Are you looking to have your own business?
You’re not alone. Despite the pandemic, there were actually one million more small businesses in the United States in 2021 with 31.7 million, from the 30.7 million registered in 2020, and they account for 99.9% of all U.S. businesses. They also grew by an average of 24% in 2020, compared to their pre-pandemic growth of 20% in 2019. But how do you go about it? Should you start your own or buy an existing business instead? Here are important factors to consider.
Starting Your Own Business
Small business owners cite being their own boss, being dissatisfied with corporate work, and wanting to pursue their passions as their top three reasons for going into their own businesses. However, actually running your own enterprise is another matter. Generally, only 2 out of 5 startups are profitable, 1 in 3 breaks even, and 1 in 3 loses money.
Going into business is inherently risky, but starting your own can even be riskier because you’re building from scratch. You have to be prepared to go it all alone as you stake new ground in the industry, risk your finances in hope, faith, and your belief in your dream, sacrifice personal and family time as you build your business up, and bolster all your creativity and confidence as you find and nurture your target customers and conquer your share of the market.
Essentially, startup entrepreneurs have to possess these essential qualities: basic business skills and knowledge, industry insights and in-depth knowledge about their chosen business, adequate personal financial capital as it’s usually difficult to secure funding for startups, and the grit, commitment, and flexibility to choose the enterprise above anything else especially during its buildup and growing phase.
If you possess these qualities and if you have a truly groundbreaking idea, with the business you want to own not existing yet, you might do well starting that enterprise on your own. If you want to have your hands in everything, involved in every detail of your enterprise, starting one would also be good for you. If you are excited about building your team of employees and your company infrastructure from the ground up, then starting your own business is a good fit for you. Another benefit of starting your own business is you get to craft and build it according to your available financial capital, so you can start with very small funding of around $3,000 on average, according to the Small Business Administration.
However, if you don’t have these qualities nor interests, and you have more funds to invest, you might consider buying a business in the line of your passion and interests instead.
Buying A Business
With a startup, you create value in the business with every good decision you make. When you buy a business, you pay for the value of what has already been created. Here are the benefits of business acquisition:
Demonstrated business idea that works. When you’re buying an enterprise, much of the experimentation is done since its business concept has already been proven to work. You can then focus on growing it instead of testing to see if it will make it in the market or not.
Minimized risk. You know what you’re entering into and dealing with since the company has already completed its start-up phase. Its processes and systems are set, a clientele developed, with existing staff and structures. You’re not walking in blind faith, as you would have assessed the risks already and examined the company and its performance before you even decided to put your money into it.
Established brand and goodwill. The company you’re buying has already created and even made a name for itself among its customers and industry. It’s more familiar than a startup that nobody knows about. You spend less time and other resources on creating and establishing a brand and favorable support among people than it would if you started your own business. What you can focus on instead is strengthening your brand and relationships with our customers and industry partners.
Prompt financial rewards. Since common sense is that you would buy only a profitable business in the first place, it’s already generating cash flow which you can use to grow the company, instead of having to endure a period of losing money as you build the business, which is what happens with startups.
Existing staff and company infrastructure. Instead of focusing your resources on attracting and finding all the people you need to build your business, you already have them, as well as the necessary business processes, systems, and structures that support your team. You just have to be careful, though, that you’re buying into good, healthy company culture with a good team, as you examine the company during the acquisition process.
Existing customers and established industry network. With a startup, you don’t even have a share of the market pie so you spend energies on getting a slice of it. When you purchase a business, you also purchase along with it the slices of the market pie the company has already earned. All you need to do is to nurture and further increase these slices, as you also grow the business.
Easier to secure financing. Most financial institutions are more inclined to finance existing businesses with a proven track record than an unknown start-up. So, it’s easier for you to secure financing to grow the business.
Essentially, when you buy a business, you skip the startup challenges and step right into the business operating and growing phases. You only need to finetune what does work, let go of what doesn’t work, and recreate new processes, systems, and culture as needed, as you move the business forward. You’re able to use your money, time, energies, and other resources for building on something already solid, instead of still trying to make something solid.
The Business Acquisition Process
Buying a business is the best fit for you if you are clear about your long-term business goals and have the substantial capital to finance them. You need to know the basic process of business acquisition so you can do it right:
Decide on what you want. What are you looking for in having your own business — something aligned with your passions and interests and that is profitable, or just any business that is profitable and has huge growth prospects? What are you interested in — independent businesses or franchises? Before you can find what you’re looking for, you have to decide and define for yourself first what is it you want.
Research businesses. Given that you’re clear about what you want, research the businesses that would fit what you’re looking for. Specifically, become familiar with the industries they belong to and the opportunities and threats in them, the businesses’ strengths and weaknesses, their prospects for the future, and what costs are involved. Come up with a shortlist of businesses that might be interested in selling and you’re interested in buying.
Apply due diligence. Once you have prospective businesses you’re interested in purchasing, employ the help of an accountant and a lawyer, as well as a business advisor, to assist you in applying due diligence. This phase involves closely examining the business prospects from all angles to ensure that they are sound investments to seriously consider.
Why is it interested in selling? What’s the business’ long-term track record of success? How are its relationships with its employees, suppliers, customers, and industry partners? How are its management team and staff? Who are the best and poor performers and why? What are the business’ concealed problems? What are the business’ prospects for future profitability and growth?
Ensure proper business valuation. How can you ensure that the business you’re interested in purchasing is fairly and correctly valued? What are the criteria? How do you do the proper valuation? This is where certified business valuation professionals would be very helpful.
Make an offer. After careful due diligence and you’ve decided that you’d want to make an offer to purchase a particular company, prepare to haggle and negotiate. Effective negotiation is both science and art. Learn and apply the skills, by doing it yourself, or hire a professional adviser and negotiator to do it with you and for you.
Close the business purchase. Organize purchase contracts and ensure that they are transparent, clear, and understood by both parties. They should also be legally binding, with the tax implications clarified. Purchase contracts basically include the price, payment method, seller’s involvement and obligations after purchase, a restraint of trade covenant to protect the buyer if the seller engages in a competing business in close proximity after, and other conditions for contingencies. When all is in order, you then finance the purchase through your bank and/or lender.
Easing the Acquisition
If you’re clearer now that you would rather buy a business than start your own, but find the process of business acquisition too overwhelming, you might want to secure the services of a professional business sales agency. Xcllusive Business Sales, professionals particularly catering to the Hawaii and West Coast areas, not only has the certified expertise, experience, and track record but also the industry information and quality contacts needed for arranging mutually beneficial business sales for both buyers and sellers.
On average, it takes around 18 months for a purchaser to find and buy the business that they really want, and only 20% of them get to the purchasing stage. With an agency like Xcllusive Business Sales, all you have to do in the business acquisition process is taking the first step of deciding what you want, and they will do the rest for you.