Growing your business internally can be a sluggish and high-risk strategy in a fast-moving business world. That's why many entrepreneurs choose instead to acquire an existing firm.
This strategy eliminates many of the headaches involved in getting a start-up off the ground, such as developing products, hiring the right people and building a sound customer base. It also gives entrepreneurs a jump on the start-up phase—a time when many new businesses fail. Often, it's the only feasible way to break into a particular field, such as tourism or manufacturing, since start-up costs in these sectors can be prohibitive.
There are distinct benefits when you buy a business that is already up and running. However, you may also be acquiring someone else's problems. Here are some other key points to consider.
If the business has been fully tried and tested, you can eliminate the groundwork involved in getting it up and running, since operations, distribution and supplier relationships, not to mention key personnel, are already in place. All of this saves you time and money, and the previous owner can often provide useful insights on running the business.
The inventories in an established business and the profitability of its product line can alert you to what works well and what needs to be improved in order to boost sales and free up resources for marketing
Workers who have been with the company for some time can provide insights into the business and industry as a whole.
A proven track record and existing cash flow make it easier to obtain additional financing. Also, when buying a company, its business plan and records are already in place to help guide your decisions, allowing you more easily to forecast short- and long-term profits.