Buying A Business Vs. Starting One From The Ground Up
Let’s get one thing squared away: When it comes to deciding between buying a business or building one yourself from the ground up, there’s no objectively “best” option.
Business owners are the lifeblood of our economy. We innovate, create meaningful work, and we provide people with the goods and services they need. There’s a lot of hard work that goes into being a business owner, whether you start a business yourself or buy an existing business. We’re proud of you for taking this step—all the blood, sweat, and tears will be worth it.
With that preamble out of the way, let’s take a look at the advantages of purchasing an existing business and then look at the advantages of building one from scratch!
What Are the Advantages of Purchasing an Existing Business?
You’ll start with a good reputation
Assuming you purchase a business that’s well-established and respected, you’ll have a leg up over anyone starting a new business—a well-known brand with a good reputation. When determining the selling price for a business, this reputation is considered an asset, part of what’s known as goodwill. In other words, you’re literally buying the reputation of the business—and that’s a powerful asset that can take years to build when you start a business on your own.
You’ll benefit from an existing positive cash flow
When you purchase an existing company, you’ll get access to an established customer base and start generating revenue; hopefully, you’ll be purchasing a business that has decent profits and a positive cash flow.
Running a business involves many financial obligations to stakeholders, from suppliers to employees. When you buy a business instead of building a business from scratch, you’ll already have the cash you need to meet these obligations—and hopefully enough profits to reinvest in your company.
You may find it easier to acquire financing
Banks like the BDC are more likely to lend money to purchase an established business with a proven track record of success than to a startup, especially if it’s your first time starting a business. Business owners who start from scratch often need to borrow money from friends and family members to get enough financing; when buying an existing business, you’ll often find that you have more investors and lenders willing to front you the cash you need.
You can take advantage of existing business relationships
When you start a business from scratch, you need to secure suppliers, find new customers, hire employees, and more. When you’re buying an existing business, all of that infrastructure is already in place; you can leverage the goodwill of the company you purchase to maintain industry connections, form new ones, and ensure you have everything you need to meet your business goals.
Are There Any Advantages To Starting From Scratch?
You may have a business idea that’s completely unique
Sometimes, new businesses meet needs that aren’t already being met by the market. When you have a completely novel business idea, creating your business from scratch is literally the only way to succeed. Most people never stumble upon an idea like that; if it’s something you really believe in and that you feel could be profitable and useful, you should build it yourself.
You may need less capital to create a startup
Depending on the nature of your startup, you can start working on it right now! With a startup, you can invest as much or as little time and money into your business as you’d like—though most successful startups require a lot of both. This gives you the opportunity to start building a business even if you don’t have the capital you’d need to buy one outright.
You may want the prestige of starting your own business
Being able to say, “I built this from the ground up”, is pretty special. That’s no knock against anyone who buys and runs a business—buying a business and growing it is incredible, too. For a particular kind of person, though, there’s nothing like building something from nothing; if that’s you, then nothing might scratch that itch like building a business from scratch.
Important Considerations When Buying a Business
There are too many important considerations when buying a business to list here; we highly recommend you read our other blog posts to get a better idea of all the many facets involved in buying and selling businesses.
One particularly important consideration, though, is making sure you’re a good fit. Entrepreneurs and businesses need to match right; ideally, you’ll have years of experience in the business, get along well with key stakeholders, and have a good idea of how you want the business to grow. Businesses don’t run themselves, after all—you’ll need to lead and to do that, you need to be sure you’re the right fit for the business you’re buying.
Jason Brice Is Here To Help Facilitate Your Next Business Purchase
Jason Brice is a Vancouver business broker—if you’ve decided that buying a business is right for you, he can help connect you with business owners looking to sell. Contact him today!