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Decision Time: Buy an Existing Business vs. Start a New One
  • 25 October 2017
  • Daniel Vahab

Decision Time: Buy an Existing Business vs. Start a New One

How do you decide between buying an existing business and starting a new one? Both options have their share of risks and rewards. If you’ve never owned a business before, it could be helpful to leverage an existing organization's model. On the other hand, if you have a specific vision that you would like to carry out, you may prefer to create a new business.

Leveraging an existing operation

Buying an established business definitely has its advantages. A process and team are already in place, along with loyal customers, vendor relationships, technology systems, and more. Upon purchasing the business, you can simply build from the existing customer base and business model. However, if the company you are buying is already highly successful, you may have to pay a premium price.

If this is your first major business venture, it may be wise to seek out an existing business with a proven track record. As Inc. notes, both Ray Kroc of McDonald's and Howard Schultz of Starbucks chose to purchase an existing business rather than build an empire from scratch.

Starting from scratch

As Inc. reports, "entrepreneurs with a new and potentially disruptive product or service may find it necessary to build a business from the ground up." The plus side is you get to make this business entirely your own from the very beginning, involved in every decision from hiring your staff to building your website. In this way, starting your own business allows you to develop a more personal connection to the organization, which may contribute to your overall success.

While launching your own start-up is a very exciting venture, it’s important to consider the risks. According to research by Statistic Brain, 25 percent of start-ups fail in their first year.

Remember that starting a business from scratch requires a lot of legwork. If you’re thinking about a service-based business, you need to determine your service territory, evaluate whether you’re going to have company-owned vehicles and equipment, staff working for you, training, marketing, and more. If you’re a retailer, you need to decide whether you’re going to operate solely as an eCommerce business, have a brick and mortar retail location, or both. You’ll need to identify your product mix, set up operational processes, hire employees, build your brand, develop a marketing strategy, etc. You’ll also likely need to raise capital by making your case to investors.

Doing your due diligence

Regardless of whether you are buying an existing business or starting a new one, you should strive to do as much research as possible in advance. If you are looking into the former, start by analyzing the company's existing assets, total revenue, financial trends, business model, and any legal disputes or claims against the business. It also helps to scope out your company's physical location and touch base with your new team. Interview partners, vendors, employees, and clients, if they are willing. It is also a good idea to read online reviews and contact the Better Business Bureau to confirm the company is in good standing.

If you have experience in your industry and think you’re ready to start your own business, consider what you can offer that competitors cannot. Try to assess any foreseeable risks and be sure to evaluate trends in the marketplace. Consider how consumers’ shopping behaviors have changed – everything from clothing and regardless of which choice you make.

Considering the future

As a small business owner, you need to look at your long-term objectives. What do you hope to accomplish? Which path will enable you to meet your goals in the most effective way?

In the end, there is no perfect decision. But by carefully planning ahead, weighing the pros and cons, and doing your research, you will be able to choose the best option that aligns with your small business and personal goals.

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