Purchasing an Established vs. Starting a New Businesses, remains a common debate among upcoming business owners. Which route will provide the most profit return? Which business is more likely to succeed? Certainly there are advantages and disadvantages to each concept which also depends on buyer’s personal situation as well. More about Existing vs. New business:
There are reasons to go for buying an existing business than starting a new one which are as under:
Experienced entrepreneurs have found that the risk to reward ratio is more in your favor should you decide to purchase an existing business over starting on of your own. Statistically, number failures are manifold in new businesses than established businesses.
Existing Customer Base
When purchasing an existing business, you are buying not only a brand name but a customer base that has taken years to establish. The seller provides the list of customers as part of the sale. This works in your favor simply because not as much money is spent advertising your new business. An existing business has a proven concept and the risk is relative low to the buyer.
Ease of Financing
Many banks have an easier time lending $1 million to a purchaser interested in a business with a steady cash flow of $200,000 – $300,000 dollars because the cash flow can easily support the payment as opposed to lending $200,000 dollars on an unproven concept and risky returns that may never be fully actualized. This results in increase of salability of the company.
Established Cash Flow
In existing business there is history of sale for many years so one can carefully rely on cash flow which decreases the amount of risk, while in start-up business all sales figures are estimated and not actual which increases the amount of risk.
Existing business has history of successful operation which buyer can easily verify by doing due diligence with the help of selling business broker while in starting a new business there is a good amount of risk of successful and smooth operation.
Seller has already done what it takes in starting a new business and makes it successful operation. All trained employees and staff are in place for smooth operation of the company. Seller secured and added value to the business before presenting it for sale and now buyer can focus only for further improvement of sale without worrying about anything.
Price & Risk Factor
With all the advantages of buying an existing business, many entrepreneurs have opinion that an existing business is expensive and costs too high in comparison to starting a new business therefore more risky.
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