Starting your own company comes with endless positives, as it allows you to follow your passions, achieve financial independence, and learn a bunch of skills. With that said, only 80% of startups survive after year one, so there’s a chance you won’t stick around for the benefits.
This makes the allure of buying an existing business that much harder to resist. When you buy a business, there’s a lower chance of your investment falling through. You’ll be able to use that business’s existing staff, vendors, customers, and physical/online space right from the start.
Of course, buying a business is expensive if you don’t have prior ownership experience. On the low end, a business costs $80,000, but on the high end, you won’t spend less than $1,000,000.
But if you have the capital to spend, buying an established business is a smart move. While you won’t be able to change your brand’s culture or positioning (at least not immediately), there are many advantages to purchasing a company. So many, in fact, that they outweigh the negatives.
The Benefits of Buying a Business Over Building a Startup
Owning a business, even a financially secure one, comes with its own risks. But with the help of an attorney, accountant, and your own due diligence, you can reduce these risks significantly.
Buying a Business Costs Less Than You Think
In the introduction, we established that it costs $80,000 to $1,000,000 to buy a business. That’s a lot of money for anyone to spend. Fortunately, there are dozens of high-profit industries you can buy into for less than the average cost of building a startup, which amounts to $185,000.
Here are seven industries you may want to research due to their low costs:
Beauty Salons: $80,000
It’s important to note that micro-startups can be built for $2,000 to $5,000, but they don’t include employees. Small businesses typically spend the bulk of their profits on employees. A turn-key business makes it easier to afford staff, as you already have an existing customer/client base.
Whereas new companies have to spend a lot of money on market research, digital marketing, and developing a sound search engine optimization strategy, existing businesses should have that figured out. All you have to do after you buy a business is maintain what you already have.
There are also overlooked costs that come with starting a business, like expensive mistakes. There’s a possibility you’ll lose money due to marketing mishaps or poor money management.
Mistakes still happen with turn-key startups, but they’re less likely to occur, and when they do, you’ll be able to take that hit. One bad investment won’t tank your operation or lead to layoffs.
Foreign Investors Could Earn an EB-5 Visa
Did you know you can earn your way up to a green card by investing in an existing business?
In the United States, foreign investors can invest at least $1,800,000 in a new commercial enterprise or $900,000 if the investment is in a targeted employment area to get an EB-5 visa. For your investment to qualify, it needs to create at least 10 full-time jobs for US workers.
Foreign investors can pool their capital into starting a business, purchasing an existing business, or investing in an existing business. They can also invest in a regional center, which is when multiple investors offer capital to develop a large-scale project, like an office building.
How you choose to invest depends on how much control you want to have over the business. For example, If you invest in a regional center, you have no say over its day-to-day operations.
Consulting firms, like the EB-5 Affiliate Network, can walk you through the steps to obtain an EB-5 visa. While the process takes 2 to 5 years, it’s still the fastest way to get a green card.
Buy a Business to Ramp Up Faster
As stated, new businesses have to allocate funds toward attracting a new audience, whereas existing startups focus on maintaining interest. Since maintenance is cheaper than starting a new project, you’ll have more money left over to ramp up faster and generate long-term growth.
New startup owners are naturally afraid of using cash flow to grow, especially if they’ve achieved some level of success. However, this fear of acting can actually harm your business in the long run. You have to pivot and adjust to new and existing markets to stay successful.
With a stable business, you have the chance to develop your negotiation skills, learn about new ways to generate profits, and spruce up any policy that may be lacking, detrimental, or old.
Some startups aren’t even privileged enough to decide whether they should take out a loan or go without staff. They simply don’t have access to enough financing or loan options in general.
When you buy a business, you gain access to financing options that aren’t available to new startups. But, you have to prove your positive track record to the banks via a business plan.
Having all the money in the world won’t make you too big to fail, but it will give you confidence when taking risks. Plus, extra capital can help you afford quality talent, better materials, and reliable suppliers. These options make you more competitive and customer-focused.
New Startups are the Bane of Procrastinators
While a successful business can give you more time to spend with your family, that won’t be the case right away. 82% of entrepreneurs work 40 hours or more per week, while only 5% work less than 30 hours every week. 68% of entrepreneurs spend this time tackling daily problems.
It’s not uncommon for founders to put in 60-100 hours a week, even though humans can only be productive for a maximum of 6 hours a day. We don’t recommend working that hard, but many startup owners want to (or feel they have to) because they want to build their business ASAP.
It’s clear to see how a chronic procrastinator would find it difficult to keep up with their mounting business responsibilities. Eventually, they may get distracted, feel burnt out, or lose focus.
But when you take on an existing business, you’re cutting down time spent on:
Branding kit research
Building a reputation
Recruitment and onboarding
Tedious admin tasks
Many businesses fail because they don’t know who to market to or how to market to their demographic once they find it. A turn-key business already knows what works for them and can supply that information for you. Anything you can’t do can be delegated to other employees.
Existing Businesses Have a Proven Track Record
When you buy a business, you’re purchasing an asset that has a proven track record. With that said, you need to research any company you plan to buy, as some business owners will sell off their brand once it’s bleeding money. You don’t want to get stuck with a struggling business.
Unless you want to use the business owner’s predicament to haggle for a lower price, it’s better to scope out a profitable company. You can find the right company by conducting internet research, asking the owner for their business documents, and speaking to a good attorney
However, there’s still a possibility you’ll uncover problems once you take ownership. These issues could be costly and difficult to navigate, so be prepared to expect the unexpected.
These are some common problems that might appear once you’re the owner:
Sales are high, but you come to find they were made by customers the owner knew personally. There’s no guarantee they’ll continue to shop at your business once you take over. If possible, conduct a customer audit by interviewing current and previous buyers.
The employees are skilled, privy to industry knowledge, and come on time every day, but most or all of your staff quit right after you become the owner. Consider offering these employees incentives to stay and/or assure them a mass layoff won’t take place.
Your customers are loyal and eager to shop at your new business, but the numbers start to dwindle while you’re distracted by the details of the sale. Make it clear that the previous owner has to continue marketing and selling, or the deal is off the table.
If all goes well, you’ll purchase a business with an established structure, customer base, and market, but you have to consider why the current owner is selling in the first place. Don’t forget to pay attention to staff during the transition if you want to keep them engaged and productive.
Any business decision you make is risky. What separates a good move from a bad move is whether or not the risk is calculated and if the potential downfall is worth it. Startups have a high chance of failure, but your independence may matter more to you than any consequence.
With that said, the thought of buying an existing company can seem less appealing than building one from scratch. After all, it can cost millions of dollars to buy a business. However, if you have a decent amount of savings, the long-term benefits of your purchase are plentiful.
A business with a proven track record practically guarantees sales, talented staff, more free time, and enough capital to invest in continuous growth. Your purchase can even get you a visa.
The ability to bypass initial-phase costs and stressors can be worth its weight in gold but be sure you have a team to help you with the transition to reduce or prevent future problems.