Start a new business or buy an existing one?

by Arnold Pierce Kelsey 10th of November, 2021

Start a new business or buy an existing one?

In modern times, over the past decades or even longer, business brokers and advisors have been and undoubtedly will continue to be asked this question countless of times.

Unless someone has a truly revolutionary, remarkable, completely unique idea or concept, without any reservation, my personal advice will always be to buy an existing business.

By executing such a transaction, I firmly believe that the positives will undoubtedly completely outweigh the negatives.

Before you make any decision to start your own business, it would be prudent take into consideration the following points:

Statistically, a new business will take on an average two to three years before it’s really profitable. When you are buying an existing business, there’s usually no such waiting time, you can potentially start making a profit from day one.

Most advisors will say that without any doubt, the most expensive part of a business is the start up. You need to invest substantially in equipment, fit out, developing systems, procedures, hiring and training staff, the initial costs are virtually endless. On top of all the planned, budgeted expenses, there will always be the unforeseen ones. There’s also the time factor to take into consideration. Setting up a new business could take a long period of time, without any income. By acquiring an existing business, you avoid most of these costs and time factors.

Not discounting the previous paragraph in any way, but one of the main issues in a new business venture and one that might require a huge amount of capital, are the funds required to keep the business afloat until it becomes profitable. A number of new businesses will collapse during this period as the budgeted or available funds are insufficient to keep the doors open. Even if the business appears that it’s on its way to being successful if it could continue to trade for a longer period, you might be forced to close the operation due to a lack of funds.

Another horrifying fact is that historically, on an average a least a third of new businesses will fail within the first three years of operation. The most common way to raise funds for a business venture is to mortgage the family home. What happens to you and your family if you had mortgaged your home to invest in starting a new business and it fails? By buying an existing business you can avoid the high risk and costly start up phase. You will therefore dramatically reduce the risk factor.

Acquiring an existing business will give you access to historical financial information. Having this invaluable data will assist greatly in planning ahead with possible expansion, the ability to borrow money or secure investors.

If you seriously want to be your own boss or want to go into business because you believe that you will be in a financially better position than receiving your monthly or weekly salary, acquiring an existing business is by far the most astute path to take.

By purchasing an existing business, the risk factor is almost eliminated completely or reduced dramatically as the previous owner has done all the hard work for you.

Tags: buying entrepreneurs small business coaching