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Buying vs Starting a Business: Which is the Better Option?
If you decide that starting a business is not the route you want to take, the better alternative is buying an already established business.
Buying vs Starting a Business
Which is the Better Option?
Wondering whether to buy an existing business or start a new one? Read through to learn why the former is the superior alternative.
Buying vs starting a business
Are you wanting to own a business but don’t know where to begin? So many questions and options such as, “what should my business be?” or “should I buy a business or start one?”
These are all good questions! Let us help show you why buying vs starting a business is really the better option!
Starting a Business
While starting a business can seem like an enchanting idea, it poses several major disadvantages as opposed to buying one.
When you start a business, you must build it from the ground up. Starting from scratch is definitely not for the faint of heart. Here is a list of just a few of the difficulties you will face if you start a business from scratch:
Creating and keeping your customer base
Acquiring a patent if it’s for a product or novel idea
Hiring employees
Marketing your business
A large amount of capital is available
Not having an established reputation
Starting a business is very risky. Statistics show that about 2 out of 10 start-ups will fail.
When you are starting a business, you have to create your own value for your product or company, whereas part of buying a business that is already established includes purchasing their already established value.
Buying a Business
If you decide that starting a business is not the route you want to take, the better alternative is buying an already established business. Here are several advantages to buying a business:
Known brand—having a known or popular identity
Existing infrastructure
Employees who are trained
vendors who are already established
Existing funds
The business model that is proven and established
Existing customer base
Check out this video if you are looking to buy a website, eCommerce, an app, or SaaS Company
Buying vs Starting a Business
When buying a business you have a proven business model because customers are familiar with the business or product and are purchasing already. They have established customers.
Starting a business requires you to produce a proven business model as if it were a hypothesis. “My customer wants my product because of ABC.” This is what you are trying to prove.
Buying a business means you have trained employees meaning you can start immediately generating sales because you don’t have to waste your time on the training and hiring process.
These already trained employees will help your business to run smoother with their expertise and prior experience.
Starting a business means wading through piles of applications and interviews and then taking the time to train each of the employees you hire. You also will have to factor in a learning curve and be prepared to have a slow start when it comes to generating sales.
One Final Thought
When considering buying vs starting a business, if you really have your heart set on starting and developing your own, we suggest you first buy an established one to get a feel for how a business is run.
Once you have bought a business and have taken a few years to turn a profit and understand the nitty-gritty of the business world, then maybe consider starting your own.
While starting a business can at first seem inspirational or enchanting, we promise you will soon become disenchanted. When that untrained employee sets the kitchen towel on fire, you will think back to this post and wish you had instead bought your business.
Want to learn more about owning your own successful business? Contact us today to see how we can help.
BizNexus -Learn More From Our YouTube Playlist:
BUSINESS ACQUISITION
Have you checked out our podcast?
THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.
The Pros and Cons of Buying an Existing Business
Are you thinking about buying a business? Learn about the pros and cons of buying an existing business here.
Buying an Existing Business
Here are the Pros and Cons
Are you thinking about buying a business? Learn about the pros and cons of buying an existing business before you move forward.
Buying existing businesses
A record number of businesses were sold in 2019. That number continues to trend upward from previous years as baby boomers seek to retire and millennials begin to realize there might be limited exit options for their would-be unicorns in a public market focused on profit….
The economy is still doing well. Most businesses that sell are financially healthy, with cash flow to pay off the acquisition price.
While buying an existing business definitely has its advantages, there are also a few downsides anyone looking to buy should be aware of. The more you understand the nuances of buying an existing business, the more successful you'll be.
We want to help you understand the pros and cons of purchasing an existing business. Keep reading to learn more.
Advantages of Buying an Existing Business
It's not easy to start your own business. Statistically speaking, most startup businesses shut their doors within five years.
Which makes buying an already established business that's proven to be financially successful a smart move. The hard work has already taken place to get past liftoff and into the atmosphere of profitability.
Access to a Network of People
When you buy an existing business, you get access to an existing network of people who can help guide you and your business including:
Loyal customers
Vendors
Suppliers
Employees
Also, if the existing owner has established relationships with banks, printers, advertisers, and insurance companies, it's much easier than trying to embark on those relationships from scratch.
Established Brand
Branding is an essential part of marketing. Without loyal customers, there is no viable business.
Buying a small business with a well-established brand name makes it easier for you to reach out to attract new business.
Fewer Financial Surprises
There's a lot of risks a new business owner takes. But when the seller already has everything in place, that means the business is already operating and pricing has already been established.
There's less of a chance you'll get caught in a money pit because the seller should already have provided you with the financial documents.
Also, the sale is structured so you can cover all your expenses including the debt service and your salary.
The Disadvantages of Buying an Established Business
While the business may already be well-established, that doesn't mean a few changes may be necessary. It's also difficult to fully comprehend what changes are needed until you've already purchased the business.
However, here are a few red flags to look out for:
High employee turnover
Outdated or unreliable equipment
Unreliable suppliers
A business that carries existing debt or has cash flow issues also will mean there's hard work ahead of you to get back into the black. And it's not always easy to walk into an already established business and try to change the rules.
The Brand May Be Established But Suffer from PR Issues
While it's great to buy a business with an already established brand name, if the company suffers from PR (public relations) issues, you're inheriting a potential disaster that is now your job to clean up.
Even a new owner may not be enough to change the minds of unhappy former patrons. Make sure you buy a business with a positive reputation.
A Cheap Business Isn't Necessarily a Good Thing
If a business seems inexpensive it's usually not a good thing. An expensive business means it's doing financially well and has a good reputation.
A cheap business may mean it has a bad reputation or a good or service isn't performing well in the market. Always ask yourself if it's worth the money and the work you'll need to put in to ensure a company stays successful after you've bought it.
Start Getting Matched With Acquisitions and Make Some Inquiries
The best way to get going on buying your first business is to start looking at opportunities and reach out to connect with the seller or the seller’s business broker if you’re serious about any specific opportunity. As a buyer, at no cost to you, you can set up your profile and acquisition preferences today on BizNexus and we’ll start showing you opportunities from our $1 billioin+ inventory platform that makes sense for you.
BizNexus -Learn More From Our YouTube Playlist:
BUSINESS ACQUISITION
Have you checked out our podcast?
THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.