4 Reasons Why You Should Buy a Business Today
As American businesses respond to pandemic-generated trends and challenges, more employee-turned-entrepreneurs are building brand new business solutions to answer those trends.
Many of them are starting their own businesses. According to the Census, 5.4 million people formed new businesses last year, an increase of 53% over 2019 numbers, with business applications covering all major industries.
The entrepreneurial spirit is clearly alive and well in America.
What is often left under-reported in these stories, is the number of people who are purchasing businesses for the first time.
“Approximately 70% of the buyers for small businesses are first-time buyers.”
- Business Business Broker’s Network
While starting a new business may be the preferred route for some professionals looking to run their own enterprise, in 2022 there are plenty of reasons to consider buying an established business rather than starting one from scratch.
1. Built-in Customer Base
For entrepreneurs looking to immediately put their business ideas into action, building a loyal customer base can be a lengthy and sometimes costly process. The marketing costs alone to collect and retain customers may be prohibitive and could ultimately lead to the demise of a well-intentioned new business idea.
Buying a thriving, existing business means immediately acquiring the customers loyal to that brand. With a built-in customer base, entrepreneurs can spend more of their time bringing their business ideas to life and less time nurturing trust among unknown buyers.
Working with a broker can help with appraising the value of the business, especially the client base and how much of their business is likely to repeat after the sale.
2. Save on Startup Time & Costs
There’s no getting around the fact that a solid business, especially a new one, needs to invest substantial time in startup tasks like marketing, accounting, networking and so much more. The last thing a service- or product-based entrepreneur has is the spare time needed to build a website, send press releases, set up an accounting platform, file regulatory licenses, and all the other countless small details that can make or break a business. Buying an existing business means many of these details are already in place. While they may need tending, they are likely to be less pressing than they would for a business that has to start from scratch.
3. Better Financing Opportunities
An existing business with a successful track record has a far better likelihood of success than the 5.4 million new businesses started in the past year, and banks and funding partners are well aware of this fact.
“Because an existing business already has a track record of success, it’s often easier to get funding for this type of investment than for a brand-new startup.”
–U.S. Chamber of Commerce
In addition to potentially having better odds in securing funding, entrepreneurs seeking loans to buy a business have more opportunities available to them. In addition to traditional sources like personal funds, bank loans, and Small Business Administration (SBA) funding, buyers can also explore seller financing and also leverage the assets of their new business to help with funding. Neither of those opportunities exists for startup businesses.
Entrepreneurs seeking funding from the SBA should investigate the SBA’s 7a loans, which can be used for “establishing a new business or assisting in the acquisition, operation or expansion of an existing business.” Before buying a business, the SBA requires six types of documents, which Raincatcher brokers can help you gather.
4. Take Advantage of an Upcoming “Buyer’s Market”
Global deals on mergers and acquisitions (M&A) deals reached a new record in 2021, clocking in at nearly $5 trillion. While M&A deals have slowed significantly in 2021, more than half of corporate entities still report they are planning on divesting at least one business unit. Nearly a third of corporate businesses are planning on divesting at least two units in the coming year.
With so much potential inventory on the books, now is the right time to ask, “when will we see the start of a potential M&A buyer’s market?” The Federal Reserve Board raised interest rates in early May and vowed not to stop until inflation is curbed, which is a good indicator for buyers.
Rising interest rates tend to signify the start of a “buyer’s market” and the slight slowdown of M&A deals may also be an early sign of a shift from seller’s market to buyer’s market.
Buyers may find the timing to be perfect, with rates the lowest they will likely be for years to come, but still plenty of inventory on the books.
Work with a Trusted Broker
If you’re considering entrepreneurship, it is worth having a conversation with an M&A broker to see whether starting or buying a business might be the right path for you.
The professionals at Raincatcher have years of experience advising business buyers and can help you make a more informed decision about the future of your business.
As you move forward with your business plans, we recommend you also incorporate value-building in your business plan. It's never too soon to start building a stronger, more profitable company for tomorrow. Contact us today.