Running your own business is a dream for many people. Not only does it come with the freedom of setting your own schedule, hiring your own staff, building the operations, and pursuing something that you really want but it also provides you with so many opportunities to grow. But starting from the bottom can be very overwhelming especially if you are looking for something that quickly yields profits. In such cases, the best option is to find and acquire businesses that are already established and start your business journey from there.
2020 has been an unfortunate year for many people with one of the biggest mishaps being Covid-19 which has taken over the world by storm. Many businesses have been uprooted or have come to standstill because of the pandemic and the lockdowns. However, for people who are looking for businesses for sale, this may serve as an advantage and help them acquire an established business at an attractive valuation.
Advantages of Buying an Established Business
Lower Risk and Effort
When you buy an existing business there is already an established operational model in place as well as a client base and a brand name. This reduces the time and effort of building the business brand from the ground up. It also lowers risks since the business is already operational with a client base.
Existing Cash Flow
One of the most difficult parts of starting your business is establishing a steady and consistent cash flow. A business in its initial years of operations may take time to generate meaningful revenues and even if it does, it may not be profitable for a while. Buying an existing business gives the benefit of already having an initial revenue model and allows the buyer to focus on the expansion of operations or increasing revenue streams.
When you buy an established business, you also generally take responsibility for the employees that currently work in the firm. These employees would already have an understanding of the inner workings of the business through their time working there. This reduces the costs of hiring and training employees from scratch, for the buyer.
Brand, Reputation and Customer Base
A business that has been running for some time would already have an established brand name and reputation in the market. It would also have a recurring customer base that provides steady business to the firm. In contrast, starting a business from its initial stages requires a lot of time and effort to be spent into it to gain these benefits.
Business Trends in 2020
Starting your own business will require a lot of struggle to build a reputation and a loyal customer base initially. Aside from these efforts, this year has also had a major pandemic which has already changed the buying patterns and trends of consumer buying completely and is something that should be kept in mind when deciding whether to start or acquire a business.
In 2020, many business owners are looking to cash out and sell their businesses out of fear of not being able to continue operations or sustain it till things resume back to normal. As per a report from SHRM, 42% of small business owners say they had to close their business as a result of Covid-19 pandemic and more than 62% of businesses reported a decline in revenue in 2020. Only a few essential businesses were left un-impacted, but most businesses have been affected by Covid-19 and its consequences.
Though many businesses have been forced to shut down, there has been also been a sudden spike in inquiries seeking businesses for sale. Business buyers are always looking for opportunities to maximise their gains and now may be the best time to get a well-established business at an attractive valuation.
Business Adaptation in 2020
Reports have suggested that businesses in certain segments could benefit greatly from a new owner/buyer who can incorporate a new business model or changes in the current model to account for the scenario. For instance, many restaurants have opted to offer home delivery, outdoor dining and carry out methods to keep up sales during the lockdown rather than to shut down entirely. Additionally, numerous brick and mortar retail shops have switched to online channels and e-commerce platforms.
Selecting a Business to Buy
The very first step is deciding how much you are willing to invest into the business. This includes the price of purchase as well as the cost for managing the day-to-day operations. Once the limit has been decided it would be easier to shortlist businesses that fall within your investment range.
Experience and Objectives
It is important to take into consideration your own skills and experience when choosing a business. Running a business requires considerable technical and industry know-how and it would be advantageous to pick a business that you have a background in. Additionally, it is also important to decide on your future goals and objectives and shortlist realistic business opportunities based on them.
Research into the market landscape, existing infrastructure and other factors affecting and included in the business will help you ensure that you are able to drive the business towards success. It is important to ask questions to get a better picture of your potential investment and how it might unfold in the post-Covid-19 world.
How to Buy a Business
Usually, there are quite a few options available for finding businesses for sale, but this year has changed the way business to business buyers and sellers interact. The shift towards technology and changing trends have driven people to online private marketplaces. With online private marketplaces, people can connect with investors, advisors, and franchisors from across the globe on a single platform on their phones or laptops.
It is estimated that there are over 500 million SMES in the world with the majority of them from China, India, US, and UK. While the pandemic has affected many of these businesses, there are numerous opportunities for them to adapt to the circumstances and maintain revenues. This situation provides a resourceful buyer the perfect opportunity to purchase a business with a sound business model at an attractive valuation and revamp it to fit with the current demands. They may also choose to weather the short-term effects of the pandemic instead of focusing on building the company back up in the long term.
Apart from this, traditional benefits such as existing customer base, steady cash flows, brand name, and reputation also provide an incentive for entrepreneurs to purchase a running business rather than take on the effort and risk of starting a business from the ground up. Buying a running business would allow the buyer to focus on the expansion of the business through penetration of new markets, additional verticals, and new sources of revenue, thus, providing a more productive use of his efforts. Online platforms act as a great tool for such buyers to browse and shortlist business for sale deals in their locality and preferred industries.
By Vishal Devnath, CEO and Co- Founder, SMERGERS