Buying a Business vs Starting Up a New One
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Published by TOP4 Team
There are advantages and disadvantages to both buying a business and starting one from scratch, but for many people, the positives come down firmly in the buying camp.
Here are the reasons why buying an existing business may be better than starting one:
Easier to secure finance
Most lenders are more inclined to lend money for the purchase of an established business rather than supporting an unknown start-up.
From their point of view, there is less risk involved in financing a business that has already proven it is able to generate an income.
Income from day one
Most start-ups go through an initial phase when they do not generate an income – for some, this can be three years or more.
During this period, it may be necessary to shell out money for the premises itself, equipment and it's installation, initial stock and materials, fixtures and fittings, legal and professional fees, a license, uniforms...the list goes on.
Without finance in place or an alternative income, this stage can be tricky for new business owners and it is easy to become demotivated.
With an existing business, you are buying into a recognisable brand with a track record, complete with all the trademarks, copyright and websites associated with it.
This gives customers, suppliers, lenders and other contacts a confidence in your business that they may not have when interacting with an unknown start-up.
Instant customer access
An existing business also has customers at the ready.
You can use various strategies and marketing to build on that customer base, but you don’t have the task of building it from scratch.
Established network of contacts
A large chunk of the time and energy involved in starting a business goes towards establishing a network of contacts.
Good supplier and marketing contacts are a valuable asset to any business and if your new enterprise has some on their books, you will hit the ground running.
In addition, like money lenders, suppliers and marketing companies are more likely to offer favourable terms to a business that has been around for a while.
Focus on growing the business
With a start-up, an entrepreneur has to channel all their energy into getting the business off the ground and this can be time-consuming and exhausting.
In contrast, taking over an established business means you are free to focus on the particular parts of the business that most need attention, aiding the growth of the enterprise as a whole.
Income to put back into the business
With a start-up, lack of finance to do what you really want with the business can be frustrating. Cash is eaten up in buying the resources needed to get things up and running, and dreams are left by the wayside.
With a steady income from an established business, you have more freedom in how you choose to re-invest this money.
Trained employees in place
Just as it takes a time to build up a network of suppliers and other contacts, it also takes time to build up and train a team of employees. These people are already in place in an existing business.
This can make it easier to implement strategies for growth and development. It also means there is a trained team that can keep things running if you want to take time off.
There is an obviously less financial risk for lenders involved in buying a new business and it is also a safer option for the potential business owner.
Providing the business is doing reasonably well, it should continue to do so. In contrast, starting a new business is a jump into the unknown as far as financial security is concerned.
Starting up a new business can often become all-consuming. With so much to do, it is easy to allow the business to completely take over your life.
Those who don’t have huge amounts of passion and energy for the business can find that they begin to resent this.
Taking over an established business means that business practices have been streamlined and with existing employees who know the ropes, it won't be necessary to work around the clock.
Consult Finn Business Sales Sydney today if you need help and if you want to buy a business.