Pros and Cons of Buying a Business in Singapore: A Guide for Aspiring Entrepreneurs

While the idea of entrepreneurship may seem enticing to aspiring entrepreneurs, most people grossly underestimate the challenges, time and resources required to build a successful business. I have prior experience in building a few businesses before, and will share my insights on entrepreneurship in a no BS manner.

There are many reasons why people are drawn to the idea of entrepreneurship. This includes the pursuit of wealth, lack of employment opportunities, an avenue to pursue their interest, seeking a work-life balance and etc.

In this article, we will explore the pros and cons of buying a business in Singapore. Hopefully this will give useful knowledge and perspective in making an informed decision.

Benefits of Buying a Business in Singapore

Let's dive into the advantages of buying a business in Singapore.

Hit the Ground Running: Starting from scratch involves establishing the product market fit, building brand recognition, establishing customer base, and developing your operational process. While this may sound simple, executing each aspect of it can easily take weeks, if not months. Building something tangible typically take years.

In Singapore, depending on the types of businesses you are building, you may need to get the right licence. The application of such permit or license can take up to 6 months, or even longer. E.g. URA, SFA, MOM, Case Trust etc

A lot of the new entrepreneurs struggle to come up with a viable product that delivers real value and has sufficient demand. For B2B businesses, it’s common to take up to a year or even longer to find their first 10 customers.

By buying an existing business, you gain immediate access to a loyal customer base, a proven business model, brand recognition and cashflow (from operation), allowing you to focus on growth and optimization.

Reduced Risk: Building a new business involves inherent risks. You may misjudge market demands, struggle to attract customers, or face difficulty in finding the right talent. By acquiring an existing business with a successful track record, you mitigate these risks significantly.

According to the U.S. Bureau of Labor Statistics (BLS), approximately 20% of new businesses fail during the first two years of being open and 45% during the first five years. I suspect that in Singapore, at least 50% of the businesses goes kaput in their first 2 years.

Faster Return on Investment (ROI): When you start a new business, it typically takes at least 2 to 3 years to achieve profitability. During this period, it’s common for entrepreneurs to go unpaid while they are bootstrapping the business up.

Business acquisition allows you to start generating revenue immediately, potentially leading to a faster ROI on your investment. A key consideration for most business acquisition is the cashflow projection. While cashflow projection is important, you should ask yourself if you have the right skills to grow the business.

An example is acquiring an agency business. This can be an accounting firm, recruitment or marketing agency. Do you have the right skillsets to operate such a business? People skill to manage your staff and existing customers. B2B sale skill to acquire new customers. There are many aspiring entrepreneurs who struggle with sales. In this case, they might have an easier time with a B2C marketing driven business.

Established Infrastructure: An existing business already has the infrastructure in place – office space, equipment, supply chains, and operational processes. This saves you time and money compared to starting from scratch. It takes a lot of time and effort to establish reliable vendors (especially overseas suppliers), which can affect your product launch if you are in product business. It normally takes a few batches of supply to determine the product quality and the reliability of the supplier.

Trained Workforce: You inherit a team of trained employees who understand the business and its customer base. This reduces the need for extensive training and allows you to leverage their expertise. Hiring people, training them to be competent and building process takes a lot of time, energy, plus trial and error. There are many sectors in Singapore that struggle with recruitment of local candidates. E.g. F&B, Retail, Healthcare, Engineering, etc.

Getting sufficient work permit and employment pass can be a struggle for SMEs. (small medium enterprises)

Easier Access to Financing: Financial institutions often view established businesses with a proven track record more favourably when considering loan applications. The past years of sales, profitability, bank balance and credit rating score are crucial to the success of the business loan approval. This makes it easier to secure funding for expansion or future investments.

Acquisition as a Stepping Stone: Buying a business in Singapore can be a strategic move to enter a new market or industry. For experienced business owners, such strategic acquisition can provide them with additional cashflow, know-how and spring board for new market entry.

