With so many of us wanting to own a business in Canada it is no surprise that many are taking the leap and starting their own business. Some are opting to buy an existing business as opposed to starting one from scratch. Of course, there are plenty of pros and cons to each choice and whichever you decided primarily comes down to personal choice based on multiple factors.
The hard work of business still remains the same for both options and you have to weigh up the pros and condos and decide what is going to work best for you.
In this article, we want to share with you our top ten reasons as to why buying an existing business might be a better choice for you.
One of the hardest tasks to complete when starting a new business is to create a recognizable brand with a proven track record of successful products and/or services.
By buying an established business in Canada you are already stepping into a business with a substantial and reputable brand, a proven track record, existing customers/ vendors and cash flow.
When buying a business, you are buying customers too; whether they are old, current or potential customers.
You can not only rely on the revenue from customers that are current but you can also use marketing tactics to draw back old customers and look to close deals with new customers.
With a high failure rate, starting a business can be a risky thing to do. You need to be sure that your business idea is going to work, that you have a customer base whom would want to use you, and you also have to ensure that you can stand out from the competition and not get swallowed up.
When buying a profitable business there is already proof that the business can do all three of these things to a very high standard and generate cash flow.
This allows you to focus on what is important; running your business and helping to make it a success.
Easier to secure Financing
Sourcing finance for any business can certainly be tough at times, however, with an established business it can certainly be a lot easier. Many lenders will want to look at any risk concerned with an investment and an established business with a proven track record can certainly be a lower risk to invest in.
A lender will be able to look into the track record of the established business, financial statements, tax returns, management team and customer base etc. and will have the ability to weigh up whether or not your newly purchased business has a low enough risk.
In general, lenders are more open to lending money for the purchase of an established profitable business vs a start-up. For lenders, the risk is low in financing a business that is already generating income.
Sometimes, one of the best ‘off the book’ assets a business can have is its network of contacts/ relationships.
Customers, suppliers and partners all make up a business’s network of contacts that have a massive impact on the success of a business. When buying a business, you are also buying a network of all these contacts.
Income from the Start
When you start a business, it is quite rare for it to make a huge profit; or indeed any profit at all for the first few years. As a start-up entrepreneur, you may not be able to draw an income for a long period of time. Sometimes, this can be as long as three-five years. This is simply due to a lack of customers, resources, employees, working capital, a proven profitable business model that generates income etc. and in addition a constant requirement to reinvest in the business to make it sustainable.
When buying an established business, you skip this initial phase and can jump straight into a profitable business (one of the reasons why you wanted to buy it, right?) that is generating income and you can draw a wage almost immediately.
One of the biggest investments you make in a business is recruiting and training your employees. Not just in a financial sense; sure, you have to pay your staffs wages. But a well-trained team is a backbone of any successful business.
When you are starting a business you have to hire wisely and ensure every team member you bring on board is worth the investment.
When buying a great business you get trained team members whom can run the business and help with the future growth of the business.
Slightly Less Work
Don’t get us wrong; running an established business is still hard work. However, in buying a profitable business you get to skip a lot of the really tough hard stages of a startup in terms of sourcing finance, building a brand, marketing and making your first sales. The start-up stages of a business can certainly take over and dominate your life.
With the above notes about hard work in mind, there is still hard work to be done when you buy a business – but you can focus your hard work on growth.
You didn’t buy a business to just rest on its laurels and keep it running to the same standard as before, or even to see it fail. You bought a business to see it grow.
Growth can be the focus, and with a trained team in place, you can implement strategies to achieve exponential growth.
Cash flow can be very tough when you start a business. Every penny matters and you have to ensure that you have enough working capital to survive before you can reinvest back into the business for growth; whether that be an investment in new equipment, supplies, or even staff.
When you buy a business, you have a better understanding of your working capital requirements and cash flow. You can budget for investment back into the business to achieve growth and invest a portion of the income back into the business.