Buying a Business as an Investment
Buying an existing business offers a number of advantages from an operational standpoint. You receive established infrastructure, staff, proven marketing and sales strategies, and an ongoing cash flow. But is the prospect still an attractive one when you consider your purchase as an investment?
Is buying a business a sound investment?
The soundness of your investment depends on which business you buy, for how much and how effectively you conduct your due diligence.
It may also sound like a given, but ensuring your expertise and experience align with your purchase can be the difference between seeing a healthy ROI, and watching your investment spiral down the drain.
Purchasing a business that’s already done the hard work to get off the ground brings with it less risk. You’ve got a concept that’s proven to be successful and you’ve safely passed the initial one year window where 20 percent of new businesses fall over.
But the hard work isn’t over. Some businesses may require a hefty injection of capital to upgrade machinery, bolster their working capital cycle, systems or software. Others may need a structural rejig that can take months to successfully execute.
The advantages of buying an existing business
Purchasing a competitor’s business is a highly effective way to increase your market share. You don’t need me to point out the benefits this presents, from the increased customer base, trained staff to the increase in value proposition. You’re simultaneously knocking out the competition while acquiring an established pool of customers. From there you can foster the growth of these existing connections, rather than attempting to establish new ones.
Similarly, you can buy a business that offers a complimentary service or product to the business you already own. For instance, let’s say you own a mortgage brokerage. A strategic business acquisition may be the purchase of a Property Buyers Agency. The alignment of both businesses would allow you to deliver a holistic service offering to property purchasing.
Easier to secure finance
Lenders look more favourably on the purchase of an established business over funding a new one to get off the ground. It makes sense from the banks perspective – there’s a proven track record of revenue and execution, minimising the risk of the unknown. As a buyer, this can go a long way to helping you secure finance to make your purchase.
There can be many advantages in buying an existing business rather than the time and considerable outlaw involved in starting from scratch.
Above are only a couple of the main advantages.
Are you buying a business in Perth? Do you have a Perth business for sale? For more information on how you can get the best results, contact Angela at Advance Business Brokers today.
