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Buying a business versus starting from scratch

Banks are still reluctant to lend money to all but the most cast-iron of business prospects.

Less than a decade ago, the world economy sank into the global recession, the worst economic downturn since the Great Depression of the 1920s and 30s.  Since the crash, the recovery has been long and slow and as a result, banks can still be reluctant to lend money to all but the most cast-iron of business prospects.

It is natural, then, that many businesspeople are investigating routes which do not rely heavily on bank financing. 

One of those routes is to buy into an existing enterprise. Even if financing is still necessary, an established business will find it much easier to secure money from banks.

A reliable income

Through purchasing an established business, a new owner is also effectively buying themselves a reliable income. Whereas start-ups can take years even to break even, purchasing the right business can guarantee profit from the start. 

Not only that, but vital intangible assets such as brand recognition and customer loyalty are also inherited. This provides an excellent basis on which to expand the new business, without having to spend time and effort building up a good reputation. 

Of course, the opposite also applies, so careful attention must be paid to such intangible assets when planning any purchase.

Rebrand

Some new owners prefer to entirely rebrand their new company, but care should certainly be taken before choosing this course. It might seem tempting to steer the enterprise in an entirely new direction, but customer loyalty is much more easily destroyed than it is gained. 

Any entrepreneur should think very carefully before taking a risk with a formula which has worked for a number of years and which probably attracted the purchase in the first place.

Long or short-term investment?

Of course, the business might have been bought cheaply because it was struggling. In that case, the new owner will need to take radical action. Before buying, however, it is clearly vital to ensure that the business can actually be saved.

Rather than 'purchasing an income', this kind of business acquisition is made for the long-term, and may require initial investment of both time and money. 

Assets

Whatever the financial and trading situation of the company, however, it is likely to have existing operational assets. These include not just buildings, vehicles, and major electronic equipment, but also staff and contractual arrangements with customers and suppliers.

As with the factors mentioned above, these too can be a double-edged sword for the new purchaser. Whilst an established operational base will save a lot of investment, a new owner will need to spend a significant amount of time reviewing existing contracts and assets, and making decisions about renegotiations and possible repairs or sales.

An ideal time to buy a business

Despite the work that might be involved, there is certainly an argument to be made that the current economic situation presents the ideal time for an ambitious entrepreneur to buy into an existing business.

For a start, many multinational businesses have found themselves overstretched, and for the first time in decades are selling off large portions of their franchises and regional operations. This does not necessarily mean that such businesses, when run individually, cannot be made to turn a profit.

Buying a single such enterprise may not only provide decent returns for the new owner, but will also generate customer loyalty and respect. After all, many such businesses are the cornerstones of their local community, and anyone staging a rescue bid will begin with high levels of customer and employee loyalty.

In short, whilst buying an existing business is not an automatic route to success, it can prove less risky in the current economic climate than trying to start a company from scratch. As long as the new owner performs adequate due diligence checks, and understands the challenges faced by his new business, there is no reason not to expect success.



Adam Bannister

About the author

Adam previously managed all editorial content on FranchiseSales.com, as well as on all other titles in the Dynamis stable, chief among them BusinessesForSale.com.

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