It’s clear that starting up a business is becoming increasingly more popular than going off to work for a fully grown company. With young, innovative entrepreneurs hungry to get their game changing product and/or service out into the market, it’s becoming the new trend, individuals love starting their own businesses. According to research conducted by The Financial Times, the rise in the number of self-starting entrepreneurs had broken records. Over half a million start-ups were founded in 2015, and that number then rose to 660,000 in 2016.
But it’s not all good news for entrepreneurs and their startups. According to the research, around 8 in 10 companies begin to stagger during their first year of operating in the UK market. Of all the UK start-ups launched, only half survived their first three years of life and sources point to a lack of financial planning as a common cause of the start-up’s failure to stay in operation.
So with this in mind, what can entrepreneurs hope to do next?
One very popular option which has seen an increase in activity is to become the new business owner of a company that’s fully operational, staffed and showing good profit levels. These sorts of businesses hold potential too, enabling entrepreneurs, if they are talented enough, to be able to scale them up to the next level. As you are not starting your own business and buying an existing company, you have to make sure that you know all the details about the business from the inside and out, to ensure there are no hidden skeletons in the closet.
Here are the perks to buying your own business:
Gaining finance will be more accessible
Starting up your own company means that it takes more work to convince financial lenders and investors, including banks and angel investors to back you. As businesses are most likely to stumble during their first year of operating, funding an already existing business that’s been running for a while makes for a less risky investment venture for finance providers.
Although it should be easier to raise private equity finance and possibly some debt to acquire a business through a management buy-in, the entrepreneur will be expected to invest alongside the private equity provider so that the entrepreneur shows they also have ‘skin in the game’.
Financial lenders and investors can draw on your past reporting figures rather than having to believe that an inspirational business plan with no standing will be as successful. A company that has operated profitably for a number of years is able to answer many of the questions a lender or investor might set to a loan applicant. When an existing business is already making money when a new owner takes over, it means that the business is already eligible for securing loans right from the off.
Income from day one and less investment is required
Whilst the business owner can make money from the first day of their ownership, there are also less set-up costs than there would be if the entrepreneur was to set up a business from the start. This includes less expenditure on essential purchases like office equipment and hiring new staff. For entrepreneurs looking for reliable and recurring revenue, buying an established business is a better solution than launching a start-up, as the latter can take years to generate a stable income.
Less stressful than starting-up a business
When you take up the position as the new owner of an existing business, you will have a more manageable workload. This is because you will already have a qualified and seasoned team in place to manage the transition from the previous authority to the new.
Although starting up your own enterprise is an admirable and often gratifying challenge, your responsibilities remain high whilst your free time is low on the company agenda. For first time entrepreneurs wanting to make a difference, yet not wanting to sacrifice all their spare time, nor put their own finance at high level of risk, buying an existing business offers challenges and a thirst for innovation, without the extra pressures of starting and managing their own.
Get to know the business before transforming
One of the main reasons why entrepreneurs buy an existing business instead of starting up their own is because they can map out its potential to growth, and they want to be able to use their existing entrepreneurial skills to make it happen.
Before you make extensive changes to the company, you should assess what it already has going for it in terms of assets, workforce and clientele. Take the time to monitor the performance and satisfaction levels of the existing staff and assess the effectiveness of their current strategies and approach to client engagement. Then you can truly assess the net performance of the company and make positive changes accordingly.
If you’re interested in finding out more around how EFM Growth can help guide you through the pitfalls of buying an established business, speak to our team of experienced Growth Partners. Get in touch today through email or call 01582 516300.