What’s Better: to Start a New Business Or to Buy an Existing One?
Business Broker: Many people dream of owning a business. Although the urge to be your boss is more common among the young, everyone surely loves the thought of being the boss.
But the idea of starting a company from scratch just doesn’t seem fun. With all the legwork and paperwork associated with setting up a business, the ordeal is definitely stressful, financially draining, and time-consuming. Business Broker.
If you want to skip the tedious process of starting up, you can buy an existing business. But this too isn’t always a walk in the park. Purchasing and running an existing comes with unique challenges such as learning the industry, understanding the business operations, and boosting its sales. There are a lot of factors that come into play when deciding to take over a business.
People who want to strike out on their own often face this dilemma: whether to start a new business or buy an existing one. You’re probably wondering: Which is better?
Starting a New Business
Pros
Realize your vision
By starting from scratch, you get to build your dream. You can choose a business that you are really passionate about, which is vital to business success. There’s also a sense of satisfaction knowing that you’re building upon your unique idea and not from someone else’s.
Start small
Buying a business can cost you millions. But with a new business, you can start small and eventually grow your capital. Many successful entrepreneurs started with less than a figure investment. Also, the less money you shell out, the less risk.
Greater autonomy
A new business gives you a free hand to make crucial business decisions. You won’t have to bend your marketing strategies for the ideas of existing officers and staff. It also enables you to create your own company culture, especially if you plan on designing a hybrid office environment. Of course, this isn’t the case for businesses with co-founders or investors, whom you need to consult.
High chance for breakout success
If you have a very novel business idea that solves an urgent problem, you are geared towards a breakout success. Over the past few years, we’ve seen startups emerge out of nowhere and make millions.
Cons
Funding difficulties
When you are starting from zero, it can be difficult to convince investors to invest in your business idea. If ever a financial institution lends you capital, it could entail a staggering interest rate.
Higher risk
According to Fundera, around 20% of small businesses fail in their first year, 30% in their second year, and 50% in their fifth year. The risks of starting a business are generally high. These crucial years are prone to errors in business decisions, changing market conditions, and tough competitors. If you are a first-time business owner, the first few years could be a really tough period.
Physically and emotionally draining
Setting up a new business entails a lot of work – and it can be physically and emotionally exhausting. You’ll realize that entrepreneurship requires your full attention. If only you could spend 24/7 at work, perhaps you’d do it. Even the most passionate and committed entrepreneurs can feel drained by the demands of work.
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Buying an Existing Business
Pros
Established brand and customer base
Buying a business gives you a head start as compared to setting up a new one. An established company will have built a name in the market as well as a loyal customer base. You don’t have to invest much in promoting the business and gaining attention. All you need to do is to sustain the business and steer it to further growth.
Access to financing
Financial institutions are more likely to fund business ideas with minimal risk. By purchasing an existing business, you assume the company’s assets and financials which can be used to secure loans. Lenders tend to be cautious when it comes to start-ups. It’s also not uncommon for banks to deny business loans to new companies.
Growth potential
It’s easier to grow an established company than a new one. You can improve upon the existing service, add new products, enter new markets, make changes, or scale up. The future of your company depends on your marketing strategies.
Start immediately
When you buy a business, you can hit the ground running right after the acquisition. According to a veteran business broker from Orlando, purchasing an existing company gets past the difficult and risky stages of launching a startup. The operations and finances are most likely stable – and you can even expect profit over the next few months. These early successes will certainly boost your entrepreneurial spirit.
Cons
Poor fit
For your business to succeed, you need to be genuinely in love with it. As such, it is vital to look for a company that best fits your vision, goals, and likes but this isn’t easy. Of the thousands of businesses on sale, perhaps only a handful is a good fit. Choosing the wrong company is a big mistake.
Declining market
Some businesses are sold because of the unfriendly market conditions. Perhaps, the competition has become tougher or the landscape has become adversarial. If the market is going downhill, you might be throwing away your money. This makes it crucial to study the business carefully before making the purchase.
Manpower change
A change in ownership might prompt key officers and staff to leave. This can imperil operations and customer relationships. Businesses that are highly dependent on the managers are bound to fail. So, make sure to choose an enterprise with established processes and systems in place.
Inheriting business problems
There are many reasons why a business is sold. Perhaps, due to delinquent payments, legal disputes, customer service issues, etc. If you purchase a business, all of these concerns become your problems. Everything that has transpired before will affect the business’s future. You might get stuck with the wrong decisions of the previous owners. It’s crucial to get all the information to avoid unwanted surprises after the contract is signed. Business Broker.
Erroneous business valuation
There’s a myriad of factors that can affect the real value of a business. Getting the exact value of a business is highly subjective, with some considering it a wild guess. Even if you reviewed all the financial books and did due diligence, several things might be missed. Often, you’ll belatedly realize that you’ve overpaid for the business.
These are some of the considerations you have to weigh when deciding whether to start from scratch or buy an established business. Both options entail risks and rewards. In the end, the decision lies in how much risk you are willing to take and your situation and needs. There’s no wrong or right answer. Just make sure you gather enough information and carefully study your options before making a final decision.
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