Buying a business vs. starting one from scratch

by Mark Zweig ([email protected]) 818 views 

Buying a business — one of the doorways to entrepreneurship — is too often not considered for those seeking self-employment. As a participant and observer of the entrepreneurship scene, it seems to me we are collectively preoccupied with new startups instead.

Yet, there are some really good reasons to buy an existing business versus starting one from scratch. Here are seven of them.

It’s a faster way to get going. Starting a new business takes a lot of time. Putting the right team together, building your distribution channel, getting your facilities figured out and securing those first sales take time. But when you buy a business that is already operational, you (hopefully) have clients and customers and money rolling in from the first day of ownership. That’s what it means to be an ongoing business. That speed can mean you will burn less of your scarce working capital getting things going.

You have a financial history on the business. It sure helps to know what your revenues and costs are right away versus having to predict what an entirely new business will be able to produce from the get-go. Sometimes that makes things a lot easier when you can see exactly what costs can be cut to make a profit or what products and services sell the best.

You have a staff of employees who (in theory) know how to do their jobs. It is hard to place a value on an experienced workforce who know how the machine (the business) functions. Hiring and training all new employees to do jobs they have never done before in a newly-created enterprise is a significant task. And your existing employees in the business you’re acquiring could have a lot of ideas (based on their experience) on how to make things better that the last owners either couldn’t or wouldn’t implement.

You have clients and/or customers. How much is this worth to have an income stream from day one and hopefully enough goodwill in the marketplace to keep the phone ringing and the doors opening with more clients and customers every day. It can take a long time for a new business to be discovered and start generating a name for itself and accompanying cash flow.

Systems and processes and suppliers are in-place. It can take a long time to figure out how to do everything. An established business most likely already has these things figured out. And even if they aren’t doing them the best way possible, they are doing them, and it may make it easier to figure out how to improve them. And long-standing supplier relationships can be extremely valuable. These people may even be able to help you identify areas for improvement.

You may be able to get the seller to finance some or all of the deal. That can mean less start-up costs for you. This is one of the biggest benefits to buying an existing business. There are motivated sellers who want to get out — some desperate to get out. They have health problems, are burned out and want to do something different with their time, are getting divorced, and more. And they want out. This means in some cases they will finance some or all of the purchase price. That is impossible to do with a new business where you need cash to get going, and it isn’t all going for assets you can finance.

It’s lower risk. Because it is operating, has employees, systems, suppliers and financial history, along with a location, clients and/or customers, and hopefully goodwill — plus, you may be able to get the seller to finance it. Buying an existing business is inherently less risky than starting one from scratch.

Mark Zweig is the founder of two Fayetteville-based Inc. 500/5000 companies. He is also an executive in-residence teaching entrepreneurship in the Sam M. Walton College of Business at the University of Arkansas. The opinions expressed are those of the author.