Nearly every industry has experienced significant changes and shifts during the COVID-19 pandemic. With the current economic decline that has followed, it may seem like right now is a risky time to begin your entrepreneurial journey. However, buying an existing business rather than starting your own from scratch can help mitigate some of those risks.
[Read: Thinking of Buying a Franchise? Here are the Pros and Cons]
The benefits of buying a business
While it may seem like a big upfront investment, there are a lot of good reasons to purchase an existing business. Here are some key benefits of taking this route:
You’ll save time and money developing a new concept.
When you buy an existing business, the concept — including branding, such as a logo — has already been created. You won’t have to come up with your own product or service offerings and brand concept (or pay someone to come up with it for you).
There’s often clear evidence of success.
According to data from the U.S. Bureau of Labor Statistics, about 45% of new businesses fail within their first five years, and just 25% will make it past 15 years. If you seek out a business that has been operational and profitable for longer than five years under the current owner’s leadership, you can feel confident that you’re buying into a successful model.
You'll cut down on the usual startup ‘ramp-up’ period.
Every new business requires time and money to get off the ground. If you choose to buy an existing business, your investment should be more or less turnkey. Because you have an existing staff and client base, you’ll save money on recruitment and new customer acquisition.
The previous owner can guide you in the transition.
If the business’s previous owner is retiring or moving on to a new venture, they might be able to stay on in the beginning to guide you in the transition after the sale is finalized. You may even be able to shadow the existing owner before you take over and learn the ins and outs from the person who launched the business. Depending on your relationship with the seller, you may want to try to keep in touch so they can answer any questions you may have as they arise.
[Read: Buy a Business or Start From Scratch? Pros and Cons to Consider]
For prospective business owners who need help funding their purchase, interest rates are at an all-time low.
Is now the right time to buy a business?
With such high unemployment rates, many Americans fear for their job security. Depending on the industry and your skillset, buying a business could give you greater stability for the future. Struggling business owners may also be more likely to want to sell during COVID-19, so they can cash out and hand the reins to a new owner with the drive and resources to revive it. Considering all these factors, now may be the perfect time to contemplate buying an existing business.
A recent BizBuySellreport noted that businesses in certain industries could benefit from a new owner who can implement business model changes for the current environment. For instance, restaurant buyers can adjust their business model for carry-out service and outdoor dining, brick-and-mortar retail shop buyers can make the transition to e-commerce, and buyers of manufacturing businesses can take advantage of the recently increased interest in building up local supply chains.
Additional types of businesses that have seen high demand during the pandemic and show future earning potential include:
- Cleaning services.
- Meal prep and grocery delivery services.
- Drive-in movie theaters.
- Wine and liquor stores.
- Fitness equipment businesses.
- Landscaping and yard care.
- Gardening suppliers.
For prospective business owners who need help funding their purchase, interest rates are at an all-time low. In March, the Federal Reserve reduced its benchmark interest rate from 1-1.25% down to 0-0.25% as an emergency response to COVID-19. This means there’s never been a better time to apply for a Small Business Administration (SBA) loan.
Tips for buying a business
Buying an existing business can be an exciting and profitable venture, but it’s essential to do your due diligence and fully understand what you’re getting into. The SBA recommends taking these three steps before you make your decision:
- Decide how much you’re willing to spend to purchase and manage the business.
- Consider your skills, experience and desired lifestyle to narrow down your list of realistic business opportunities.
- Look at the full market landscape, existing infrastructure and everything else that would come with your purchase of a business.
Most importantly, don’t be afraid to ask questions of the current owner, staff and customers to get a better picture of your potential investment and how it might fare in the post-COVID-19 world.
[Read: The Step-by-Step Startup Guide: How to Start a Business]
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
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