When embarking on the entrepreneurial journey, the natural and most common route new entrepreneurs take is to start their business from scratch. This path often stems from a vision they nurtured over years to do something that they are passionate about or hold expertise in. However, what they don’t realize is that their initial excitement could quickly turn to disappointment when the reality does not meet expectations. New businesses often have to contend with the “two-years-no-return” rule; a period filled with frustrations, disappointments, and financial struggles, during which many ventures falter and close down. Many new entrepreneurs encounter unforeseen challenges and obstacles during this period, leading to slower growth or even the failure of their ventures.
I frequently counsel aspiring entrepreneurs to thoroughly evaluate their readiness before jumping into the endeavor of starting a business from scratch. One doesn’t have to be a seasoned entrepreneur or a Harvard Business School graduate to conduct a SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats). This straightforward tool, combined with robust financial analysis, a strategic growth plan, and a well-thought-out contingency plan, research tools, market knowledge, and competitive analysis can significantly enhance the likelihood of success.
LOOKOUT FOR WHAT’S AVAILABLE IN THE MARKET
New entrepreneurs often become captivated with the idea of starting their own business, without fully assessing the challenges that lie ahead. I suggest my clients to consider the alternative of purchasing an established business that is up for sale. If this acquisition aligns with their vision, financial capacity, and objectives, it can be a more secure path to entrepreneurship by overpassing the hassles of setting up a business.
PROS OF BUYING AN ESTABLISHED BUSINESS:
- Buying a business gives you an established customer base, team, business plan and operation. No need to start from scratch.
- The best acquisition targets are likely to already have solid sales and profits. A new venture, on the other hand, can take a long time to build revenue and become profitable, and the risk of failure is significant.
- The assets of the company you are buying can be used to help secure financing needed for the purchase. Lenders are less likely to take a chance on a start-up.
- Existing owners often help finance the purchase of their business by providing vendor financing. Besides being a good source of patient capital, the vendor’s investment provides motivation to the former owner to help make a smooth transition.
Acquisition may be a good strategy if you want to expand into a new industry or geographic location where you lack contacts and knowledge.