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Buying a Business: The Safer Alternative

So you have made the decision to become an entrepreneur. Starting a business is no easy task. If you are serious about operating your own business, you might want to consider minimizing some of the anguish and pain associated with startups by purchasing an established business.

Since many experts have predicted that a significant percentage of the workforce will be working in a self-employment capacity in the next decade, business ownership is becoming increasingly more important to many people.

For a financing perspective, you'll have a much easier time securing capital from lenders by taking over an established business, than starting one from scratch. Not to mention, you’ll dramatically minimize the financial risk to yourself and your finance partners because the company will have proven revenue and a customer base.

Many lenders will fund 50% to 75% of the acquisition cost for businesses depending on a number of factors such as the cashflow numbers, assets and security available.

It is estimated that less than 10% of all startup businesses are able to successfully secure the financing required at the outset. This is due to the high level of risk start-ups pose to lenders because every aspect of the business is unproven. Yet many people dream of the freedom and control over their own destiny that comes with owning and successfully managing their own business.

Buying an existing business or established franchise will dramatically reduce the risk when compared with starups since statistics estimate that 60% of start-up businesses fail within the first three years. Additionally it takes two years on average for a start-up to become profitable. Even comparing start-ups with such other options as home-based businesses or MLMs, in most cases, your chances of success are still clearly best when you buy an existing business. Outlined below are the ten primary advantages of business acquisition vs start-up:

1) Much lower risk of failure,
2) Business generates cash flow from day one (preferably positive cash),
3) Proven business concept and processes,
4) Proven products, services, marketing and sales strategies,
5) Established customer base providing referrals and references,
6) Established suppliers,
7) Trained employees in place,
8) Immediate credibility and perception of success,
9) Seller likely to lend support and may assist with financing,
10) Easier to secure affordable financing to complete the acquisition.

If the business has a positive cashflow, proven track record and perceived stability, it makes it easier to secure affordable acquisition financing. When starting a business, every aspect of the business is unknown. You don't know who your customers will be; you don't know how many employees you will need; you don't even know if the business will succeed! With some many unknown variables, lenders have no choice but to reject the financing request, labeling it as “too risky”.

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