These statistics are not meant to frighten you or deter you from pursuing your entrepreneurial dreams. Instead, they serve as a message to consider other alternatives to starting a business, namely buying a pre-existing business.
Unfortunately many would be business owners don’t consider the option of buying a business as a viable option. The most common objection is that “it costs too much money” and that starting a business from scratch is a more affordable alternative.
If you work out the costs of starting your own small business, the costs can overwhelm you. Consider the following start-up costs, which are expenses that can occur before the start of your business, such as:
- Administrative costs: including business licenses and permits, rent, utilities, desks, chairs, cabinets, product packaging, stationary materials, parking, etc.
- Professional fees: legal fees pertaining to the structure of your business, trademarks, copyrights, patents, consultation fees, etc.
- Cost of sales: inventory, materials, equipment, packaging, warehousing, shipping, etc.
- Technology costs: including computer hardware, software, website development and management, internet access, servers, printers, IT consulting, cell phones, fax machines, copiers, etc.
- Marketing fees: marketing materials, advertising, event fees, membership fees, leads list, etc.
- Employment costs: salaries, benefits, workers compensation, etc.
*Click here for an extensive checklist of start-up costs. Once you’ve done that, you’ll have a better picture of how much you will need to invest into a start-up business.
Does it still seem like a viable alternative? If it isn’t don’t be discouraged. Do you want to become a successful business owner fast? Then skip the start-up stage! Buying a pre-existing business can be a more suitable option for the budding entrepreneur.
While you won’t be able to purchase a pre-existing business for free (for more information, read our guide on the costs of buying a business), with some creative financing options, you will be amazed with what you can afford.
Here are some important financing options to consider when deciding how to buy a business for the first time:
Debt financing involves borrowing money from an outside source, such as a bank. This means you’ll enter an agreement to pay back the loan with an agreed-upon interest rate. Should you fail to qualify for financing from a lending institution, acquiring private debt financing from acquaintances may be a more suitable option.
Equity financing involves selling ownership in the business (in the form of stocks or shares) to outside investors, such as angel investors or venture capitalists. While you will be relinquishing part of your ownership in the business, you are not required to return this capital or distribute future earnings in the form of dividends.
Seller financing involves obtaining a loan from the previous business owner in order to purchase and operate the business. This means you will make payments to the previous owner over a specified time period instead of having to come up with the full payment upfront. By using the seller to finance a part of the purchase price, you will be able to obtain a larger loan than would be possible if the deal were financed through conventional financing means.
While starting a business from scratch may be a better option for some, buying an existing business can be a simpler, less stressful, and often more cost-effective alternative. By purchasing a pre-existing business, you’ll be able to live out your entrepreneurial dream without the stress associated with starting from scratch.