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Benefits of Buying a Business

Benefits of Buying a Business

| April 06, 2020
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Buying a business was never taught at any stage of my own schooling and is a process that takes a strong belief in oneself and the business you are buying. Meticulous detail is involved and the process can be compared to buying a rental property. If done correctly, purchasing a business can be one of the greatest builders of wealth. Many business owners are entering retirement leaving an opportunity for many younger individuals, you just have to look. There are many websites that list businesses for sale but more than likely that is not going to be the most advantageous route. Your own personal network is probably the best place to start looking. Here are some of the benefits of purchasing a business. Be on the lookout for the negatives in a later post. 

Risk -

Starting up a business requires zero capital but the time it will take to scale depends on a multitude of factors. A bank will not give any Jane Doe a loan to start a business because there is no guarantee of profit so that you can pay the loan back. On the other hand, a bank will hand out a loan to you if you are looking to purchase a business that has cash flow. This shows that you can repay the loan. From a banks standpoint, it is less risky to give a loan to purchase a business rather than to start one. 

Time - 

Starting a business that can allow you to solely live off that income can take years and will more than likely require you to have another job. Buying a business can allow you to skip the start-up phase of the business cycle and get right into the day to day activities, depending on how much of the role you want in the business. 

Network and Relationships -

Depending on the type of business you buy, you will be exposed to the business and owners' own distributors, suppliers and clients. This is a great way to grow your own network and possibly cross-sell if you own another business. It is always a good idea to keep the original owner in the business as long as possible as they can introduce to the client base and you can take the relationship from there. Keeping the original owner as a consultant or limited role can keep that network more attached to the business and from jumping ship. 

Branding -

For many businesses, the clients or customers could care less about who is running the business. Factors like loyalty, service, and association can take years to build on your own that can be easily bought. A brand new business has to claw and scratch for every client through marketing, and word of mouth. Each sale creates a customer or client loyal to the  brand but once again this can take years. 

Funding and Cashflow - 

Depending on how the buyout is structured, funding the purchase can be like buying a rental property. The revenue can pay down the loan to the owner or the bank leaving you with the task of keeping the revenues stable long enough that the repay the loan. There are other ways to purcahse a business that require no cash.

Buying a business is risky if you do not know what to look for and is not for everyone. 

Stephen Poll
Financial Advisor at Clay Financial

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