Buying over starting a business: What to consider
What makes buying a small business a good decision?
You want your own business. Now the question is: to start up, or to buy? For many, it’s obvious. People start up small businesses often when they’re following a passion – whether it be making cakes or a new piece of technical gadgetry they’ve invented. The idea of making a small business out of something they love is what drives their entrepreneurial spirit. Others work for someone else before deciding they could do the same thing better. But another alternative is to buy your own business – is this the right way for you to become your own boss?
Buying a business is in many ways is a much more straightforward proposition. If you buy a business that’s doing relatively well, it will be much easier to secure finance for it than if you were starting one from scratch. The proven customer base is a huge bonus both to investors and banks, and to yourself if you’re risking your own finances.
Many start-ups fail from the outset because it’s so difficult to get people to put money towards a risky venture. But if you’re buying a business, depending on its cash flow and assets, you should be able to borrow as much as 70% of the acquisition cost.
Furthermore, it can often take months and years before new businesses start turning a profit and giving you enough to live on. In contrast, buying a profitable business often means you can take a decent salary from day one.
You can also acquire many other assets with the business – suppliers, employees, systems and credibility being among them. In other words, all the unknown quantities that would deem a start-up a risky venture have been worked out by the business’ previous owners.
However, it’s important to note that while funding may be easier to access, the initial purchasing cost of an established business is usually greater than the cost of starting up. You have to know what you can afford, and this has to take into account other costs such as accountants, lawyers, valuation specialists and so on.
The main thing to avoid is picking up a business which seems to good to be true. It is. If a business is going for a song, it’s likely that it’s failing, and all the advantages that should come with buying your own business will disappear.