You might be surprised to learn that many so-called entrepreneurs didn’t actually create their businesses. Instead, they bought them in the early stages and then led them forward.
Take Elon Musk, for instance. The billionaire maverick didn’t found Tesla. Instead, that was the brainchild of Martin Eberhard and Marc Tarpenning. It was only later that Musk bought up shares, hopped on board, and took the CEO role that people began to associate the company with him.
In this post, we take a look at some of the reasons why people love buying businesses. Check them out below:
Existing Customer Base
Acquiring new customers for a brand that nobody has heard about before is notoriously challenging. The lack of trust combined with non-existent brand recognition makes it almost impossible. It’s the main reason companies fail.
But when you buy a business, you get around this issue. Most established firms already have a plethora of customers in place, all willing to continue paying for services they love, regardless of the change in ownership.
Cash Flow
Related to this is that existing businesses typically have good cash flow. Money enters the company’s account every month, allowing the business to pay its suppliers and employees. It doesn’t have to take out expensive short-term loans on the money markets to cover its costs.
Established Supply Chain
Another benefit is that existing businesses already have well-established supply chains. New owners don’t have to build them from scratch. They can simply slot into the existing setup and carry on as normal.
Ultimately, this means that owners have less work to do. In many cases, businesses have been working with the same suppliers for many years and have developed a symbiotic relationship with them. It’s this relationship that is part of the company’s value.
More Financing Options
Even if an established business doesn’t have much cash flow, it tends to have more financing options when it needs to cover costs. Startups often have no choice but to go back and plead with VCs for extra money, but established firms are often able to borrow from conventional lenders. This way, they can avoid having to give up their equity stake in the business to access capital. Long-term businesses can provide lenders with assurances that they will get paid back by showing their accounts history, collateral and long-term profitability.
Well-Known Brand
Building a brand from scratch is almost impossible. Yes, some firms manage it, but they are the exception, not the rule. The chances that a firm you found will become a household name are virtually zero.
Again, that’s why many people opt to buy an existing brand. It’s already well-known, so there’s no need to build it from scratch. Plus, it may have a lot of leverage in certain circles, making it easier to get customers.
Quality Staff Already In Place
Lastly, finding good staff is notoriously difficult, particularly right now when labor is in short supply. Buying a firm negates the need to go shopping for new employees.