Why is it less risky to buy an existing business instead of starting one from scratch?
Pros of buying a business
Cons of buying a business
The decision may rest on market and growth opportunities. Acquisition may be a good strategy if prospective companies are undervalued because of market conditions. Conversely, if valuations are high, you may need to obtain more financing, potentially reducing the long-term returns from the acquisition. A good exercise is to compare the cost of acquiring an existing business versus starting a similar one from scratch. This comparison should include not only the financial expense and projected returns, but also the cost in terms of time and attention for you and your team and disruption to your other projects. Whatever your decision, the buying will have a greater chance of succeeding if you have a clear, detailed understanding of why you are proceeding and how the venture will meet your business goals. If you’re working on expanding your business, you may want to consider adding a new company to your portfolio. Buying an existing business in your field can be an effective way to expand your brand, attract more customers and increase your revenue. For many people, growing a business through acquisitions is easier than internal expansion, but it is not without risks. Advantages of buying a business in your field:
Easier to calculate intrinsic value. Risks of buying a business in your field:
For more information on how to buy a business, including how to decide how much you should pay and a list of the top ten Dos and Don’ts, check out Session 9 of MOBI’s Starting a Business Course, “Buying a Business or Franchise.” Also, don’t forget to complete section 9 of MOBI’s business plan template, “Prepare for Acquisitions,” to ensure that you’re ready to buy. Which of these is an advantage of buying an existing business?Low Risk Investment
Buying an existing business is considered a low risk investment compared to starting your own business from scratch. With a new company comes the costs of real estate, hiring new employees, education and training, equipment, furniture, marketing, and more.
Why is a start up riskier than an existing business?Building brand identity is difficult and time-consuming, often taking years to establish. Most business owners lack the time and resources to spend years building up a brand from scratch, so they fail to grow outside their immediate circle of influence, or just plain fail.
Which is better starting a new business or buying an existing one?Buying an existing business is almost always more costly upfront than starting your own. However, it is also easier to get financing for buying a business vs starting one. Lenders and investors are much more comfortable working with a business that has a proven track record. Which brings us to the topic of cash flow.
What are the advantages of buying a business rather than starting one from scratch?Why you may want to buy an existing business instead of starting one from scratch. Better financing options. ... . Already established brand. ... . Existing customers. ... . Well-established supply chain. ... . Access to trained staff and proven internal processes. ... . More financial reward in growth. ... . Greater likelihood of success.. |