Becoming an entrepreneur generally means starting a new business from scratch. While this is highly rewarding, it also takes a lot of time and effort to get the business operating profitably. There’s also a lot of risk involved in starting something new.
This is why acquiring a business is an attractive option for many entrepreneurs. By acquiring an existing business, you can take over a business model and brand that is already established. You can also acquire a business already generating a profit, so there’s often less risk involved.
If this approach to business ownership sounds appealing, here are some different ways that you can acquire a business.
Franchising
Franchising is a type of agreement where the franchisor (the original business owner) lets the franchisee open up a new branch of the business. The franchisee gets to use the franchisor’s brand name, trademarks, and products.
Franchising can be a smart way of opening a new business, because you get to use an already proven business model, and you start with an already established brand. Franchisors also offer support to franchisees to help them establish and manage the business to the right standards.
The downside to opening a franchise is that the franchisee doesn’t have much freedom to run the business the way they want to. Paying for franchising agreements can also be expensive.
Buying Into an Existing Business
It’s possible to buy into an existing business by purchasing enough shares to put you into an ownership position. You could purchase the business outright, or buy into a portion of ownership and become a partner.
Buying into an existing business can be a good idea because you can join a business that has already established itself and is already generating a profit. When doing this, you should have a good idea of what you can bring to the table to grow the existing business even further.
There are a couple of different options for buying into a business. One example is a management buyout, where the business’s existing management team purchase the business from the owner. This often happens when the owner wants to retire and leave the business in trusted employees’ hands.
Mergers and Acquisitions
If you already own and operate a business, you can purchase another business and merge it into your existing company. Mergers and acquisitions are done when a business purchases another business that can complement what it does, or add another valuable element, product, or service, to expand the existing business’s opportunities.
Mergers and acquisitions can be very complex scenarios that require plenty of assistance from financial and legal professionals.
Joint Ventures and Partnerships
Joint ventures and partnerships happen when two business pool their resources and expertise to establish a shared business venture. Of course, this avenue of acquiring a business is only possible if you already have an established business.
Joint ventures and partnerships are done to help businesses access a wider market share or expand into new markets. This is effective because merging with an already established business helps you generate results straight away, as opposed to starting a new venture from scratch.
Asset Purchase
An asset purchase is when you buy specific assets from an existing company, like their equipment and stock. This often happens when a business closes down and wants to sell everything they own.
In an asset purchase, you don’t acquire the entire business and don’t trade under the original business’s name. This means this approach actually involves starting a new business from scratch.
However, you can take an already-established business, purchase its assets, and simply continue operating in the same way under a new name. Some common examples of this are purchasing the assets of a bakery or petrol station, and continuing the same business model with a different brand.
Auctions and Bankruptcy Sales
Businesses are sometimes sold through auctions or bankruptcy proceedings. If you find a suitable business being sold in this way, it could be a great way to acquire a business at a lower cost.
However, businesses sold through auctions and bankruptcy proceedings often come with a lot of potential risks that you’ll need to take on.
These are some of the best avenues for acquiring a business. Whatever approach you take, make sure that you understand the opportunities and risks involved in each scenario. While acquiring a business overcomes many of the risks of starting a new business, the process still comes with its own unique challenges.
Original Source: SME South Africa