Don’t start from scratch! Six Lessons for Budding Entrepreneurs

When people talk about going into business they often mean starting a venture from scratch.
It often doesn’t occur to them that there’s another route into business: buying an established operation. While not for everyone – you may have pioneered your own product or crave the challenge of building from the bottom up – there are many compelling advantages to buying a going concern.
Here are the principal advantages of buying an established business instead of setting up a new venture:

Income from day one

An established business, so long as it’s a successful operation, will have a history of generating profit, so as long as the transition goes smoothly you’ll generate income in year one and, hopefully, for many years hence. Compare this to starting from scratch, with start-ups rarely breaking even until year two, three or even longer.

Lower risk

Again, this is contingent on the state of the business’s finances when you acquire it and how the handover is managed, but careful due diligence and choosing a business you are well equipped to run puts you in a strong position to be successful. Although the failure rate for start-ups is often overstated, it’s widely acknowledged that more new businesses fail within five years than succeed.

Training and consultation

Going into business alone, for all the freedom and other rewards, can be a lonely adventure. You’re probably ploughing your own money into the venture, so the burden of risk sits squarely on your shoulders. In the formative stages you may be able to afford an employee or two to help you, or you may have to build the business alone, acting as visionary, manager, accountant, administrator and salesperson all in one. Buy a business and you may inherit a full complement of staff (obviously this won’t be the case with many businesses, like a newsagent or website for example).
You may also negotiate a post-sale arrangement whereby the previous owner agrees to remain at the company in an advisory position for a set transition period. This is a common sweetener offered to prospective buyers, particularly if the business relies heavily on the nous, experience and contacts of the owner.

 Brand recognition

Already established in the market, your acquisition will, to some degree, come with a customer base and repeat business. It will also boast some level of brand-name recognition, which naturally makes it easier to attract new custom, whereas a start-up must convince potential customers to place their trust in an untested new business.

  Finance

There seems little prospect of credit becoming as abundant as it was pre-credit crunch any time soon, while banks remain particularly risk-averse when it comes to untested propositions whose value is only theoretically set out in a business plan. An established business, by contrast, can promise to repay the loan from revenues projected from actual, historical profits.
Seen as a much safer bet, successful businesses can attract finance more readily than start-ups and buyers can secure loans on more favourable terms.

Lower cost of capital equipment

If much of a business’s value derives from its capital assets, then buying an existing operation is arguably a more cost-effective investment. Rather than incurring the cost of new furniture fittings and equipment, as well as the expense of installation, when you buy a business you acquire used assets, which have already been installed, effectively at below-market rate.

Daniel is a young blogger from London with a passion for business. He now works for Franchise Sales, where he helps people find the top sports franchise for their needs.