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Buy A Business or Build one From Scratch?

June 16, 2018 304 views

Image of a pizzeria business storefront

Part 7 ~ Acey Gaspard’s Guide to Starting a Small Business – Made Simple

Is it Better to Build Business From Scratch or Just Buy an Existing One?

The next question is, “Would it be better for me to purchase an established business or start from scratch once you know what business you want to be in?”

I believe that if you’re creating a new idea or creating something that’s artistic or involves your personality, then you’re probably better off starting from scratch.

However, if your business is the type that can be bought, then a speedy entry into something that’s already working may be the way for you.

Jane’s Story

Jane had wanted to have her own flower shop for some time, and she kept putting it off until the opportune time. She figured she would start little by little and keep her current job. This is an approach many people take.

The only problem with this approach is that it takes a lot of time more than you think. Sometimes years go by, as they did for Jane.

One day, Jane was at a flower shop in the mall.

When she started talking to the owner, she learned that the business was going to be put up for sale. Jane realized she had been postponing starting a flower shop for five years now, and if she kept going down this road, she would never get her flower shop. She and the owner worked out a deal, and after only a few weeks, Jane was up and running in her flower shop.

If Jane had waited to start her own business, she might have started it eventually, or she might have worked as an employee for the rest of her life, with the desire for her flower shop still inside her. Sometimes all we need is a taste of the real possibility.

Buying a Business is a Short Cut to Get Started

Buying an existing business can get you started much quicker and reduce the stress of setup. It can help you avoid depleting your cash in the race against time to get up and running. However, it also has some disadvantages, such as the liabilities of the existing business operations.

You have to look at each business and each set of circumstances differently for each situation.

Here are a few advantages and disadvantages of buying a business that’s already operating.

Note: I’m using examples for a business that’s doing all right, though it doesn’t have to be highly successful. The cases are not for a company that’s in trouble or failing.

Advantages

  • The business is up and running, and therefore the setup process is already done.
  • Your time to get into business is minimal.
  • You already have customers/clients.
  • You can start making money as soon as you take over.
  • It may be easier to get a loan for operating money.
  • You know what you’re getting into before the investment of time and money.
  • If the business has existing employees, they’re already experienced.
  • A demand already exists for the product or service the business supplies.
  • Most initial problems and oversights should have already been identified and taken care of by now.

Disadvantages

  • The business already has momentum in a direction that’s harder to change as opposed to being able to create a new path when starting a business from scratch.
  • It may cost a lot more than starting your own business, due to the goodwill, which is purchasing the customer base of the company.
  • The customers may need time to adjust to the new owner. If the previous owner had a lot of personal services and interactions with the customers, they might not adapt to the new owner.
  • If the business had been neglected, it might take a lot more effort to turn it around.
  • You may need to honor existing contracts, liens, and loans.
  • There could be existing liabilities.
  • If the business has employees and you’re about to make changes, you may face resistance for the employees, they might not like change, and they are unfamiliar with you as the new owner.

Note: I once purchased a video rental business, and when I started implementing new ideas, all I kept hearing was, “We’ve never done things this way,” and, “The previous owner does it this way.” Getting old staff to adjust to the new owner takes patience, time, and energy. In the end, it worked out, and we doubled sales in the following few months, but this is a crucial thought to keep in mind.

  • The business may be right for you, but the location is not very good. Location is a core issue that can dramatically affect your success.
Takeaways

Well, there you have it. It’s up to you to see what’s better for you. You may find the perfect business, but it’s not for sale. If this is the case, why not ask?

If you do buy an existing business or create your own, make sure you get professional legal advice. When purchasing an existing business, you want to be sure there will be no surprises that come out of the blue.

Action Steps to Find Out if You Should Build or Buy a Business
  • Evaluate the business that you want to be in and whether it is the type that should be established or purchased.
  • To find businesses for sale, check your local Classified Ads and real estate listings.
  • When buying a business, make sure you perform due diligence for your protection. You don’t want any surprises.
Essential Points to Finding Out If You Should Build or Buy a Business
  • For businesses that can be acquired, be ready for any opportunities that might arise. You never know when an opportunity to purchase an established business presents itself.
  • Consider the pros and cons of buying a business before you do buy one.
  • If you want to buy a business that’s not for sale… make an offer anyway! You’ll never know if they’re willing to sell until you ask.

Acey Gaspard’s Guide to Starting a Small Business – Table of Content 

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