Advantages of Buying an Existing Business
Many people who are looking to start a new career or wanting to be there own boss have a major decision to make at the very beginning of the process: “Do I create a start-up or buy an existing business?”. A recent article in The New York Times, “You’ve Bought a Small Business. Now What?“, speaks about that question and gives several examples of buyers who had to make that decision.
While most people tend to think of start-ups as a way to be your own boss, an increasing number of people — some fresh out of business school and others looking for a second career — are buying small businesses, or buying into them.
Such small business may not be as trendy as start-ups, but for many eager to be their own bosses, they can be more rewarding than working in the corporate world.
And they are less risky. According to the Small Business Administration, about half of all new businesses fail within five years. Natalia Olson-Urtecho, mid-Atlantic regional director of the agency, said existing businesses that transfer ownership probably have a much higher success rate than start-ups because most businesses will not find buyers if they are not viable.
“If you buy an existing successful business, it already has a client base,” said Ed Pendarvis, founder of Sunbelt Business Brokers. Also, said Mr. Pendarvis, “in a typical financing case, most sellers have a financial stake in the company they are selling for several years after the sale, so they have a vested interest in its continuing success.”
If Entrepreneurship Through Acquisition, the class taught by Royce Yudkoff and Richard Ruback, professors at Harvard Business School, is any evidence, interest in small-business acquisition is growing rapidly. Five years ago, when they first offered the class, only a handful of students were interested. Last year 270 students took the course.
Small-business loans grew to $8 billion last year from $6 billion in 2014, Ms. Olson-Urtecho said, and many of them went to people buying operating companies. And the sale of small businesses grew by 53 percent from 2012 to 2015, according to BizBuySell.com, which now has more than 47,000 active listings.
Acquiring a business and keeping the original owners on as partners is less typical than taking over completely, but has its advantages. “The positive is that you have someone deeply experienced in the business,” Professor Yudkoff said.
Randy Shayler, who bought a musical instrument rental company in Reading, Pennsylvania, took over the entire ownership of the 93-year-old business, Zeswitz Music, three years ago. He was a management consultant before attending Harvard Business School, and thought he would probably run his own company later.
Although the owner no longer helps run the company, “she is a great resource, as is the highly experienced work force” Mr. Shayler said.
Devin Mackoff, 30, like the Higginses, was featured in The Times article six months ago, right after he bought a landscaping company, Landscape Cod, on Cape Cod. He put $150,000 down and guaranteed the sellers about 10 percent of the revenue over the next three years. After a hectic summer, the winter gave him much-needed time to regroup.
He decided to shift his business more toward gardening and project work and away from landscape maintenance. After some employees left him in the lurch, he said he was seeking a better way to recruit and keep staff.
“We grew the business 10 percent last year, which is good, but I really needed the break to step back and say, ‘This is working and this isn’t.’ ” he said. “I need to have more people on deck rather than scrambling for them if someone just quits by text. I want people who want to work.”
Buying a small business, unlike creating a start-up, means inheriting someone else’s procedures, decisions and vision. And it may take a while not only to create a new vision, but also to determine the best way to get there.
However, the most difficult hill to climb is surviving the first 5 years in business and the best way to overcome that obstacle is purchasing a existing, successful business.