When most people consider starting a new business, their plans immediately center on building it from the ground up. However, starting a company from scratch can carry certain risks and challenges, including the difficulty and time involved in creating a customer base, marketing products, and obtaining steady cash flow. All this has to be done without a solid foundation or brand reputation, so for many entrepreneurs, it can be a risky pursuit.
If you’re concerned about the potential difficulties involved in starting your own business, you’re not alone. Many entrepreneurs buy established businesses to avoid these obstacles and give themselves a better chance of success.
Investigating the Risks Involved
When you purchase an established brand or company, you’ll be taking over a business that already has a customer base, employees, and solid operational procedures. Doing this means that you won’t need to set up new systems, policies, and procedures for your business, as they have already put a successful operational regime in place.
On the other hand, buying an established business can be significantly more expensive than starting one from scratch. However, it often proves easier to obtain financing for an existing business than for a new pursuit. Banks and lenders are more willing to invest in a tried and tested model with a proven track record. Additionally, buying a business could grant you legal rights like copyrights and patents, which could dramatically improve your profit margins in the short, and long, term.
Naturally, there are very few businesses you can buy that will guarantee profitability, just as there is no guarantee that a new business idea will prove successful. You need to take care not to become wrapped up in redundant inventory, issues with reluctant employees, or outdated operational methods.
What Buying a Business Involves
Buying a business with a good chance of becoming profitable should start with your initial selection. You should choose a business that’s right for you—ergo, one that belongs to an industry or trade that you understand well.
Spend time considering the types of businesses that interest you, as well as the best matches for your expertise and skills. You should think about the size of the company, both in terms of locations, franchises and sales, and its staff force too.
From there, you can narrow down the geographical area you wish to operate within—or, if you plan to operate online, the style of eCommerce website you will utilize. Scrutinize the labor pool and operational costs attached to your selection, along with taxes, wages, and other expenses.
Once it’s time to find a business to purchase, take the time to do your research. Speak to business owners in the industry, as many of them may have operations for sale that they’ve not listed or made public yet. Use your networking abilities and contacts to your advantage to find the best fit you’re confident can generate a profit.
Your Acquisition Team
When buying an existing business, you should put together an acquisition team. This team can include attorneys, accountants, bankers, and any other advisors whose opinions you trust. They can review and certify all the finer details to ensure you know exactly what you’re getting into before you finalize the sale.
Some factors to analyze about a potential purchase prospect include:
- Why it’s up for sale
- If it has turned a consistent profit in the past
- Whether or not it has a history of legal troubles or high staff turnover, and the reasons behind these issues
- If its services and products have changed significantly over time
- If it has captured enough market share to remain profitable in the long term
- What changes you could need to make to its structure and operating paradigms once you take ownership.
Assess its reputation and business relationships by speaking with existing suppliers, vendors, and customers about their experiences. If they’ve had positive experiences in the past, you may be onto something promising.
Starting Your Own Venture
Starting your own business can be just as profitable as buying an established company—but there are a few rules.
First, you need to be as sure as you can be that you have found a unique and solid business idea that will draw consistent demand from an identified target market.
A large percentage of start-ups fail within months or years after their establishment, despite having the funding and support. This is the nature of starting your own business. It involves significant risk, along with a much higher degree of planning and organization, than buying a pre-made enterprise.
There are benefits involved as well. Developing a business idea from scratch may pose less up-front costs compared to purchasing one, and you can test your idea from a home office or online platform before spending significant sums on retail location rentals and equipment.
The most important step you can take to ensure a start-up stays viable is to conduct thorough research into your idea, demand, and market competition. This information can be included in a business plan template that guides you from start-up, to success, and beyond. Use as many resources as possible and remain realistic at all times about what you can expect if you choose this route. Many new business ideas don’t hold water if you assess them closely enough, and these pursuits are most likely to fail.
The Best Course of Action
So—should you buy a business or start your own from scratch?
The answer to this question depends entirely on your own personal resources and options. If you have a business idea that you’re confident will take off, and you’ve conducted all the right research and proved it to be viable, this may be the best choice for you.
However, if you would rather put up a larger up-front investment and buy an established operation complete with staff, systems, and customers, this approach is statistically more likely to turn a profit.
Either way, both choices come with challenges, pros, and cons, along with unique funding and ownership requirements. Do as much research as you can and collaborate with business and financial experts to highlight the best investment with the least relative risk. It always pays to be prepared, especially when there’s so much at stake.
Jill Goodwin is a content champion for a variety of online publications. She often covers topics that care to business owners and entrepreneurs with a strong focus on finances, productivity, management, and a few other topics.