27 Jun Less Risky Business: Buy a Business
In a recent Harvard Business Review article, Harvard Business School professors Richard S. Ruback and Royce Yudkoff advocate for more aspiring entrepreneurs to pursue their goals by buying a business. They site concern over risk as the most common explanation for shying away from acquisition. They further argue that these concerns are short sighted and unfounded.
“We think that these concerns about ‘risk’ are misplaced and that searching for a business is less risky than other career paths that are traditionally considered more stable,” they write.
“Nine out of ten startups will fail. This is a hard and bleak truth,” says Forbes contributor Neil Patel. “Cold statistics like these are not intended to discourage entrepreneurs, but to encourage them to work smarter.”
Top 10 Reasons Startup Fail (by CB Insights)
Purchasing a vetted business allows you to avoid many of the reasons for this high failure rate. “Your chances of success are far greater buying an existing business than starting your own,” says Michael Greene, President of Sam Goldenberg and Associates. “A good broker can help you find an established business that already has a proven success model, history of revenue generation, and immediate cash flow. It can also come with much more: inventory, trained employees, a customer base, operating systems, equipment, vendors, transitional support—the list goes on. It is a more manageable risk than other options.”
“Finding an existing local business for sale can often be less risky and more satisfying and rewarding than starting completely from scratch,” says Simon Brackley, President and CEO of the Santa Fe Chamber of Commerce. “Aspiring entrepreneurs can enjoy improvements in operations, marketing and strategy rather than starting from the ground up.”
Navigating the Search for a Business
Unfamiliarity with the search process is a major source of concern, according to Ruback and Yudkoff. For many buyers, there are uncomfortably many unknowns along the way.
A buyer can drastically limit risk in the area of search success by working with a broker. According to an International Business Brokers’ Association Market Pulse survey, “Dating back to the earliest Market Pulse surveys in 2012, surveyed advisors consistently report that approximately 49-50% of their engagements closed in a successful transition while half are terminated. This closing ratio is approximately twice the accepted industry standard of anywhere from 18% to 30%, depending on deal size.”
Buying a Small Business
Furthermore, according to IBBA, it is an especially good time for people looking to buy a business in the range of $500,000 or less. This is the range of most small businesses for sale in New Mexico. “Small business confidence is at a record high, with the longest stream of small business optimism in history.”
A broker further helps to mitigate risk by facilitating negotiations, advising on financing, and setting up support during the transition between business owners. Click here to find out more about how brokers support buyers throughout the search for and purchase of the right business.
Finally, Ruback and Yudkoff suggest that buying a business results in less stress, more success, and higher quality of life in the long run.
“The searcher becomes a CEO of a business. Over time the business evolves to match the CEO, the management team is picked by the CEO, the products and customer base shifts to align with the CEO’s skills and interests, and the CEO is likely to understand the business better than competitors. Plus, the CEO’s significant ownership interest adds both to rewards and stability. In the long run, we think that being a senior consultant involves much more angst than being the CEO of a small business.”
Plus, with good exit planning, owning a business helps you create options for your next phase of life.
If you are considering entrepreneurship through acquisition, congratulations! Click here to get started by looking at our current listings.