In 2009 I started a business drop shipping motorcycle parts. That one did fairly well and sold in 2012 for a 6 figure exit.
I started another business in 2011, a patio construction business in Florida. That one did great and sold for a 7 figure amount in 2020.
In that time span I took a crack at several other businesses that took a bunch of time / money and ultimately flopped.
In 2016 I took a deeper look into buying existing businesses using SBA Loans, and things changed in way that really built my equity faster and easier.
In my experience buying an existing business is a good idea, and a much better option than trying to start a business as you have an already proven market/offer fit and positive cashflow. Think of it like this, it is easier to grow a fire that is already burning than it is to get a new fire started.
After acquiring my first HVAC business in 2017, I decided I would never start a business again. Here’s why buying established businesses is the money move.
Proven Market / Product Fit
It is VERY rare to have sales on day 1 when you start a new business. Instead you’ll be left in a mind number circle of thoughts like ‘do customers want want I am selling’, ‘is the market too saturated’, ‘was this the wrong time’, ‘is this the right location?’. All of those thoughts will keep you up at night, and make you lose conviction and focus.
And may you did get one of those things wrong. For example a coffee should could thrive in one location, and inexplicably fail in a location across the street that is fundamentally the same. Or maybe you got into a market that is currently in a compression cycle that would make it incredibly tough for new entrants to get launched.
These are things that happen when there market / product fit. However, when you buy an existing business, you’re stepping into a well-established market with a proven track record. This means you’re not only entering a market with existing demand, but you’re also inheriting a business model that has already demonstrated its appeal to customers.
One of the critical advantages of purchasing an existing business is that you don’t have to navigate the uncertainties of whether your product or service will resonate with the target audience. The market-fit is already there, and you can focus your efforts on optimizing and expanding the existing operations. This level of confidence can be a game-changer for entrepreneurs, allowing you to build upon a solid foundation rather than starting from scratch.
Cashflow on Day 1
When you start business, you have no cash coming in. But you still have bills. And anything you discover that you will need, its going to make things worse. This could go on for months… until you close up.
When you acquire an established business, you have the advantage of cash flow from day one. The business you purchase should have (unless you buy a struggling business) a steady stream of customers, contracts, or clients generating revenue. This immediate cash flow not only provides financial stability but also allows you to reinvest in the business, make improvements, and explore growth opportunities without the burden of heavy initial expenses. Oh and the cool thing, if buy a business at normal 3-4x multiple, you’ll cover your debt payments with only about 50% of profits.
Related reading: 7 Best Cash Flow Businesses For Acquisition Entrepreneurs
Operational Infrastructure in Place
Starting a new business involves setting up (more like figuring out) all the necessary operational systems and processes from scratch. It can be a time-consuming and complex endeavor, requiring you to figure out logistics, supply chains, inventory management, and more. On the other hand, when you buy an existing business, you step into an environment where the operational infrastructure is already in place.
An established business typically has a systems, experienced employees, vendor relationships, and streamlined processes. This infrastructure not only saves you valuable time but also minimizes the risk of operational hiccups that can plague new startups. You can hit the ground running and focus on optimizing and growing the existing operations rather than struggling with the foundational elements of the business.
Related reading: How To Get Employee Buy-in When You Acquire A Business
Established Customer Base
The value of an established customers is something generally overlooked by aspiring entrepreneurs. It’s hard to quantify but having 10 years of satisfied customers in the market pays huge dividends.
Building a customer base from scratch is a formidable challenge for new businesses. It takes time and resources to attract, acquire, and retain customers. However, when you acquire an existing business, you gain immediate access to an established customer base. These are individuals or clients who are already familiar with the business, its products or services, and have likely developed trust and loyalty over time.
This existing customer base provides you with a valuable asset. You can leverage these relationships to drive sales, gather feedback, and expand your offerings. Additionally, a loyal customer base can serve as advocates, helping you promote the business and attract new customers through referrals and positive word-of-mouth.
By buying a business with an established customer base, you’re not starting from zero. Instead, you’re building upon an existing foundation of satisfied clients, making it easier to drive revenue and grow the business.
Embracing the Advantage
In my entrepreneurial voyage, marked by triumphs and trials, I’ve arrived at a resounding conclusion: buying an existing business is undeniably the superior path forward. It’s not merely a business decision; it’s a strategic financial move—a testament to my journey from startup enthusiast to a firm believer in the potential of established businesses.
With each new business I ventured into, the uncertainties of untested markets and the uphill battle to establish cash flow from scratch proved to be formidable obstacles. However, my transition to buying existing businesses using SBA Loans in 2016 marked a turning point. It transformed the way I built equity, delivering faster and more accessible growth.
My experience reinforces the idea that buying an existing business is a good choice. It provides entrepreneurs with an established market, immediate cash flow, operational efficiency, and a loyal customer base. It’s akin to nurturing an already blazing fire rather than striving to ignite a new one.
In a world where entrepreneurship is celebrated, buying established businesses is the money move—a decision backed by experience, wisdom, and the potential for enduring success. So, as you embark on your entrepreneurial journey, consider this alternative path, for it may hold the key to your financial prosperity and entrepreneurial dreams.