Starting a business from scratch can be exciting. However, it comes with many challenges. For many people, buying an already established business is a smarter path. You’ll skip many of the early struggles that typically precede success and obtain many unique advantages in the process.
What Are the Benefits of Buying a Business?
When you buy a business, you get more than just the name and customers. You’re purchasing systems, employees and processes that are already in place. This is often called “intellectual capital,” the knowledge and experience to operate. When you buy a business, these core competencies are included.
You won’t have to deal with many issues new businesses face, like building relationships with vendors or hiring staff. In a story by Nerd Wallet, business broker Randy Katz said, “There’s a lot of intellectual capital when you buy a business,” meaning the employees already understand how to solve problems and manage the company smoothly.
When you buy a business, money might also already come in. This can provide immediate cash flow, instead of waiting months (or years) for a startup to turn a profit. As Katz puts it, “I could invest $200,000 and have to grind it out and build the business from scratch with absolutely no infrastructure and no guarantees of success, or I could purchase a business that generates cash flow right out of the gate.”
Can Buying a Business Make Financial Sense?
Finding startup funds for a new business is challenging. Many owners rely on personal savings or loans from friends and family. However, financing options are more available when you’re buying an established business.
A financial planner, Tim Stolz, points out that one of the biggest advantages of buying an existing business is that there’s capital available from banks and lenders. Startups usually can’t qualify for loans. However, buying an established business means lenders can base loans on the company’s financial history.
You may even be able to get a loan from the Small Business Administration (SBA), which isn’t available to brand-new businesses. This means you can get help covering the cost of the purchase and avoid the struggle of funding a startup from scratch.
What Should You Watch Out for when Buying a Business?
Buying a business isn’t without risks. You’ll need to do due diligence to make sure that everything is in order. Look at the company’s finances to ensure that they’ve followed all the rules, especially regarding taxes and worker classifications.
Be cautious if the business has any legal issues or a bad reputation that’s hard to shake. It is also important to pay attention to how much the current owner is involved. If the business relies too heavily on the owner, all the knowledge might leave when they do. That could make it hard for you to succeed after the purchase.
It’s always wise to consult an attorney and accountant who understands business acquisitions. They can help you sort through the details and spot potential problems before deciding.
Consider Buying a Business Today
If you’re considering buying a business, now might be the right time to explore your options. Working with an estate planning attorney can help you structure the purchase to protect your interests and secure your future.
Contact our law firm today to schedule a consultation and learn how we can help you transition smoothly. Whether you need help with contracts, financing, or ensuring that the business fits into your long-term plans, we’re here to guide you through every step of the process.
Key Takeaways:
- Immediate Cash Flow: Buying a business can generate revenue immediately, saving time compared to a startup.
- Established Operations: Skip the hassle of building from scratch with existing systems, employees and vendor relationships.
- Easier Financing: Loans, including SBA financing, are often available when purchasing an existing business.
- Reduced Risk: Intellectual capital and experienced employees help foresee and manage potential problems.
- Opportunity for Growth: You may already know the business well, making you an ideal buyer to continue its success.
To learn more about estate planning in the East Valley, Gilbert, Mesa and Queen Creek, schedule your free consultation with Attorney Jake Carlson by using one of the links above.
Reference: Nerd Wallet (Apr. 27, 2023) “Thinking of Starting a Business? Consider Buying One Instead”
