Many people dream of being their own boss. They imagine themselves having that genius idea that is going to make them a millionaire, or just packing in the daily grind to do something they love every day. However, some people believe that the only way to do this is to start from scratch, when in reality, buying an existing business might be the ideal solution for you.
When you take the leap to become your own boss, the first thing you’ll need is the capital launch. According to my own internet research the average cost of a start-up is £93,800, making it difficult for many people to even begin. Granted, that tidy sum is accumulated over a period of start up and is not ‘day one’ capital required. Nevertheless, you are still going to need a significant sum for a good number of business sectors. If you don’t have the money in the bank to self-fund, your first thought might be to approach your bank to ask for a loan. Most start-up companies tend to be self-funded, as banks see it as a risk lending to a project that has no proven success. They are more likely to provide funding for an established business that they can see real historical turnover and profits for.
Another option may be a small business grant, but due to their limited availability, there are a number of hoops you are required to jump through during the application process, and you aren’t guaranteed success. You could also appeal to angel investors, however they are unlikely to get on board if you don’t have an idea that is completely revolutionary and sound. They want to be assured your business will be around long enough for them to see a return.
The fact is, more than 58% of start-ups fail within the first five years according to the office of national statistics. This could be, for example, because their money runs out, they’ve failed to build a reputation that secures them business or they can’t get the customers through the door. Again, money is a huge issue when maintaining a start-up company over the first few years, as it can take on average three years to start to see a return. This can be frustrating for the business owner, and also may not be viable for them in terms of their home life. After all, you still need somewhere to live and food on your table.
Buying a business can be a great alternative for someone with an entrepreneurial itch to scratch. It gives you the opportunity to be your own boss without many of the risks that come with a start-up business. The prospect of failure in the early days is significantly reduced because you’re missing out those shaky first years. You will be taking on a business with an existing customer base and reputation, which means you benefit from instant cash flow coming in.
Taking on an existing company is also a great opportunity for someone who wants to test the water with business ownership. You have all the freedom of owner management while inheriting the existing policies, procedures, and systems. Getting these in place is time consuming and costly, and can be off-putting to the new entrepreneur. Learning from tried and tested operations can be a great way of finding your feet while still having the autonomy you crave.
Many people considering buying a business have concerns that may put them off. Some are worried that the seller will take the customers with them, meaning the new owner has to find a new set themselves. Many small businesses, for example cafés, pubs and mechanics, have a certain geographic appeal to their customers. That is, the local people will go to their nearest pub, not walk miles to follow their previous landlord. Many sellers are also preparing for retirement, so they’ll have no need for any customers, new or existing. As a last resort, your legal representatives can ensure that protection is provided in the official legal documentation.
Getting the money to buy is also a concern I come across, however lenders often look more favourably on businesses with a proven track record. You can also look at what schemes are available in your local area, such as local authority grants and funding to help with renovations and even just money for taking on the business in the first place in some instances, particularly in areas requiring regeneration. It is also worth bearing in mind that purchasing an existing business is considerably less expensive than starting from scratch having regard to all the costs and risk elements. There are over 7,000 businesses advertised for sale for under the £93,800 average start up cost. This can not only make it more cost effective in the long run, but also more manageable to launch.
Buying a business is not without its problems, though. If you have no experience in the business area, you may find that you struggle to cope with the day-to-day managerial tasks. For example, can you run the accounts on your own? Do you know when the stock needs to be re-ordered? It may be helpful for you to spend some time with the previous owner before you take over, to learn from their experience and expertise; ask for an extended hand over for instance. This will also help make the transition easier for your customers, your staff and of course you. It will also increase the likelihood of the customers and staff staying with you.
There are also a number of pitfalls that you can face when you buy, for example being over-charged, or the seller not being completely honest with you about how profitable the business is, which can lead to disaster once you take over. This is where buying through a business broker can be particularly helpful, as they are able to offer impartial advice and guidance to make sure you don’t get any nasty surprises.
Taking your first step towards owning your own business can be nerve-wracking, but ultimately rewarding. Make sure you take the path that will be best for you long term and good luck with whatever route you take.