The majority of the people who follow this blog are looking for ways to make money that allow them to travel freely or live where ever they choose. And the focus of this blog is to go through the various methods predominantly of which business ownership of some form is involved. There is a reason that this topic keeps coming up. Owning a business is the thing you need to truly experience the level of freedom you seek. And while for some this sounds scary because feast or famine all falls on you I am here to encourage you to push past that feeling. Starting a business is difficult and to hit you with some scary statistics. 20% of business fail in the first year. 30% fail in the first 3 years and 50% will fail in five years. These are sobering statistics. But they are the truth. And they are exactly why buying an existing business may be just what you need. So this post is going to explained the benefits of buying an existing business.
The Hard Part Has Been Done For You
An established business that is 5 years or older already has beat the statistics. The owner has weathered all the shortfalls and bumps in the road that come with starting a business. And now you can take advantage of the learning curve. They have tested a marketing strategy, created a brand, and a following that you can now plug and play. Training manuals, policies, employees. Check! Check! Check! If that business owner is taking a owner’s draw of $5,000 per month then guess what, that is now your salary. There are so many decisions you make that you hope work out with starting a business. And most newbies are overly optimistic. What I can tell you as a 14 year entrepreneur is that knowing what I know now that buying an existing is the cheat code.
Quick story. I attempted to buy a business about 4 years ago. I studied the process and jumped in with both feet. The business was making just over $1 million a year. The facility was gorgeous and so well thought out. But when I looked at the numbers things were not adding up. At first I thought well I am no accountant so maybe I am not understanding something. Fast forward 4 years later I was able to work with a multi-millionaire who taught me the ins and outs of he purchased companies and the strategies he used. I learned what I saw on the books was not only common but I understood very clearly what I was reading. I also learned the importance of being very strategic about the business that you acquire. I have launched a mergers & acquisitions company and all we focus on is buying and selling businesses. Click here to visit our website.
The next great benefit is brand credibility. Established businesses have already marketed and established a known brand in their niche. There is a lot of upfront costs when it comes to starting a brand. There is a lot of time and money spent establishing a following and getting raving fans. Anyone who has tried to just get people to follow them on social media knows it can be painfully slow. But imagine buying Kim Kardashians Instagram Account. Just like that you have millions of followers who are used to be sold to. All I can think are 3 words. Name. Your. Price.
Securing Financing Is Easier
Established businesses have a track record and financials that show performance. The SBA has a loan program you should look into. They do have credit score requirements. Click here to visit the Small Business Administration and learn more.
Don’t like banks? No problem. Partner with an angel investor. I actually encourage this strategy for those who are less experienced with business ownership for a couple of reasons. The first you have access not only to the initial capital but you also have a vested partner that is tied to the businesses success. The second reason is you will have a close resource for if there are needs for additional capital.
Another option is to seek owner financing. This may sound crazy but an owner will sell you their business and offer to carry back part of the loan. And I know you still don’t believe me but let me give you a frame of reference. The owner has a problem they need to sell their business. You are their solution. Is the light coming on? Owner financing is also a great way to get a barometer on the confidence the business has in the business. Like with an angel investor his success is your success. I’d even go so far as to say that an owner that won’t entertain carrying back any of the financing is a yellow flag. Not red but yellow. Cause if the terms are good and your business has the cash flow they reported then why not.
Use your 401k. Be your own investor. You have saved some money but it’s not enough to carry the lifestyle you want. Buying an established business and leveraging your 401k could be just what you need. There are a ton of strategies and I’ll dive into them more in further posts.
Places to find business for sale
Plug & Play
Buying the right business is plug and play. You are able to replace the existing owner. There is usually a transition period where the owner will work with you for onboarding and daily procedures. You will see what is working and what is not working. You will be taking their vision and aligning it with your vision for the business. Yes, there is an upfront cost that will vary based on the industry. But think about this. If you bought a business for $5 million dollars and month 1 you got a owner’s draw of $15,000; would you be worried about the $5 million in debt? The business is paying back the debt as well as paying you. Would you be able to live, explore the world, and still get a good sleep at night? Many of us have a bad relationship with debt. And we don’t understand how to leverage it to create the freedom we desire. I didn’t understand it myself and it wasn’t until I met a billionaire that my whole ideology changed. The rich don’t worry nor care about debt in the same ways that lower and middle class do. In all sincere honesty, the real task is vetting the right business to buy.
It’s Not All Roses
Businesses are sold for a reason. And typically you are not going to find smooth running cash flowing business owners just giving away their business for pennies on the dollar. You have to learn the real reason they are selling. That may not typically give the full reason. And that will be an enigma that time and due diligence will reveal.
Businesses are like people. None of them are perfect and they all have different problems that need to be fixed. This is where you need to shine. You need a problem solver mentality. The owner could also be exhausted. They may have tried everything they know how and even sought advice but never got to the real fix. You ever listen to a friend complain about a bad boyfriend or girlfriend and think all they need to do is da da da. From the outside looking in it is always easier to diagnose. Business owners get frustrated and sometimes years of trying they just are plain ole burnt out. It’s the same reason one person will own a rental property and have 3 evictions, 7 clogged toilets, and 10 broken windows, and the next owner will come in buy the home at a fraction of what the original owner paid, evict the terrible tenant, fix the windows and toilets, and enter new tenants that never miss a payment. Same home. Different owner. Different results.
You may take on more than you can chew. It’s also possible that you get a business and the fixes you thought were needed are not fixing or the problem is bigger than you thought. You could find yourself in over your head.
Buying an existing business can seem scary but with proper planning and appropriate due diligence you can significantly reduce your risk. It gives you the ability to start making money immediately and tapping into an existing client base and leveraging a known brand. There is less guesswork because all things remaining equal you should be able to at least maintain what the owner has established. The upfront cost is commensurate with the industry and revenue of the business. In the comments below tell me have you considered buying an established business before?
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