Should I Buy A Business Or Start One?

There comes a stage in life where some people make the decision to become involved in business ownership by deciding to buy a business or start one.

The motivations for doing so can be many.

More say in the direction of their lives, more wealth, lasting legacy.

But once the decision to own a business has been made, the equally important question of which of the two paths to pursue (buy a business or start one) can cause serious reflection.

Indeed, making the wrong decision can not only have serious financial implications, but can also adversely effect individuals involved in terms of health.

So before you dive in headfirst, there are several questions to ask before buying a business or starting one.

What Is Your Personality Suited To?

Running an existing business and starting one from scratch each have different attributes required in order to build them.

Do you enjoy being in charge?
Are you good with people?
Do you prefer to work alone or do you need others to help you accomplish tasks?

Some people prefer the excitement and instability of starting a business and building it to a certain level whereas others prefer to simply run an existing business with its existing infrastructure.

Additionally, some people are wired to be “hands-on” and involve themselves in the nuts and bolts of the business, which may suit someone looking to start a business.

On the other hand, a person looking to strategically roll-up a number of businesses in the same industry may be more focussed on buying existing businesses.

So considering what your overall goals with business ownership are plays a big part in which avenue to pursue.

Are There Any Special Resources Required?

If the business provides goods or services that require any special resources, then you need to consider what precisely is required and where they can be found?

Will you be able to provide them yourself?

If not, where can these resources be found and are they easily attainable?

Sometimes buying an existing business with the required resources is a viable avenue to take.

Such resources could include labour, licenses and Intellectual Property.

Thinking of the resources required to run the business can help determine whether buying a business is a more viable alternative to starting a business.

What Are The Trends In Your Industry?

What are the demographic, regulatory, structural and technological changes occurring in your industry?

Are the changes of such magnitude that it may be quicker to start a new business than attempt to change the direction of an existing one?

Would you be satisfied with carving-out a small stake in the industry from scratch, rather than battling to maintain a larger stake with an existing, mature business?

The answers to these questions come-down to your assessment of the future of the industry and your ability to grow the business in a dynamic environment.

What Capital Resources Do You Have?

Buying a business requires upfront capital investment.

This means you’ll need money before you begin operating the business.

Therefore, you’ll need to be able to assess your chances of obtaining funds if you don’t have excess cash available to purchase the business.

Can you obtain funds from a bank or other sources?
What is your credit worthiness rating?
Can you obtain equity funds from other sources?
What control will equity investors have over the business?

Additional questions that a bank may ask can be found here.

These are all questions that require serious consideration.

On the other hand, starting your own business does not require any initial cash outlay.

Instead, you’ll use your personal savings to fund the start-up costs.

The main cost with starting a business is time.

How Will You Grow The Business?

Whether you buy a business or start a business, you’ll be wanting to grow it.

The question is, how do you plan to grow it?

Quick growth can be achieved by starting a business as you’re commencing from a low base.

Any initial traction may validate your idea and enable some quick wins.

This can be done with just your own involvement and no heavy infrastructure in some cases.

Indeed, you may even be able to scale your business without traditional resources such as employees and premises.

However, you may find your growth hitting a peak without additional investment and resources.

Conversely, buying an existing business comes with existing validation of the goods or services provided, infrastructure and capacity for growth.

There are generally more moving parts to take care of, but the business enjoys established relations with suppliers and customers, as well as its position in the industry.

The rate of growth for an existing business may not be as high as for a successful start-up, however, the growth rate is generally achieved on a larger business with a higher value.

An existing business also allows growth to be achieved through merger and acquisition activity, as opposed to simply organic growth which is the main growth activity for start-ups.