Is It Better To Start A Business Or Buy An Existing One?

on September 19, 2016

Ever dream of owning your own business? If so, you are far from alone. Half of working Americans either currently own their business or wish they did.

Maybe you have an awesome skill — people always compliment your baking — or have a valuable business idea.

There are two approaches to becoming a business owner: buy an existing business or build one from scratch. Here are some questions to help you determine what’s right for you.

1. Does your dream business already exist?

If you have an entirely original idea for a product or service, you should definitely consider starting your own. But other would-be entrepreneurs just want to run the best business around, whether that means buying one that’s already established or opening something new.

If your dream is to be a coffee queen, size up the competition to determine whether your town already has the ideal hangout or not. Perhaps the current barista has snagged a primo location, but their service leaves something to be desired. That might be your opening.

Also consider whether lingering ill will might keep customers away — opening your own company allows you to build your own brand and reputation.

2. What’s your financial situation?

Buying an existing business is often more expensive because it’s a proven entity with revenue, equipment and customers (and, of course, a former owner who wants to benefit from what they’ve built).

While the higher cost can seem daunting, consider that the business is likely to generate revenue immediately, which can offset the investment.

It also might be easier to get a loan, since banks often prefer working with borrowers who have a proven business plan.

But don’t let that deter you if you are committed to starting from scratch — there are multiple ways to finance a business aside from a traditional loan. Many successful entrepreneurs fund their start-up through a combination of home equity loans, crowdfunding, credit, and investments from friends and family.

3. Do you have the necessary contacts?

A thriving business already has existing relationships — customers, employees and vendors — that allow you to hit the ground running.

However, developing your own business allows you to create relationships on your own terms. If you have a product manufacturer, you don’t need someone else’s contact. And hiring an internal team loyal to you will prevent legacy employees from constantly telling you how the old owner used to do things.

If you do decide to buy an existing company, make sure the relationships are accurately portrayed. You don’t want to assume you’re taking over a vibrant business and then learn that clients have been leaving in droves or vendors have filed complaints.

The concept of due diligence has changed,” notes Nigel Cooper, executive director of P&MM Events and Communications. He’s overseen several business acquisitions. “A prospective buyer needs to look at what is confirmed and in the current order book, rather than the financials from the previous year. In reality, the goodwill is the future of the order book, and what is happening today is key,” he says.

4. What resources are available?

Whether you’re buying or starting a business, a helping hand can smooth the way. Here’s how to get started:

  • Research your industry. Reach out to trade organizations, your local Chamber of Commerce, and successful business owners to find out more about the ins and outs of running a business.
  • Network with the professional community. Rarely will a business owner stick a “for sale” sign on the company. A better bet if you are looking to buy an established business is to stay tuned in to the local market. Attorneys, accountants and bankers are often among the first to know what businesses might be available for sale.
  • Read up on the Small Business Association, which has a wealth of knowledge on all aspects of starting a business.
  • Find a local SCORE mentor. The organization pairs working and retired business volunteers with entrepreneurs to help them start and manage their business.