The dot-com sensation promoted the concept that startups were the optimal form of business. Numerous first-time entrepreneurs thought that they could reap big time by starting their very own companies from scratch. A select few managed to get Wall Street venture capitalists to take notice of their ingenuity, but lots of others saw their dreams get blasted.
Today, business owners can either take the startup or acquisition course of beginning a business. Many small and big businesses have actually experienced success and growth with the latter path.
Below are three leading reasons for purchasing a business and enhancing its operations:
Buying a Business is Less Risky
First time business owners may assume that it is less expensive, for this reason less risky to start a business from the ground. Nevertheless, wise capitalists understand ways to calculate risks to their advantage, since risk is a relative phenomenon. For example, an established shop may require a $ 300,000 purchasing price, given its $ 50,000 yearly cash flow.
A start up on the other hand may demand $ 300,000 capital, although its revenue streams are yet to be established. Few loan providers will be willing to finance the second deal, since the concept is unknown making the risk too high. Therefore, the risk/reward ratio is tipped towards purchasing a business than starting one. Considering the principle of opportunity cost, buying an existing business also appears less risky.
Increased Flow of Cash
A manager of a start up business can not expect an immediate assurance of income. Generally, you have to wait from several months to several years for the business to break-even, before you can begin counting profits. Even then, you are still not assured that the business will thrive and generate returns.
Compare this to purchasing an existing business with an accessible client base and track record behind it. Generally, the purchasing process is structured in a way that permits the new owner to service existing debts, receive a small income, and stay with something small to operate and possibly expand the business. In fact, a wise entrepreneur can quickly enhance the revenue earning potential of an existing business, to the point of earning double or triple the profits of the previous owner in a short while.
Existing Infrastructure
An additional benefit of purchasing a business is the ability to carry on from where the previous owner left off. You already have the floor space, equipment and furniture in place. Policy and procedures are already established, albeit they might need some fine tuning. The business has actually already developed relationships with suppliers and customers, and the personnel is well trained and experienced in their responsibilities. The only element that remains is effective management practice to steer the business to new heights.
The majority of entrepreneurs buy existing businesses for the three reasons stated above. Nonetheless, it is advisable to take keen precautions when purchasing a business, to avoid coming under the same risks as the previous owner. A conveniently located business, with marketable niche products or services is sufficient proof that things might go well in future.
Today, business owners can either take the startup or acquisition course of beginning a business. Many small and big businesses have actually experienced success and growth with the latter path.
Below are three leading reasons for purchasing a business and enhancing its operations:
Buying a Business is Less Risky
First time business owners may assume that it is less expensive, for this reason less risky to start a business from the ground. Nevertheless, wise capitalists understand ways to calculate risks to their advantage, since risk is a relative phenomenon. For example, an established shop may require a $ 300,000 purchasing price, given its $ 50,000 yearly cash flow.
A start up on the other hand may demand $ 300,000 capital, although its revenue streams are yet to be established. Few loan providers will be willing to finance the second deal, since the concept is unknown making the risk too high. Therefore, the risk/reward ratio is tipped towards purchasing a business than starting one. Considering the principle of opportunity cost, buying an existing business also appears less risky.
Increased Flow of Cash
A manager of a start up business can not expect an immediate assurance of income. Generally, you have to wait from several months to several years for the business to break-even, before you can begin counting profits. Even then, you are still not assured that the business will thrive and generate returns.
Compare this to purchasing an existing business with an accessible client base and track record behind it. Generally, the purchasing process is structured in a way that permits the new owner to service existing debts, receive a small income, and stay with something small to operate and possibly expand the business. In fact, a wise entrepreneur can quickly enhance the revenue earning potential of an existing business, to the point of earning double or triple the profits of the previous owner in a short while.
Existing Infrastructure
An additional benefit of purchasing a business is the ability to carry on from where the previous owner left off. You already have the floor space, equipment and furniture in place. Policy and procedures are already established, albeit they might need some fine tuning. The business has actually already developed relationships with suppliers and customers, and the personnel is well trained and experienced in their responsibilities. The only element that remains is effective management practice to steer the business to new heights.
The majority of entrepreneurs buy existing businesses for the three reasons stated above. Nonetheless, it is advisable to take keen precautions when purchasing a business, to avoid coming under the same risks as the previous owner. A conveniently located business, with marketable niche products or services is sufficient proof that things might go well in future.
About the Author:
Paul Solorio covers stories about different businesses and he has frequently written pieces about Alberta business opportunities for www.kazooga.com.
