According to a recent report from BizBuySell, small business M&A activity is on the rise. If you’re in the market for a small business, you may be wondering if you should start one from scratch, buy a franchise, or purchase an existing business. While each option has pros and cons, we think there are some compelling reasons buying an established business makes the most sense. Keep reading to learn more.
1. You Know What You’re Getting Into
When you start a business from scratch or buy a franchise, there are always going to be some surprises along the way – and not all of them will be pleasant. When you purchase an existing business, however, what you see is what you get. You have access to financial statements, employee records, vendor contracts, and other documents that will give you a clear picture of what you’re getting yourself into. This due diligence process is critical to ensuring that you don’t end up overpaying for a lemon of a business.
2. Established Customer Base & Revenue Streams
An established business comes with an existing customer base and established revenue streams. This means that you’ll have some income coming in from day one – which can help you cover the costs of your purchase and keep cash flow positive as you work to grow the business even further. Granted, there will always be some risk when taking over a small business – but it’s typically much less risky than starting one from scratch or investing in a franchise where you’re working off of projections alone.
3. Experienced Employees & Vendors in Place
When you buy an existing small business, you also get the benefit of experienced employees and vendors who know how to get the job done right. This can be especially helpful if you’re not familiar with the industry or don’t have any prior experience running a small business. Of course, it’s always possible that you may want to make some changes once you take over – but having experienced employees and vendors in place can make for a smoother transition and help ensure that things continue running smoothly even as new leadership comes on board.
4. Financing May Be Easier to Secure
Depending on the situation, it may be easier to secure financing when buying an existing small business than starting one from scratch or purchasing a franchise unit – especially if the business has been profitable with strong historical financials in recent years. If you do need to secure financing to help with your purchase, keep in mind that the Small Business Administration (SBA) offers several loan programs designed specifically for small businesses.
5. A Trusted Brand Might Be Included in Your Purchase Price
If the small business you’re interested in acquiring has been around for a while and has built up a strong reputation in its community, then its brand name could potentially be included in your purchase price – which could save you thousands (if not millions) of dollars down the road in marketing and advertising costs as you work to grow the business even further.
As baby boomers retire at unprecedented rates and millennial entrepreneurship remains on the rise, we expect to see even more small businesses changing hands over the next decade. If you’re thinking about buying a small business, now is as good of a time as any. Start doing your research and due diligence so that you’re ready to act fast when an opportunity comes knocking.
Not sure where to start? Our team of M&A advisors has decades of experience helping CEOs, Founders, Owners, and Executives navigate these types of transactions successfully. Set up an appointment with us today so we can help put together a custom game plan for your specific situation.