THE BLOG
28/03/2012 10:38 BST | Updated 26/05/2012 06:12 BST

The Buyup (Not the Startup)

Speak to anyone about going into business and they may immediately think about starting from scratch. Yet there is an alternative. Entrepreneurs should reconsider establishing a startup and instead focus on buying an already successful business.

Speak to anyone about going into business and they may immediately think about starting from scratch.

Yet there is an alternative. Entrepreneurs should reconsider establishing a startup and instead focus on buying an already successful business.

Why? To start, statistics are weighted in a buyer's favour -- providing he or she chooses the right acquisition.

Pre-Credit Crunch Barclays research suggested that 25 percent of businesses failed in their first year, while more recent statistics suggest that one in three go under within three years.

These are of course, only stats. But - with the right skills and experience - buying could be a less risky undertaking.

Lower risk

An entrepreneur who buys a business can jump ahead of the difficult first few years of a start-up and start trading with a strong reputation and financials. No business is guaranteed success, but an established concern with a loyal client base, trained employees and brand recognition gives the owner a head start in their chosen industry.

Downturn bargains

A recent survey revealed that 80% of sellers were willing to be flexible with their valuation to either generate a quick sale or because of credit shortages. This paves the way for those with redundancy payments, cash raised from asset sales or savings to pick up an interesting business. Or risk-taking buyers could bag a bargain and boost the profitability of a struggling business. The survey also found that 38% of buyers were expecting to find bargains because of the economic climate.

Less time and effort

Business buying is often more straightforward than starting a brand-new venture. Firstly, some sectors are conducive to purchasing going concerns. Why buy unfitted premises for a post office or pub when premises, stock and goodwill can be conveniently purchased as a whole?

Secondly, vendors often stay on after the sale to advise and train buyers. Mentoring can help start-ups but having someone on board who knows their business inside-out is invaluable.

And lastly, buying a business simply takes less time. The sales process tends to take between 6-12 months, after which you have a revenue-generating business, whereas start-ups can take a couple of years to break even.

However, the buy-up is not without its pitfalls. Failing to narrow down sector, location or suitability from the outset, ignorance of the true cost of buying and sloppy due diligence can all lead to frustration, overpayment or the acquisition of an unsound or unsuitable business.

Buyers also have less control of an existing business and its identity; a start-up can be anything the owners want it to be. Even rebranding could be met by staff resentment.

Critically, businesses are frequently more expensive to buy than start-ups, with sellers demanding a large lump sum for the goodwill and custom they've generated. Plus lawyers, accountants and business transfer agents (the estate agents of business sales) come at a cost.

So what characterises a business buyer?

It makes little sense that successful middle-managers who have worked in stressful roles at large companies somehow lose their nerve when deciding to become the boss.

Purchasing a business is arguably easier than ever before, with the internet the tool of choice. Online classified directories such as BusinessesForSale.com showcase SMEs for sale and allow buyers to quickly tailor searches to their requirements. And websites such as Duedil.com, where you can access a company's financial records, assist with due diligence.

But those not wanting to go it entirely alone could hire a broker (often called a business transfer agent) to help analyse potential purchases, negotiate with sellers and conduct an independent valuation, although buyers are not obligated to use them.

And acquisitions are better suited for cautious business types. Broker Steve Skrlac sees buyers as "much more risk-averse as those starting from scratch, as an existing business is a proven, successful entity."

So with such benefits, anyone with the funds, the willingness to adapt and the desire to hit the ground running should sack the start-up and buy a business instead.