growth much quicker. You will also find that having long standing trained employees in place also means that you can take more time for other things such as family, vacation time or other business ventures. If you have a start up business as soon as you leave the office, the business effectively stops running.
- When making a sale it is usually structured so that you are able to service the debts, put money back into the business for growth and most importantly for you, take a reasonable salary. With a pre-existing business this structure should work effectively and is something you will look to work out before any purchase is made. On the other hand, with a start-up business you will often have to go through a time where this structure isn’t fulfilled. For the first 3 years most start up’s plough their own profits back in to fund the business and it isn’t until after this that you will start to just break even and be able to take a decent salary.
- Although starting a business may appear ‘cheaper’ and therefore less risky than buying an established business, this isn’t always the case. As with anything risk is relative and it depends if you are willing to potentially lose all the money you invest on a business that may fail after a couple of years. Generally, most people feel that although purchasing a business is a larger initial cost, in the long term and if it has a good financial history it will likely pay for itself.
As with any investment, becoming your own boss whether it be through a start-up or acquiring a business comes with its own risk. It is about weighing up the pros and cons in doing so but as we have seen, when buying a business a lot of the drawbacks and risk that come with a start-up are dramatically decreased.