October 25, 2014  
 
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Buying a Business

 

Buying vs. Starting a Business

Written by James Garvin for Gaebler Ventures

For will be entrepreneurs, the decision of build vs. buy can be an important one and one that is often overlooked by entrepreneurs. Entrepreneurs like to create and build off of their own ideas, not buy into other businesses, but buying a business may be the way to go for many.

When you think of entrepreneurship you usually think of building a company from the ground up, fulfilling the vision of the founder of the company.
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Many do not put entrepreneurship and buying a business into the same category simply because it does not have the glamour of creating something on your own. If you're going into business for yourself to make money, you may find that buying a business is the better way to go.

Buying a business provides numerous advantages over creating one from the ground up. For one, the business is (or should be) already generating revenues and profits. Ask any start-up and you'll find that revenues and profits are not always as easy to come by as many hope when starting their own company. Secondly, because you have revenues and profits, you have the ability to run a self-sufficient business and do not have to go through the gauntlet of having to raise any required venture capital. Less than 1% of all new businesses receive venture capital, and many businesses are not able to get off the ground with out it.

Buying a business may also be cheaper than starting one. For capital intensive startups, the cost to get to profitability can be expensive and time consuming and you are not guaranteed a return on your investment. When acquiring an established business, you are buying into the promise of future cash flows that have a much higher probability of actually occurring compared to a start-up, who can be lucky to generate any future cash flows at all. Seller financing also provides buyers the opportunity buy businesses with a fraction of the down payment and forego the ordain process of trying to secure bank lending to purchase a business. Lastly, many company founders looking to sell their business may be willing to do so at a discount as they look to retire or move away from their business. There is no greater opportunity than to be able to buy a great business at a discount.

When you buy a business, success is not guaranteed, but the probability of it is much higher than starting a business from scratch. The challenge is finding a business for sale, and one that you are passionate and confident about and one that you can run more successfully than the previous owner.

A fabulous example of an entrepreneur who bought a business and became wildly successful was, Wade Thompson, who right out of business school bought an RV maker through seller financing and has since created the world's larges recreational vehicle company in the world, Thor Industries. Mr. Thompson had analyzed industry after industry to find the one he felt had the best prospects for future growth. He had no formal background, training, or knowledge in recreational vehicles, but he had the drive, determination, and skills to know how to buy a valuable business and extract greater value from it.

If you are throwing business ideas around to start your own company, do not completely ignore the possibility of buying an established business that meets your criteria and interest. You may save yourself a lot of time and make yourself a lot more money in the course of doing so.

James Garvin began his education studying biotechnology. In recent years he has turned his interest in technology to helping two internet startup companies. The first business was an online personal financial network and the second was an e-marketing platform created to help entrepreneurs demo their web sites. Currently a student at University of California Davis, James is spending his summer incubating two new online businesses and writing about his entrepreneur experiences.

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