Thinking of buying a business instead of starting one? Matt breaks down what that really means in terms of risk, funding, and long-term success. This is his reaction to a common argument that buying is the “easier” path—something he’s seen play out both ways in real life. Watch before you jump in!
There are tons of people out on social media giving business advice. Some of it is good advice, but most of it isn’t good. In this series watch CapForge’s owner react to different advice videos. He’s an expert in all things business and has 20+ years of experience under his belt. Some of the things he reacts to might even surprise you!
Video Transcript:
Business Advice Video:
The reason why I enjoy purchasing existing businesses is because I can see what those businesses are currently doing. It’s actually easier to get a loan for a business that is a new business, at least if you’re going with SBA, that’s a new business and the existing business. And the reason why is because with the new business we can go off projections, and I project that it’s going to do X based on me doing XY and Z and here goes my business plan. With an existing business, there is no projections. You’re going based off what the business is actually doing. So if you’re trying to get the loan, they’re going to give you the loan or they’re going to approve the loan based on what the business is actually doing.
Matt’s Review:
Yes, I would agree in that you can much more easily fund a business that exists and that has provable cash flow and the bank can look at it and say, “okay, this is how much it makes every month or has typically made every month the last two years, three years. And so we’ll lend you up to some amount that’s less than that, that you’d be able to pay back by doing the same. And then if you grow it, even better.” But when a business hasn’t been started yet or is brand new and isn’t producing any profits yet, the bank is gonna be very hard-pressed to give you any money for that because they simply don’t know if you’re ever going to be in a position to be able to pay them back. It’s much riskier for them. So buying an existing business can be a great way to get into entrepreneurship. You have to be really careful that you understand exactly what you’re buying, that the numbers they’re showing you are accurate and correct. And that you as a new owner, would be able to get the same or better numbers than what they’ve historically been getting. There’s nothing happening behind the scenes causing them to do well that you wouldn’t also be able or willing to do. So if that’s the entrepreneurship path you’re on is to go buy a business instead of starting one from scratch. Absolutely can work out. I’ve done it myself, but it is not easier. Just like I always say, there’s no greener grass, there’s no easier path to profits or success. It’s all hard work. It’s just different ways of getting there. Buying a business, still hard work, still involves some risks, still involves some sleepless nights and figuring it all out. But it is another way to get into entrepreneurship that doesn’t require that you start at zero, but generally, then does require that you personally guarantee a loan that would be probably difficult, if not impossible, to pay back if the thing you’re buying with it doesn’t work out.