If you own a small business and want to expand, or if you are an individual who wants to own a small business, you may be tempted to create one organically. You might think that long term, an organic start-up will save you money; however, this is the furthest from the truth.
Statistics show that only one out of ten start-ups actually succeed, and the ones that do usually don’t turn the corner to profitability until more than five years in business.
The better option often is to buy an existing business with the infrastructure already in place: employees, vendors, customers, etc. That way, you will already have revenue coming in the day you acquire the business.
I used to own a Minneapolis hospitality business. In 2006, we decided to expand into Chicago. At the time, there were eleven existing competitors.
We spent a large amount of time and money establishing our brand in Chicago, hiring employees, creating relationships with vendors and finding customers. Despite our best efforts, we closed our Chicago office after just two years. Overall, our venture into Chicago cost us $250,000.00. Rather than investing our capital in a failed attempt at starting our own business in Chicago, we could have put our money towards a down payment on a business with existing revenues, employees, customers, and vendors. Not only that, we also would have eliminated one of our eleven competitors in the process.
Buying an existing business is not all that complicated. Currently, SBA financing can be structured with as little as 10% down. That means to buy a $2MM business, you would only need $200,000.00.
Instead of spending endless hours trying to start a business from scratch, put your time and energy into researching existing businesses that have a strong foundation upon which you can build. One way to begin this process is to look at websites such as Axial and BizBuysell that have extensive inventories of businesses for sale.
You will also want to establish a relationship with a business intermediary, like myself, who will introduce you to business owners wanting to sell.
At the end of the day, starting a business organically is a much greater financial burden than acquiring a pre-existing business. To stay ahead of the game financially, your best option is buying a business rather than trying to start one yourself.
This article was written by Sam Thompson. Sam is the president and owner of Transitions In Business, a Minnesota based M&A firm that specializes in selling healthcare, business to business, transportation, manufacturing, distribution and IT companies. Sam is a Merger and Acquisition Master Intermediary (M&AMI) and a Certified Business Intermediary who has successfully guided countless business owners through the sale or merger of their company. Prior to becoming an intermediary, Sam was a successful CEO and business owner for 29 years before selling his $16 million business.