If you’re ready for a new business venture, one of the first items you need to consider is whether to buy an existing business or build your own from scratch. Building an online business in particular can be relatively inexpensive with the initial start-up cost of creating a new website, outsourcing content and initial SEO work reasonably low. Comparatively buying an established website will likely require an outlay of capital to complete the acquisition.
While building your own internet business may cost less money at the onset, purchasing an online company offers several benefits that are worth considering and may override the cost factor…
Immediate Cash Flow
With a proven business model and historical profitability, purchasing an established business comes with positive cash flow the day the business it turned over to you. On the other hand, startup businesses aren’t typically expected to make money for the first three years potentially leaving startup owners without income for a period of time.
With the purchase of an existing business, you will be buying an existing customer base and vendor base that took years to build. Having these relationships in place is a huge benefit by saving the time to locate and foster supplier relations as well as to build a customer base. In addition, having customers and supplies is what allows the new owner to operate on Day 1 of acquisition.
Existing Staff and Premises
In some cases, the acquisition can include current staff as well as warehouse space for internet businesses that stock inventory. Even with an online business that will often relocate to a new owner’s location, keeping on some current staff perhaps working remotely can be extremely helpful in making a seamless transition from one owner to the next with uninterrupted operations. With stocked inventory, a new owner may take over the existing warehouse space lease to continue operations while learning the business and before relocating the inventory.
“According to Bloomberg, 8 out of 10 entrepreneurs who start businesses fail within the first 18 months. A whopping 80% crash and burn,” stated Eric T. Wagner in a Forbes magazine article. This staggering statistic makes it clear that risk is high for startup businesses. With an established track record of profitability, it would stand to reason that purchasing an existing business would reduce this risk and instead offer a springboard from which to grow the business further.
Focus on Expanding
There is an enormous amount of time/energy that goes into researching and creating business plans when developing a new business not to mention the process of setting up the infrastructure such as computers, telephone, furniture, policies, systems, etc… With the foundation in place of an established business, a new owner can get straight to focusing on improving and growing the business therefore increasing the chances of higher profitability much sooner than otherwise in a startup business.
Previous Owner Experience and Insight
Learning to run the business from the current owner provides valuable insight into the market or niche in which you are acquiring. The current owner’s experience and knowledge can go a long way in helping you avoid pitfalls or recognize & cease growth opportunities that you might have to learn the hard way in a startup endeavor.
Buying an established business is a calculated risk that may minimize or eliminate much of potential for failure that come with a start-up. While there are a number of advantages to purchasing an existing business, a few of which were touched upon here, getting into business always involve risk and buyers should carefully consider all options and seek a trusted broker.
VP of Administration and Finance
Website Properties, LLC.