I'M THINKING OF BUYING A BUSINESS
2. Why should I buy an existing business?
Buying an existing business does typically cost more than starting a small business from scratch, but there are considerable benefits that come with this approach – staff are trained and experienced, there’s an existing customer base, and you’re operating from established premises.
Other benefits include
- The business model is likely to work
It’s no secret that the majority of small businesses close their doors in the first few years of operation. Buying a well-established business mitigates this risk, as there is an assurance that the business model has been tried and tested.
- No paperwork
A significant amount of paperwork needs to be prepared in order to start a business – from registering an Australian Business Number (ABN) to meeting state-level requirements that may apply to your operation. An existing business has taken care of this already.
- Streamlined operations
Any thriving business has likely spent considerable time and energy perfecting its operations. If the business you’re looking to buy is trading successfully, you’re probably inheriting a well-oiled machine, with documented processes that will allow you to hit the ground running.
- Existing staff
Employees who worked with the previous owners have valuable knowledge around how the business operates, and in many cases, how it could be improved. If you ask, they’re probably more than happy to share their insights, especially with a fresh owner who is ready to listen.
- Less time on recruitment
Another benefit of inheriting staff is not having to focus on recruiting and training a new team. You can then use this time to work on understanding how your new business works, and how to optimise systems within it.
- Building rapport with staff
As soon as you take ownership of your new business, it’s useful to check in with staff and make sure they feel satisfied with their roles. This ensures morale is high, which tends to lead to better performance. Consider asking if there’s anything they need to do their job better.
- Inherited systems
A good business should come with tried and tested processes and systems, which allow tasks to be carried out efficiently. Having these systems established, means you don’t have to spend time testing and improving new systems. Examples include:
- Booking systems linked to products.
- Cleaning rosters and processes.
- Repair schedules.
- Established customer-base
Buying an existing business also means buying its customer-base. This is especially the case if you purchase a franchise or a well-known company. As a result, you won’t have to spend as much time and money on building a customer base through marketing and advertising.
- Existing brand recognition
Buying a business means inheriting the branding that goes with it. As a result, you’ll reassure faithful customers that the business won’t change, while improving its systems for even greater success and customer satisfaction.
- Inheriting a good reputation
If you did your research and purchased a business with a positive reputation, you’ll continue to benefit from this goodwill. It can be difficult to change the perception of a business once it has been established for a while, so always check to see if has a good rep first.
- Long term contracts
Many existing businesses have long-term contracts locked in with suppliers and customers. These established relationships mean money will continue to come in, as you learn your new business. It also means existing supply chains can be relied on.
- A business plan
If you’re buying a business, it should have a good business plan already in play. This plan should provide you with clear goals, which offer a sense of direction for your business. You may need to amend this plan to accommodate your own vision. But it is still an excellent starting point.
- Good financial record
Inheriting a business with a good financial record is so valuable. It means that if you need to apply for credit for cash-flow purposes, you are likely to receive approval. Without good financial records, you may find it difficult to secure credit.
Action: Learn everything you can about the business you’re looking to buy, before you make a commitment. Consider:
- How the business is tracking financially.
- The history of the business.
- The value of the business (we’ll go into how to work this out later).
- Its strengths and weaknesses as a business.