An established structure.

Good pre-owned businesses have a recognizable brand, a proven business concept, an established customer base, a dependable base of vendors and suppliers, trained employees, a complete set of procedures and processes, and a deep understanding of their competitive positioning.

Startup business owners can spend a hefty amount of time and resources developing these parts of a business. As a business buyer, you can acquire most or all of them in a single transaction.

Faster ramp up.

When you buy a business, you might invest time into simplifying processes, eliminating costs, or gaining access to new markets. Still, you’ll likely avoid the lengthy ramp-up time many startup owners need to find suppliers, build an inventory, and reach their target customer base.

Clarity of costs.

When buying an established business, you’ll be able to examine the company’s financials before agreeing to take control of it. You’ll learn how profitable, indebted, or costly it is to run because you can examine years’ worth of records in advance of the sale.

Startup business owners don’t have this advantage. They may be able to make projections, but they can wildly underestimate the capital they need to help their business thrive.

The ability to bypass initial-phase costs.

Between establishing a site, developing a web presence, purchasing supplies and equipment, and getting the word out about a business, startup owners often spend a significant amount of money in their first year of operations.

As a business buyer, you could bypass many of those costs. This is especially when the business you choose is well-established, running smoothly, and well-known in its market.

More options for financing in buying vs. starting a business.

Lenders are more willing to provide financing for businesses with proven performance, verifiable cash flows, and demonstrable profitability than they are to startup ventures.

As a business buyer, you may have more options for financing. These could include seller financing, SBA loans, asset-backed loans, and term loans, among many other options.

High upfront costs.

Purchase prices can be significant because they account for more than just the assets and equipment a business holds. As a buyer, you’ll gain rights to the business’s brand, customer base, concept, strategic plans, processes, intellectual property, and capacity for profit.

Because of the value of those elements, many businesses sell for one to four times their cash flows with prices that can range from thousands to millions of dollars.

Here’s the good news: You can acquire most of the funds you need for buying an established business through SBA loans, seller financing, or other financing options. But keep in mind that the process to attain funding can be lengthy, and the funding comes at a cost.

Steep learning curve.

By buying an established business, you’ll take ownership of an operation that runs on processes, policies, and practices that will take time to learn. You might find it difficult to get up to speed quickly and gain the knowledge you need to guide the business effectively in the early days of its transition.

There is a workaround that helps lots of new business owners. Many arrange for seller support after the purchase of their business, either by hiring them as a consultant or employing them for a short period of time. You might also be able to retain some managers or employees who can help the business endure through the transition.

Potential for unforeseen problems.

Before buying an established business, you’ll take part in a rigorous due diligence process that should help you spot the business’s problem areas and risks. However, there is a possibility that you’ll uncover other problems once you take ownership, and those problems could be costly to solve or quite difficult to navigate.

Those problems may include:

• The chance that many of the business’s sales were made with customers who had close ties to the previous owner. Continuation of those sales may not occur when the owner exits the business.
• A possibility that key employees will exit the business and take the critical knowledge you need to navigate the transition.
• The risk that competitors will catch wind of the transition and make plays for both your customers and employees while you and the seller are distracted with the details of the sale.