Flipping an existing business is often an overlooked alternative to starting up a business from scratch. If you already have the skeleton in place – the logo, letterhead, employees and brand recognition – why not take the reigns of an existing business, and make it profitable? Below, we look at the advantages and risks when you flip a business.
What Are The Steps Involved In Flipping a Business?
Finding The Right One
Finding the right business to flip is relatively straightforward. One way to begin your search is by identifying a trend that has the potential to impact an industry significantly. Then, look for a company that has not yet embraced this new way of doing business. You should, however, avoid buying a business in an unfamiliar field. Another way to identify a good business to flip is one that continually generates a profit, despite poor management.
Of course not all businesses will be good choices. For example, a company that is founded on a bad idea, or is in an undesirable location, may not be worth your efforts. Make sure that you carefully complete your due diligence.
Flipping a business will also require months or even years before you get something out of it, so be careful you don’t pick a company that will only be popular (and profitable) for a short period.
Purchasing the Business
Purchase the business, and get started! The purchase price is important to your overall profits so try to find a win-win scenario that benefits both you and the seller. Many believe we are already in a built-to-flip economy, where people are moving away from the traditional idea of creating an enduring business that will withstand adversity and change. So finding the right company to flip may just be easier than you first thought.
What are the Advantages of Flipping Up a Business?
- Customer base: Flipping a business could potentially eliminate all costs associated with finding clients and with marketing and advertising.
- Use of Pre-Existing Systems: Using existing software, or even updating it, could be a huge time and money saver.
Flipping Up a Business: A Walk In the Park?
Flipping a business, like starting a business, attracts the same challenges. If you plan to hire a fantastic manager to turn the business around, and simply watch it bloom from the sideline, you may want to re-consider. Although involving yourself in the process requires significant effort, it will produce better results.
Even if your purchase did not drain your resources significantly, the actual flipping process might need you to look into other methods of raising capital, especially if the changes you make to the business are causing a temporary revenue decline. Common avenues for funding include raising money from ‘Angels’ (affluent individuals who provide capital in exchange for convertible debt or ownership equity), investors, and venture capitalists.
Lastly, flipping a business will require a substantial emotional and time commitment. For this reason, it might be worth picking a business within a field that interests you, to increase your motivation.
What are the Risks?
Not unlike startups, flipping a business involves substantial risk – your money, assets and personal life are on the line. Despite conducting due diligence on the business you intend to flip, and coming up with a stellar business plan, ventures sometimes fail. You will have to be flexible enough to try various strategies, and plan ahead in case things don’t work out the way you intend.
Key Takeaways
Overall, with a balance of hard work, appropriate skills, enthusiasm and a willingness to take risks, reshaping an existing business is an attractive alternative to starting up a business from scratch. A change in management may be all that is required to steer it to success. Questions about flipping a business? Get in touch with our business lawyers on 1300 544 755.
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