Pros and Cons of buying a business vs starting a new business?

There are advantages and disadvantages to each choice. So it’s essential to weigh your options when you are trying to decide whether to start up a new company or acquire a business.

1. How much money you have is a factor in whether to start a business or acquire one

In most cases, you will need more capital to purchase a business than to start one. But of course, there are also many financing options. Depending on your credit score, experience, and the business you are purchasing, the SBA lending program can allow you to purchase a business with a 10% down payment. Most business brokers can provide you with the contact of an SBA bank advisor. In some cases, the SBA advisor may have already reviewed a business’s tax returns to prequalify a business for financing. In addition to SBA financing, some sellers will also provide their own funding. Most would prefer not to, so you can often negotiate a better price if you are able to pay the seller at the closing with bank financing.

2. Do you want an immediate income from a business?

Although starting a business is less costly, it might cost you more by the time you start earning money in your new business. Most businesses that are sold are earning a profit. Buyers purchase them because this allows them to start making money the day they take over the company. Of course, you need to evaluate each business on its own because some businesses’ income fluctuates, so if this is the case with a business that you are buying, you may want to ask a bank to provide you with a loan in addition to the purchase price to weather any ups and downs of a business or industry. You can calculate how much income you will have left over from the anticipated profit to determine whether it will be enough for you. When starting a business, of course, you need more of a cushion until you begin earning income. Many small businesses don’t earn any net income during the first year, and it may take a while after that to ramp up to a level that can support you.

3. What type of business do you want to own?

If you are interested in owning a very unique business with nothing else like it, then of course, starting this business might make a great idea if you have the knowledge, experience, business plan, and market research to create and develop this company into one that is profitable. It always pays to look at what other businesses are out there. Because often, what you think might be a very unique business idea is already out there, and in some cases, existing companies may have a dominant position in the market that you want to service.  So you want to know what you are up against. However, there is often room for businesses that can service a unique niche in a market or provide products or services in a different way. Looking at what is out there currently will provide you with ideas on whether to start or buy a business. You could potentially buy a business and then mold it to the way that you envision. Or you could start it from scratch if you don’t find anything that is available that fits what you are looking for.

4. New Businesses Fail at a higher rate than established companies

It’s no secret that the failure rate for new businesses is high. About half of all new businesses fail before their 5th year. When you are buying an established company, then you are much more likely to succeed. Of course, it does depend on the business you buy. You want to look for one with ongoing customers, an excellent reputation, loyal experienced staff members, referral sources, marketing systems, effective processes, partners or suppliers, and a seller that is willing to help you with a transition and training if necessary.

5. How much are you willing to work at your business?

If you currently have a job that you don’t want to leave but have a business idea that you would like to pursue, some people will work in their spare time to start a business. Then if the business grows and becomes successful, they can decide whether to leave the job when the new business is profitable enough for them. Other times people with a job or other business might choose to purchase a business and have a manager that can run the business for them. Of course, you want to be confident in the manager’s capabilities. In either case, you buy or start a business working part-time on the company; you want to determine whether or not you are willing and able to devote enough time to the business in order for it to be successful.

6. Do you have experience starting or buying a business?

If you have already started a business that is successful, then you have an idea of what it takes. Of course, every business and industry is different. If you are starting a similar business, then you have more confidence that it will work. Especially if you can leverage the business that you already own. If you want to own a business in a different sector or location, then often, a business owner will buy an existing company and leverage the new business to cross-sell existing customers and utilize their combined strengths to grow both businesses.

7. Consider what types of businesses for sale might interest you

Before you finalize a decision on buying or starting a business, you can see what businesses for sale are available that might be of interest. You can read more on the process of buying a business and what types of businesses might be right for you. You can view businesses for sale based on industry or location to see if one might be a fit. To find out specific details, you’ll need to sign a non-disclosure agreement. Business owners want to keep the sale of their business confidential.