Should You Form or Acquire Your 1st or Next Company?

Why acquiring an existing company is better than forming from scratch

One frequent conversation I’ve had with aspiring and seasoned entrepreneurs is whether to form a company from scratch or acquire an existing one.

Like everything in life, both choices have pros and cons. Choosing one over the other could make a difference between success and failure, depending on your unique situation.

What are the pros and cons of forming a company?

In the early days of my entrepreneurial journey, I couldn’t see the wisdom of acquiring an existing company. As a result, I opened Success Pathways from scratch in 2010.

Don’t get me wrong, there are some apparent benefits of forming a company. To name a few:

  1. You don’t inherit any good or bad baggage. You’ll have a clean start.
  2. You don’t invest huge sums of money to acquire a company.
  3. You don’t pay 10 – 12% commission for a business broker.
  4. You don’t spend thousands of dollars on closing costs.
  5. And more.

The downside of starting from scratch is that most new businesses fail.

AI just generated this grim stat for me: “According to the U.S. Bureau of Labor Statistics (BLS), 65% of new businesses fail within their first 10 years, and only 25% make it to 15 years or more. These statistics have remained relatively consistent since the 1990s”.

This is bad news for anyone who plans to start a new business.

With owning a new business comes the following uphill battles:

  1. Raising capital. Raising seed money is hard. Many investors will be skeptical about investing in a new company that doesn’t yet have proof of concept. This is especially true for sophisticated investors. They don’t throw their hard-earned money on a shiny idea that doesn’t yet have tangible results. Of course, in very rare cases, a few investors may take chances on startup ideas that are at a conceptual stage.
  2. Finding new customers. In one way or another, people were buying from somewhere before your new company showed up. Unless you have uniquely positioned products or services, how do you persuade prospective clients to choose you over other well-established businesses? Bringing new customers to a new and unknown brand is a huge hustle, to say the least.
  3. Recruiting A players. The best players are already working somewhere, most probably for decades-old and very profitable companies. Recruiting the best for a new business like yours is a tough sell.
  4. And so on…

The benefits of acquiring an existing company

On the other hand, if you acquire an existing company, you will benefit tremendously. For instance:

  1. You will have a company that has already met the legal requirements to operate in that industry.
  2. You will have products and services that have been already on the market.
  3. You will have an existing team.
  4. You will inherit a customer base.
  5. You will get a formed corporate culture.
  6. You will have systems and processes in place.
  7. And more.

Unsurprisingly, you may not like all existing products, services, team members, customers, cultural values, systems, and processes. You don’t need to keep everything you inherited. You can drop, customize, or add new ones…

For instance, let’s say the team you inherited is dysfunctional. That is okay; you don’t need to keep all team members. You only need a few key leaders and team members who know the industry, get along with important clients, and understand the ins and outs of the business well. You can use these few as a seed to build your best team.

That means you keep some, fire others, and, if necessary, hire new members to turn this failed team into one that functions like a well-oiled machine.

What are the key considerations before you purchase an existing company?

Buying an existing company doesn’t translate to success automatically. You should do your homework to buy the right company that can easily be scaled. Here are a very few things you should take into account:

  1. Find a company that is independent of the owner (s). A company that has a core team that can run the business without the presence of the founder (s).
  2. Make sure the company maintains key legal and accounting documents.
  3. Seek for a company that has scalable products and services.
  4. Look for a company that has already created trademarks, copyrights, patents, etc.

Don’t expect to find a perfectly packaged business for sale

Once you have these most important ingredients of an existing business, you can acquire and improve it as you envision it.

I intentionally said ‘the most important ingredients.’ Why? There is no perfect company!

For your information, many on-sell companies may have legal, financial, business, people, tax, and/or other liabilities.

Sophisticated investors hunt for companies in deep trouble. They search for highly motivated sellers. Why? Business owners who want to sell troubled companies understand that they must lower the valuation or give favorable terms to incentivize buyers willing to take risks.

These off-market buyers believe they can fix the issues of many struggling companies. They have the time, patience, and resources that motivated sellers may lack.

How can we help?

Here is good news. You’re not alone. Whether you plan to establish from scratch or acquire an existing one, we’ll be by your side throughout the process.

Moreover, we will stay after you register the new organization or buy the already established company to help you scale and take your newly owned company to the next level QUICKLY.

To learn more:

  1. Click here to check out our organizational consulting services.
  2. Click here to check out our business brokerage services.

Join our premium Buyers

Even if you’re not ready to purchase a company yet, we want you to join our Premium Buyers’ List. Reach out and let us know:

  1. Which industry are you interested in? Finance, IT, Tech, Health Care, etc.
  2. What type of business are you looking for?
  3. What price range can you afford? 500, 000 – 1, 000, 000 USD valuation; 1, 000, 000 – 4, 000, 000 USD valuation; 5, 000, 000 and above valuation.
  4. How do you plan to finance? Paying all cash, Loan, Seller Financing, and so on.

Whether you’re ready to buy now or not, why don’t you join our database? If you’re in our database, before we share any deal with the public, we’ll contact you when we have businesses meeting your criteria.

Right now, we have some deals in the pipeline, such as:

  • Well-established companies in the US and Ethiopia that are looking for accredited investors.
  • Owners interested in selling their businesses to Venture Capitalists and Private Equity Funds.
  • Start-up companies that are looking for seed money from angel investors.

Reach out, and let’s chat…

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