Should I Start A New Business or Buy an Existing Business?

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You have decided it is time for you to pursue your dream of business ownership.  Should you start a business from scratch or buy an existing business?  This article is intended to help you make that important decision.  There is no right or wrong answer, so you need to weigh everything you learn and then make your decision.

Do you have a product or service that is difficult to find or does not exist?  Maybe you are an inventor and have perfected a product on which you have been working.  Obviously, it would be something in which you are interested and excited.  First you have to do some research to determine if there is a market for your product.  What age group will be interested, how much could you charge as a fair price, and where would be the best location for your business?  What would be the cost to make the product or get it ready to be sold?  Will it require inventory, how much, and could you purchase the inventory locally or must it be shipped from a distant location?  If it is a service, how much would customers be willing to pay?  What is your breakeven point, the point your income and expenses are equal?  After that is reached, the remainder would be profit.  How many years would it take for the business to become profitable, and how much money would the business need to operate until that time?

I’m sure you have heard that most inventors are not business owners, as they like to discover things but have no interest in finding buyers for them.  Just because “people” say this doesn’t mean you can’t be a successful business owner.  Whether you are a first-time business owner or have owned multiple businesses, the first step should be to prepare a business plan.  While developing that plan, you will answer all of the above questions and many more.  You must sincerely like the product or service you are selling and be prepared to work hard with little pay or time off the first three to five years.  Unfortunately, the failure rate is high for start-up business.  However, if you do the leg work, prepare a thorough business plan, and follow that plan, you can be successful.  You will be very proud of what you have accomplished.  Also, several years later when you decide to sell the business, buyers will be happy to pay you a fair price to step in and continue your success.

Now, after discussing a start-up business, let’s look at some of the reasons an existing business would be a good buy.   You will want to seriously like the product or service sold by the business and be excited about becoming a business owner.  The failure risk is much lower for existing businesses, as they have proven records and financials, showing they have customers wanting and needing what they are selling.  The cash flow should justify the asking price, and you can use the actual historical figures to see the profit and determine if you can service your debt and make a living wage.  It is also important to prepare a business plan to follow, in which you will show an increase in future sales.  It is important to remember that you will look for ways to increase sales and profit, but you will purchase the business for an amount based on the financials over the past three years.  

When you start a business, your financials are based on expectations for the future.  When you buy an existing business, your offer is based on the history of the business and not expectations for the future.  You can see that the business is successful, which gives you a low chance of failure and a great chance for success.  When you buy an existing business, you are making sales the minute you sign the papers.  You borrow money and have that debt to pay, but you have determined by looking at the actual financials that you will be able to that.  Whether you start a business or buy an existing business, you will fulfill your dream of becoming a business owner.  Get a professional business broker, an accountant and an attorney to assist you.  The choice is yours, and I’m sure you’ll make the right decision.

  • Author: Pat Jones
  • Title: President/Owner - Business Broker
  • Company: Pat Jones Business Brokers
  • Company Website: http://www.patjones.biz/
  • Date: November 30, 2017
  • Category: Buying a Franchise or Business
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