When it comes to making any new purchase, you’re usually presented with the option to go secondhand, whether it's a used car over a brand new model, a period house over a new build, or even a refurbished laptop versus the latest release. Strangely though, this doesn’t seem to apply when budding entrepreneurs are looking for business ideas.
This shouldn’t be the case, though. There are countless businesses putting themselves up for sale every day. Not all will provide buyers with great value, or even a viable business (there’s often a reason that some are for sale). But with a little digging and plenty of due diligence, you may be able to unearth a diamond in the rough.
Whether you buy an existing business or start from scratch, both methods have their pros and cons. It's worth looking at both options to know which will work best for you.
Why Start Your Own Company?
Despite being incredibly hard work, creating a business from scratch can be a very rewarding experience. Once you're in business, it can be an amazing feeling when you step back and realize that the bustling workplace in front of you came from a simple idea that had been only in your head a short while ago.
There are also some practical benefits to creating your own business. When you oversee every part of its startup, you are less likely to encounter the kind of nasty surprise that can show up when you've purchased an existing company.
Why Buy an Existing Business?
© Andy Dean-Adobe Stock
To buy a company, somebody else must be selling it. However, even though someone may be trying to offload their business, it doesn’t necessarily mean the company is worthless. There are a variety of reasons people sell successful businesses, including illness, retirement, or just wanting to pursue other interests.
Even struggling businesses are worth looking at. In fact, you can find great value in distressed companies, as they are often under pressure to sell before they become insolvent. Try to put yourself in the shoes of the seller—even if they’re selling an insolvent company, they obviously know that there’s something of value to offer, even if it’s just assets.
There are many potentially profitable businesses that offer great services or products that the public would love, but they are hampered by ineffective management. If you can see where a business is going wrong, and think you might be able to facilitate the changes needed, then a bargain fee might secure a business with the potential to thrive.
Starting a Business vs Buying an Existing One
Your Company Doesn't Have to Be an Extension of Yourself
It can be tempting to own a company that becomes an extension of yourself, and you may have big ideas on names and other factors that make a company specifically "yours." However, if this is your primary motivation, you may be missing out on existing near-turnkey business opportunities that are available to buy. An existing business that’s being sold off by its current owners may not be quite as alluring as running something built from the ground up, but it potentially could be more profitable, and you might be better off looking at that instead.
A business should be run with your head rather than your heart, and dismissing a better option because it "doesn’t feel like yours" would be a huge mistake.
Branding and Marketing for a New Company vs an Established One
When it comes to forging an identity for your company, you need to think about what you would like that identity to convey. Ideally, all branding and the company culture should be created with the end user in mind. Businesses depend on the uptake of their products or services by clients, so it makes sense to utilize your branding and company identity as a tool to appeal to them.
With a startup, this responsibility lies with you. You may have the resources to hire a professional marketing agency, but for most new businesses, the owners will be tackling the marketing themselves. If you have a flair for this sort of thing or have a background in marketing, then starting from scratch could be your best option. Building your company’s identity from the ground up can solidify your branding in the minds of customers and help you market it in the long term.
When purchasing an existing company, you have the option to change things around, but it might not be the best idea. The business you’ve taken over may already enjoy a positive reputation that could be lost if rebranded too aggressively. When buying a company, one of the things you purchase is the fast-tracking of areas like marketing, which has already been taken care of by the previous owners.
Taking Over Existing Contracts
Buying an existing business allows you to take advantage of contracts and professional relationships that the previous owners have already built. This could mean enjoying lower supplier rates or working with companies that don’t have the capacity to deal with new customers. However, when you buy a business, make sure that you delve deep into which contracts will be included in the deal. It could be that the main value of the business is wrapped up in one particular contract.
While startups will have to start at the beginning when it comes to securing contracts or good supplier terms, there are some benefits to not having an existing business associated with yours. It’s not unheard of to have disgruntled creditors going after buyers of businesses for historical debts run up by the previous owners. Again, this is an area in which considerable due diligence is recommended.
Which Option Is Right for You?
Of course, one of the main benefits of buying a business is the speed at which you can start conducting business, with an established location, staff, and clients. However, while a new business may take longer to get started, there are advantages to having complete control over every aspect of your business.
Both options should be considered by the shrewd entrepreneur to determine which makes the most sense for their particular situation.
FAQs on Whether You Should Start or Buy a Business
Why would someone want to buy an existing business rather than start a business from scratch?
Existing businesses offer a turnkey solution that makes it possible to start making money straight away. Those tough first few years are effectively skipped, leaving the new owners with supplier contracts, previous publicity, and a workforce already in place.
What are disadvantages of buying an existing business?
If you have specific ideas of what your business should be, you may feel constrained by the previous owner’s decisions. Also, if your due diligence isn't thorough enough, hidden long-standing problems may arise after you’ve completed the purchase.
What is a drawback to starting a business from scratch instead of buying?
The first few years of starting a business are often the most difficult. You’ll need to find your feet quickly while simultaneously trying to keep the whole venture afloat. Be prepared to endure a fair amount of trial and error before your business starts to run effectively, too, which can sometimes be quite costly.
About the Author
Post by: Rick Smith
Rick Smith is the founder and managing director of Forbes Burton and has over 15 years' worth of experience in the area of business insolvency. Rick is dedicated to helping businesses navigate challenging circumstances.
Company: Forbes Burton
Website: www.forbesburton.com
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