Buying a business Versus Start-up
There is much discussion surrounding buying a business or starting a business from scratch. We believe buying a business is a better option than starting a business. The advantages of buying a business include:
- Immediate access to cash flow – cashflow is available from day one. There is no delay
- Assets are already bought and working – there is no requirement to spend your time and money researching and purchasing capital assets with no guarantee they will work or be the most efficient assets for your business
- Somewhat predictable outcomes – allowing you to budget and forecast with some degree of certainty
- Existing customer base – without customers there is no business
- Procedures and systems already in place – well documented systems and procedures allow you to let you hit the ground running
- Established name and reputation – do you remember how long it took to build that reputation last time? A strong brandname and reputation means more business
- Employees already trained and working – you have immediate access to skilled staff
- Easier to obtain finance – an established business with a proven track record of profit will be able to raise finance much easier to fund future growth
- Established premises – having a premises saves you time and money
By way of a practical example, your advisor finds a suitable business to acquire. Assuming a purchase price of $500,000, the borrowing cost and repayments to purchase the new business might approximate $50,000 per annum. Based on a capitalisation rate of 30%, the recently acquired business will generate additional profits of $100,000 ($150,000 less $50,000).
However if you decided not to purchase an existing business and were to hire additional sales staff for your current business, with no guarantee of additional profit, the direct expense of the additional staff might be $100,000. In which scenario are you better off?
Buying an exisitng business makes dollars and sense. Ensuring your due diligence has been properly executed when buying the business, the downside risks should be relatively limited.
The benefits outlined above are only some of the immediate benefits available in buying a business. Our brokers have significant commercial transaction experience, are fully qualified and we can assist you in acquiring your next business. Talk to One Business Brokers on 1300 395 208 today.