Why should I buy an existing business instead of starting one from scratch?
The American dream, for many, is to be your own boss. To be your own boss you basically have three options to consider. You can:
- Work as an independent contractor
- Start your own business
- Buy an existing company
Of course, there are pros and cons to each option. However, many studies have shown that when you purchase an existing business the risks are lower and the potential rewards are higher. The following tables show some of the pros and cons of each alternative.
| Independent Contractor |
PROS |
CONS |
Minimal up front investment |
Revenue limited by your knowledge |
Minimal overhead costs |
Revenue limited by your available time |
|
No employee base to leverage |
Starting a Business |
PROS |
CONS |
Potential large rewards |
Statistics are not on your side (80% of all businesses fail within first five years) |
Can shape the business exactly as you see fit |
Can take years to build clientele |
|
You must test your concept - Will the idea work |
|
You must spend time and money to build a brand |
|
You must focus on starting the business from scratch. Details, details, details. Phones, computers, software, lease space... |
|
You must find and hire good employees |
|
Must establish relationships and credit terms with vendors |
|
Cash flow is often very lean in the first years |
|
Can be difficult to obtain financing for a start-up |
Buying a Business |
PROS |
CONS |
Potential large rewards |
When you buy a business there is a large up front expense (the cost of the business) |
Can re-shape the business exactly as you see fit |
Typically you will have financing expenses that may reduce cash flow. |
Established clientele |
Turnover can cause loss in business - transition must be properly managed. |
Proven concept - you know if the idea has worked |
|
A brand is already established |
|
Startup details have already been taken care of. Phones, computers, software, lease space, etc are all in place. You can concentrate on running the business |
|
Many times key employees are in place |
|
Vendor relationships and credit terms are already established |
|
You are walking into a steady stream of cash flow |
|
Additional financing is usually easier to obtain |
|
No one will argue with the fact that becoming your own boss involves risk. However, we believe that when you buy a business, many of the risks are reduced and remaining risk can be managed. |
