Buying vs Starting A Business

start business

marketing planIs Buying a Business or Starting Your Own The Best Option?

Becoming a business owner can be achieved in two main ways. Find out if starting your own or buying a business is the best entrepreneurial option for you.

Being your own boss is something many entrepreneurs dream of. However, there are many ways to get to that position, and it doesn’t mean that you have to start your own business from scratch.

You could take up a franchise or buy an existing company—also known as entrepreneurship through acquisition. It’s up to you which route you take.

Buying your business comes with its own list of pros and cons that are quite different from starting a brand new venture. However, either way, you will have to put in long hours and make hard choices. When you are the boss, the buck always stops with you.

So, what are the differences, and which option is right for you? Let’s find out…

1. Upfront Costs

It’s almost guaranteed that buying an existing business is more expensive initially than starting your own. This is because you have to purchase something that is already in operation—there will be tangible assets like stock, premises, and other assets that you will have to pay the current owner for. Plus, you’ll often pay for goodwill, the intangible assets like staff, loyal customers, excellent reputation, and supplier agreements.

If you are creating something from scratch, you can work your way up to paying for these business elements as you grow. There’s also no need to pay for goodwill, as you’ll create your own.

On the flip side, it’s often easier to get funding to purchase an existing business than it is to get startup capital. If an existing business has its finances in order, you can easily see if it is profitable and what path it’s on. You can also easily see if there is a market for the business. This is all information that an investor or a lender likes to see, as it illustrates that it’s a worthwhile investment.

When you’re starting something new, you have to do a lot of research into the market, the competitors, and your offering before you can put together a business plan. A lender or investor will take more of a risk in your ability to build your business, even though you’re probably asking for less capital than if you were buying an existing business.

2. Company Reputation

One of the hardest parts of starting your own business is building a reputation. You have to convince customers you are worth purchasing from, even though you have no foundation for them to trust you—yet. Marketing yourself effectively becomes critical, even before you open your doors.

When a business is already in operation and has loyal customers, running and marketing the company becomes far easier. Your business brand is already established, and customers are familiar with your presence in the market. You can take some time to get used to running the business before you turn your attention towards marketing and growing the company.

3. Becoming Profitable

If a business is worth buying, it’s already profitable. That said, you will have to factor in the expense of purchasing the company into your sums. You need to see how quickly you can earn back the upfront cost and breakeven on your purchase. The business itself should stay profitable if you keep going as is, but you do need to ensure you can make a profit and cover your upfront costs.

A brand-new business is a different story. Depending on what you are selling or offering, it can take years for a startup to become profitable. Until then, you’ll need to live off your savings or investment capital. It could be some time before you can start drawing a proper salary as the business owner.

4. Business Processes

An established business will have established processes. This can be a good thing or a bad thing, depending on how well the previous owner ran the company and how that gels with your style of management. It’s essential that you investigate the business processes before you make your purchase.

If the way the company works doesn’t fit with the way you want it to work, you may have a battle on your hands. Especially if there are several employees who have been with the company for a while.

The key elements to look at are the supply process, the accounting systems and the employee processes. Changing any of these three areas in an established company can be very difficult, and is often quite costly in the long run too.

When starting your own business, you need to create all the business processes yourself. These often grow organically over time as the company evolves and takes shape. However, it’s important to keep a close eye on your start-up processes to ensure that they can scale up in the future. If you start with doing everything by hand, switching over to an automated or electronic system down the line may be tough, but it will probably be necessary.

5. Your Passion For The Business

Being a business owner means you are the driving force for the company, as well as the decision maker and the person who keeps it all going. If you’re not passionate about the business or interested in it, you will find being the top dog difficult. You don’t have to be super passionate about the business every single second of every single day, but you need to keep feeling energized by running the company.

For many, this kind of passion comes from building the business from the ground up. The company idea came from you; it was your unique concept or spin on a concept that brought the business to life. This affection for a business can be harder to find for a company that you bought already fully established.

To Buy Or Not To Buy?

At the end of the day, the decision to buy a business or start your own is personal, and based on many factors. Weigh up the points we’ve covered and determine which option ticks the most boxes. Business ownership is a major step, and how you get there is up to you, your budget, and your entrepreneurial drive.

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Editorial Staff

This article was written by editorial staff.