If you want to go into the world of internet entrepreneurship, purchasing an existing business can be an excellent starting point. It is not without risk, however. The first stage in a successful acquisition is to identify the best firm to achieve your unique objectives. Knowing how to identify a firm to acquire and what to look for can make the difference between success and failure.
Business to Buy
This article covers the following:
- Should you buy an existing business or create one?
- Three methods to find an online business for sale.
- Key Considerations When Purchasing an Online Business
Should You Buy an Established Business or Start a New One?
Many entrepreneurs considering entering the online business market wonder if they should create a new business from scratch or purchase an existing one. This is a crucial decision to make. In reality, there is no absolute right or wrong decision.
Understanding the advantages and disadvantages of each option will help you make the best decision for your individual goals and requirements. When it comes to buying a business, there are several significant pros and disadvantages to consider. This includes:
- Less risk
- Established customer base
- Potential for high return on investment (ROI)
- Less time required
- Large upfront investment
- Less flexibility
Advantage 1: Less risk
As an entrepreneur, you understand that owning and operating a business involves risk. It is unavoidable. When done appropriately, however, purchasing an established firm can reduce the risk of failure compared to launching a new one.
Most new enterprises fail. Even the best company concepts or products are initially untested. You don’t know how well your service or product will be received until you put it on the market and hear feedback from customers—it could take off, or it could fail.
When you buy an established business, the dynamics change. Customers have expressed interest in the company’s products and services. There is a clear product-market match. While things can always go wrong, having a proven product-market fit reduces the likelihood of failure dramatically.
Any time you invest a substantial sum of money, you incur the chance of losing it. While purchasing an established online business may be less risky than establishing one from scratch, the danger of failure remains quite real. In reality, compared to investing in index funds, purchasing a firm is significantly more variable.
Advantage 2: Established customer base
Most new firms struggle to make their first few sales. Building a significant devoted customer base can be a time-consuming and challenging task.
When you buy a firm, you have the option of selecting a company with a strong customer base. This reduces the time, energy, and uncertainty associated with constructing one, putting you in a better position for business.
This consumer base gives the company with impetus. Depending on the nature of the firm, you can add new items or services to your base once you gain control. This can boost growth, increase revenue, and increase the value of the company.
Advantage 3: Potential for high return on investment (ROI)
Purchasing a business has the potential for a significant return on investment. This ROI potential makes purchasing existing firms an appealing investment of time and money for the appropriate person. In fact, you may be able to return all of your business expenses within a few years. Everything after that is pure profit.
In addition, you can increase your ROI by expanding the business and selling it several years later. Assume you buy a business for $1,000,000 that makes $250,000 per year in profit. You keep the business for four years before reselling it for $2,000,000. In this case, you earn a 300% ROI (before taxes) over four years, which is not awful by any standard.
Advantage 4: Less time required
Starting a business from scratch takes a lot of time, stress, and hard work. The early stages can be incredibly hard, necessitating long hours, significant risks, and complete commitment. While starting from scratch might be enjoyable, it may not be suitable for everyone.
If you choose the company correctly, buying a business allows you to avoid the time-consuming first stages of starting a business from scratch. You can skip ahead to the portion when the firm is profitable. You might also choose a firm with little day-to-day operational requirements.
This time savings allows you to concentrate on long-term goals such as promoting future growth or automating tasks. Alternatively, you may spend your time doing other activities you enjoy, such as spending time with family or traveling. Purchasing a business can be an excellent method to generate a passive income stream, allowing you to live the lifestyle you want.
Disadvantage 1: Large up-front investment
So far, we have talked about the benefits of buying a business. While there are many benefits, it also comes with several drawbacks.
Purchasing a business demands a significant upfront expenditure. If you have a huge amount of money ready to be spent, this may not be an issue for you. However, it might be a deterrent for many entrepreneurs.
Even if you don’t have a lot of money, there are alternatives. For starters, you may look into your personal or professional networks to see whether anyone is interested in collaborating with you. If you take on the job of managing the firm, you may find that friends, family, or business contacts are willing to contribute funds.
