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Should I Start a New Limo Business or Buy an Existing One?

Last updated on July 22, 2010 by Sozo Staff Leave a Comment

A career in the limousine and chauffeured transportation industry can begin in one of two ways: buying a business or starting one. There is nothing wrong with either approach. However, the probability of success is much higher when buying an existing business. Here is why.

Statistics:

According to the SBA, new businesses with less than 20 employees have a 37% chance of surviving four years and a 9% chance of lasting 10 years in business. If you want to dramatically increase your odds of succeeding in the limousine industry, start your career by buying an established business with a solid foundation for success.

Available capital

Capital is required whether you are buying an existing business or staring a new one.  Many entrepreneurs overestimate the initial capital required for buying an existing business. Seller financing and traditional lending sources can make acquiring a business very accessible. And once the business is purchased, it will come with a built in source of income. Similarly, many entrepreneurs often underestimate the initial capital required. From developing an online marketing presence to purchasing reservation software, certain start up expenses are unavoidable. Buying an existing business is a much better way to get the biggest bang for your buck.

Customer Base

Particularly in a recovering economy, established customers are precious. In most cases, it is far less expensive to buy a customer than it is to develop one. The market for repeat customers can be highly competitive. New business owners are prone to entering the market and undercutting competition to take customers away from more established operations. This usually ends in failure because the new owner can not operate profitably using this method. A better solution is to pay for a business with established clients who are conditioned to pay prices that will allow your business to be profitable over the long term.

Processes & Procedures

The limousine industry offers little margin for error. Buying an existing business includes buying the processes and procedures of that business.  The processes may not be perfect, but they will most likely protect the new owner from having to learn many costly lessons the hard the way. This can save a business owner hundreds of thousands of dollars and countless hours of time in the long run.

Employees & Training

Along with the processes and procedures, acquiring an existing business often includes valuable employees. The skills of the employees and their relationships with customers and vendors are difficult to put a price tag on. Learning from the experience and professionalism of key employees included in a business purchase may have more influence on your long term success in this industry than any other factor. Additionally, it is very common for the previous owner to provide training to the new owner over a reasonable period of time following the purchase which, again, is a valuable investment in your career.

Risks

The greatest risk in buying an existing business is paying too much for the business. It is easy to get caught up in the glamour of the industry. If you don’t buy correctly, it will not matter how successful your business becomes. It still may be impossible to pay debt service. That is why it is critical to get an objective second opinion from an industry transaction specialist before signing the dotted line.  Last year The Tenney Group saved a buyer $400,000 through a term sheet review which took 48 hours.

Do people start limousine businesses and find success over time? Of course. However, this is the most difficult and risky path toward building a lasting career in the limousine industry or any industry for that matter. The better solution is to buy an existing formula that works and then make it your own.

Filed Under: Transportation

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