One question we ask quite often is, should I grow internally or should I buy a business? Growing internally can be a slow, painful process that it takes time to grow a business to get turnover. However, buying a business could mean that you have cashflow from day one. There’s this pros and cons for both talking about buying a business. Some of the pros are:
- You could potentially have excess capacity that you can bring over to grow the existing businesses
- It could be in a different geographic area, or a different demographic of people, different products or services that matching with what you do.
If you’re going to buy business, then generally you’ve got to pay for the business, you don’t get them for free. Naturally, there needs to be an exchange of money between the old owner and the new owner.
There’s the various ways of financing that it could be a vendor finance loan, or it could be a bank loan, could be a loan from family and friends. Ultimately, there’s generally some type of loan that’s involved there, which means that you’re going to need to pay that back and you need to factor that into your cash flows.
The other thing with buying a business is you get the good, bad and the ugly: if they have a great reputation, but everything relies on the old business owner, then you need to find a way to wean the existing customers off that relationship and into new relationships with other staff. The ugly side of it, if they’ve got a bad reputation, then you’re caught with that bad reputation as well.
So there’s no definitive answer should I buy should I grow? It depends on each and every situation that comes around and you need to look at them independently. You need to look at the opportunities, have a look, see what’s available. Do your due diligence, make sure that the business that you buy is worth what you’re buying, and making sure that you’re going to have the ability to easily bring that business in with your existing business to grow something that’s going to be a bigger, better and hopefully, more profitable enterprise.