Given that roughly 10,000 Baby Boomers turn 65 every day, and this trend will continue until 2029, when the generation’s youngest members reach that milestone, right now is one of the most opportune times to make such a purchase.
Indeed, the retirement of Baby Boomers is such a major shift in demographics, it’s been dubbed the “silver tsunami,” and it has the potential to flood the market with a significant number of highly profitable businesses being put up for sale. According to the California Association of Business Brokers, over the next two decades retiring Boomers will sell or bequeath more than 12 million businesses, with a total value estimated to be worth more than $10 trillion.
Although buying an existing business may not seem as sexy as launching a startup, with so many businesses up for grabs, you should at least consider the option. Existing businesses not only have the potential to be real moneymakers, but they also offer you the opportunity to build your own unique company upon a foundation that’s already proven solid—without having to start from nothing.
Here are a handful of benefits you stand to gain from purchasing an existing company versus starting a brand new one.
Easier to find funding: When purchasing an established business, you already know the underlying business model works—and so will others. With a built-in customer base, marketing program, team, and revenue, you’ll undoubtedly find that financing your purchase will be far easier than trying to convince lenders to back a product or service that’s yet to prove profitable. We may even be able to support you in buying a business with zero out of pocket. Ask us about that possibility.
Positioned for growth: Instead of working non-stop for years just to get your operation up and running, buying an existing business allows you to immediately focus on improving and growing your company. With the tedious tasks involved with startups already taken care of, you can devote all of your precious time, energy, attention, and money (TEAM) resources to coming up with new products and services or expanding your appeal to new customers.
We can assist you in analyzing the existing business’ legal, insurance, financial, and tax (LIFT) systems to ensure the company you are acquiring has a solid foundation that can be effectively scaled for growth.
Brand recognition: You are not only buying a business—you are buying a brand. By acquiring an established brand, you’ll be in a prime position to rapidly build upon that brand’s existing reputation and generate new business and customers, as opposed to slowly building credibility and loyalty with a completely unknown name and concept. And having access to existing marketing channels will make growing the brand that much easier.
Established relationships: Whether it’s customers, vendors, or staff, purchasing an existing business offers you a huge advantage in terms of having essential relationships already in place. It can take years to build such connections from the ground up. Indeed, having the right people involved with your business at these levels is one of the most critical parts of any company’s success.
To ensure that all of the company’s existing relationships are properly set up, protected, and governed, we can help you review, update, and/or replace the business’ existing sales, vendor, and employment agreements.
Positive cash flow: New startups often go through an initial phase when they don’t generate any profits. In fact, experts say it’s not uncommon for new businesses to not make any money for three years. When starved for cash this long, it’s all too easy to become demoralized or even give up entirely. Contrast that with buying an existing business that will be earning profits from the moment you take over.
That said, just because an existing business appears to be highly profitable on the surface doesn’t mean there aren’t major leaks of cash just below the waterline. We can work in tandem with your CPA to investigate the company’s financials to be certain its books aren’t cooked and the business has undergone a proper valuation.
A team effort
While buying a new business is often somewhat easier than starting one from scratch, the process of locating, vetting, and negotiating the purchase can be quite extensive in itself. Given this, we recommend that you put together an acquisition team to ensure the process is managed correctly.
We, as your Family Business Lawyer™, can assist you with all of the legal issues related to the purchase and put you in touch with other trusted professionals to round out the rest of your team. Schedule an appointment with us today to learn more.
This article is a service of Erin Williams, Family Business Lawyer™. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session™ or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule. 720-312-1874