Outside of your personal networks, there are several funding choices available. SBA loans can be an excellent option to fund business acquisitions. Alternatively, you can explore seller finance with small business owners.
While purchasing a business requires a significant initial investment, do not be disheartened if you do not have the funds available. When researching your finance choices, you might be pleasantly surprised by what you discover.
Disadvantage 2: Less flexibility
One of the most rewarding parts of establishing a business from scratch is the amount of freedom and creativity accessible to you. As the owner, you have complete control over the key early stages. You design and polish the product or service, train your employees, construct your company culture, and define your brand, message, and voice. For many, these initial efforts can be extremely fulfilling. When you buy a business, you gain less control over these characteristics. All of these questions have likely been addressed and established. While there are always fresh questions to ask and new avenues to take with the firm, it will be less adaptable than a new one.
Three Ways to Find an Online Business for Sale
Many business buyers are curious about how to find firms for sale. In general, there are three approaches. This includes:
- Searching online business markets
- Utilizing your network
- Engaging the services of a knowledgeable business broker
Search online business marketplaces
If you want to buy your own firm, online business marketplaces are a good place to start. These markets have a large number of online business listings from a variety of business formats, industries, and specializations.
Given the large number of firms for sale on business markets, you are more likely to locate one that suits your exact requirements. Everyone can find something here, from little firms to massive international organizations.
If you opt to examine internet business marketplaces, keep in mind that not all firms for sale are qualified or desirable investment opportunities. While you can locate good companies, some may not be worth your time and effort. Be discerning in your search and select one that actually matches your requirements.
Utilize your network
Your own personal and professional networks are also excellent sources of business prospects. Ask your contacts if they are aware of any businesses for sale. While this is a hit-or-miss strategy, it can sometimes produce excellent results.
This strategy has the advantage of allowing you to establish a personal connection with the business owner. Depending on who referred you, you may be more confident in the business’s quality. Furthermore, you and the seller may be able to establish a stronger relationship and confidence from the start.
Engaging the services of a knowledgeable business broker
Business brokers, often known as business advisors, help others buy or sell their businesses. While they frequently assist sellers with the exit process, they can also be a valuable resource for locating outstanding firms for sale.
Most business brokers have large networks of individuals who are selling their enterprises. They most likely have a list of firms for sale, either their own or that of their colleagues. When you’re ready to seek for a business to buy, meet with a knowledgeable business broker to discuss your choices.
Key Considerations when Buying an Online Business
Purchasing a business might be a wise move for aspiring entrepreneurs, but success is never assured. To increase your chances of making a lucrative acquisition, you must examine many essential factors.
Specify your goals
First, define your goals. What are you hoping to achieve by purchasing a business? Are you interested in incorporating a passive income stream into your portfolio? Do you want to buy, grow, and then sell the firm for a profit in the future? How much hours do you want to spend operating the business each week? These are only a handful of the questions you should ask yourself. Before beginning, it is critical to have a clear understanding of what you hope to achieve by purchasing. With your goal in mind, you may strive to define the particular qualities you seek in a firm.
Establish your budget
Next, set your acquisition budget. If you intend to finance the purchase with your own finances, determine how much you are able and willing to pay.
If you intend to use finance, do your research to learn about your available possibilities. Once you have determined your budget, you will have a lot better notion of which businesses to pursue.
Get clear on your skill sets and interests
While purchasing and operating a business might result in a good ROI, it does necessitate a certain level of ability and experience. Before you start looking for firms to buy, take some time to assess your applicable talents and knowledge. From there, you can narrow down the list of potential businesses to select the one that is most suitable for you.
At the same time, be honest about your hobbies. Running a business in a field you enjoy is far easier to maintain than running a business you dislike. Given the amount of time and effort required to manage most enterprises, it is beneficial to enjoy the process.
Set your buying criteria
After you’ve established your goals, budget, and identified your skill sets and hobbies, it’s important to define your purchasing criteria. Combining all of this knowledge, make a list of the exact attributes you want in a firm.
By selecting a firm that capitalizes on your abilities and interests and helps you achieve your objectives, you set yourself up for a prosperous and happy ownership experience.