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One of the biggest reasons many entrepreneurs cite for not starting their own business is the high cost of startup. Depending on the industry, these costs could range from thousands to millions of dollars. In the long run, purchasing a business can often prove to be less expensive than starting one because the inventory and equipment are included in the purchase price. While the upfront costs of buying a business typically are higher than what an owner would put into the business initially, it is important to consider the owner’s time and the cost of paying someone to do all of the creative work and implementation.
Not only does the business come with inventory and equipment, but there are existing customers to consider. One of the most difficult aspects of building a business is finding customers that will not only utilize the business, but become repeat clientele. When buying a business, the cash flow is immediate and does not need to be built up, which can often take years. A previously established market and customer base is quite valuable. However, it is important to decipher if the clients’ loyalty lies solely with the business owner, or if it’s with the business and brand itself.
The owner of the startup has already done a lot of the hard work for the buyer. Building a brand and commercial goodwill take both time and money. If the business demonstrates a positive track record with its customers, then brand loyalty is established already and only needs to be nurtured.
Now care must be taken to ensure that an overabundance of personal goodwill is not connected with the existing business owner. Personal goodwill often includes things such as unique skills, exclusive access to clients and information, and a personal tie-in to the overall brand. Too much personal goodwill will cause the business to lose value once the owner leaves.
The original owner will have already set all of the groundwork for future employees, including the buyer. Rather than having to do the work of determining best practices, this has already been done for the buyer. Much of the time spent on the creation and management of official procedures is saved when one acquires an existing business.
Perhaps the advantages of buying an existing business over launching a start-up may be the right path for you.