An example of this is White Coat acquisition of Indonesian telemedicine startup Good Doctor. This allows them to penetrate into Indonesia market, which could have taken them years to do so if they are to adopt a conventional organic growth method.

Read Next Article: 6 Reasons Why People Buy Business in Singapore

Challenges of Buying a Business in Singapore

While buying a business in Singapore offers numerous advantages, it's crucial to be aware of the potential challenges associated with this path:

Hidden Liabilities: It's essential to conduct a thorough due diligence to uncover any hidden debts, legal issues, or environmental liabilities associated with the business. These unexpected costs can significantly impact your finances and business growth trajectory.

Pro Tip: Use a third party professional to conduct due diligence.

Integration Challenges: Merging your vision with the existing company culture and employee dynamics can be challenging. You'll need to navigate change management effectively to ensure a smooth transition and maintain employee morale. It’s common for SMEs to have many long serving employees, and convincing them about new changes can be a challenge.

Pro Tip: Take the 1st year to learn more about the business and know the people. Don’t be in a haste to implement major changes immediately.

Outdated Technology: The business might be using outdated technology or equipment. There are many SMEs in Singapore that may not use any CRM tool, and instead just update everything on excel. Modernizing these resources requires additional investment, impacting your initial budget and planning.

Limited Growth Potential: An established business model may have limited growth potential depending on market trends and customer preferences. Carefully assess the business's growth trajectory and potential before proceeding. This is particularly important, given Singapore small market size. Determine for yourself if you are willing to expend the necessary resources for international market expansion.

Can you spot Singapore in this map?

Past Performance Issues: Past financial records and performance indicators can reveal underlying problems. Analyse these carefully to determine if it’s a structural or operational issue that needs to be address. If you have identified the issue, ask yourself if you have the resources or skills to resolve it.

Industry-Specific Challenges: Every industry has its own set of challenges. Research the specific industry and sector to understand the current landscape and potential roadblocks you may encounter.

An example is Lucy buying over a 10 years old recruitment agency that has stagnant sales and profitability. She bought the business because it is “value for money” and her confidence in turning around the business. During the evaluation process, she failed to identify that the company culture is an issue and this causes many experienced recruiters to leave the firm.

Lucy is unaware that this is a hyper competitive market, with more than 3,000 local registered recruitment firms in Singapore. Not forgetting foreign based recruitment firms tapping into Singapore employment market. 2 years after buying over the business, the sale dropped by 50 percent.

The above is a realistic situation that may happen to anyone. Especially if they are not familiar with the market, did not do a proper assessment and do not possess the right skillset or resources to operate the business.

Pro Tip: Be wary of “Good Value for Money” Business. They are cheap for a reason.

Essential Considerations Before Buying a Business in Singapore

Before taking the plunge, consider these critical factors:

Clearly Define Your Goals: What are your long-term objectives for yourself and the business? Knowing your goals will help you identify the type of business that best aligns with your vision.

Determine Your Acquisition Budget: It’s important to set aside a budget to buy business in Singapore, and a secondary budget to serve as working capital or scaling the business. (It should be 20% - 30% of the total acquisition budget)

Expertise: Do you have experience in the business you are considering for acquisition? Having industry knowledge and relevant skill sets is essential for scaling the business.

Financial Due Diligence: Invest in a comprehensive financial due diligence process. This involves reviewing the company's financial records, legal documents, and contracts to uncover any potential problems.

Legal and Tax Implications: Seek professional legal and tax advice to understand the legal and tax implications of acquiring a business. This will help you ensure compliance with all regulations and avoid any legal or tax hurdles.

In summary, acquiring a profitable business can potentially work very well if you know what you are doing. If in doubt, you should always consult a Singapore business broker who has entrepreneurial experience to help you in this Entrepreneurship through acquisition (ETA) route.

Read Next Article: 10 Effective Ways to Increase Sales for Your Business!

Whether you are looking to buy business in Singapore or sell business in Singapore, let us help you. Talk to a business broker in Singapore today.