Knowledge Center

There is a certain appeal that comes with owning your own company. Those seeking to be a small business owner desire the freedom, challenge, and financial reward that often accompanies being your own boss. While there are perks to owning your own company, there are also challenges and risks that one must face when taking this route. However, buying an existing business instead of launching a new one can eliminate and reduce many of these risks. The following advantages are just a few reasons why you should consider purchasing an established company, as opposed to starting from scratch.

A Customer Base is in Place Purchasing a company often means earning their existing customers, as well. In the early stages of your new ownership, you don’t have to focus on quickly gaining customers to generate income because a customer base will already be in place. Your efforts, instead, can be directed towards keeping existing customers happy and reaching new potential customers. Financially, this is a much more attractive option because you will, likely, immediately begin generating money.

A Brand Image Exists? If the company or business that you decide to purchase as been around for any significant amount of time, they already have a brand image. Customers have certain values and expectations that they associate with your company. Instead of focusing efforts on creating a brand, you can dedicate your time and effort to molding the existing image into what see you fit for the future of the company. You can determine the strengths and weaknesses of the existing image and determine where changes are most needed.

Business Plans Have Been Established Throughout the existence of the company you may be purchasing there have been different business models and business plans implemented. Regardless of whether or not they have been successful or unsuccessful, there is a lot of valuable content located within this information. As you press forward with your own vision for the company, you can use this data to remove a lot of the guess work about what works and what does not work.

There is More Room for Creativity and Innovation Purchasing an established business usually means that the basics and fundamentals are already set in place. Instead of spending your first several years as a new business owner building a foundation for your company, you can use that time to get creative and innovative. When a company is established and has been in the industry for a while, there are fewer risks involved with getting creative with business plans or marketing campaigns. Choosing to go this route means there is more room to experiment with different methods without harming the company.

The advantages to owning your own company are vast and rewarding. However, taking on the task of starting your own business can be daunting and intimidating. Reduce the risks and maximize your potential for success by purchasing an existing business. The advantages discussed are just a few of the reasons why you should consider taking on this business endeavor. With the help of a broker, you can purchase a company at a great value and begin to make the business your own.

When you are considering purchasing a business, it is helpful to examine the situation from the perspective of the seller. When you look at prices that are attached to prospective companies that you are interested in purchasing, it is easy to think that the number got pulled out of thin air. However, there are a series of valuation techniques that an appraiser uses to arrive at, what they believe to be, a fair price. As the buyer, it is helpful to know these techniques so that you can determine whether or not the deal is one that will benefit both parties. The following are the techniques that are most commonly used to value a company.
Value Based on Cash Flow and Profits
One of the most used ways to generate a sale price for a company is by considering its ability to generate sales and bring in money. The major figure that is looked at first is the value of annual sales. This figure can then be affected by what are referred to as industry multipliers. This number allows the original figure to be adjusted based on certain characteristics of the company that are believed to increase its value. This multiplier typically increases the value of the company by 2 to 3 times. Many different factors can affect the multiplier, such as economic issues, the size of the business, how long the business has been around, and certain risks that the new business owner may face. Examples of factors that positively affect the multiplier are weak competition, diversified products and proprietary products. Examples of factors that will have a negative impact on the multiplier amount are too many competitors and a declining market.
Value Based on Assets
Value based on assets takes a look at both the tangible and intangible components that make up the company. Companies may choose to use this method if their selling their company when it is not in its most successful condition. Choosing to focus on assets rather than cash flow is a more successful method for the seller and will more appropriately value their business. This method is used to determine the tangible assets, first. This includes things like the facility and the product owned by the company. This value comprises the rock bottom value and acts as the starting point. After this has been determined, the intangible assets are considered and added to the figure. Intangible assets include things like customers, brand name, and trademarks. Using this method usually requires a business owner to hire an appraiser. When purchasing a company, make sure to ask for an overview of the assets that they included in the price and the value of each.
When listing a company, a seller will often use both of these valuation methods and choose the one with the outcome that benefits them the most. Having an understanding of each process will help you to determine the fairness of the asking price. Having this knowledge will also give you some leveraging power to negotiate. Empower yourself by learning the appraising and valuing process and set yourself up to make a wise and profitable business purchase.