Buying a business is a fun way to quickly become a successful entrepreneur. But it’s not a good fit for everyone. Learn more about determining whether buying a business or launching a start-up fits your personality, lifestyle, and budget.
One of the exciting things about becoming your own boss means getting to make all of the big decisions but it’s also one of the most stressful. Of these decisions one of the most important you’ll make is how you want to get into business. Whether it’s starting from scratch or buying an existing business, there’s no right or wrong answer, only what’s right or wrong for you. Instead of asking yourself if buying a business is a good idea or if launching a start-up is too challenging, look at the advantages and disadvantages of both to determine the best fit for you.
Advantage of Buying a Business
If you’ve ever walked into one of your favorite businesses and thought about the things you would do differently — how you could improve operations, delight more customers, maybe even update the décor — than buying an existing business might be for you. And fortunately, there are plenty of advantages to buying an existing business, if you determine it’s the right path for you. If you buy a business, here are some of the perks you can enjoy:
- Understanding of upfront costs. If the person selling their business has done the proper work to value their business, then you should have a clear view of what you’re paying and why. This is obviously helpful when it comes to budgeting for your small business project — you should have a much easier time estimating what your total capital need is, compared to someone who’s starting from scratch.
- Save some time. If you buy an existing business, you’re bound to save some time in the early stages of business ownership. Crucial tasks such as looking for real estate, hiring employees, and researching equipment can take a lot of time. Fortunately, in this case, most of those early decisions have already been made. You’ll surely make some changes along the way, but you’ll have a solid foundation to hit the ground running.
- An established reputation. Typically, a business’s established reputation works in your favor. Even if it’s not a spotless reputation, you can still leverage name and brand recognition to generate excitement about new ownership. It can take months to years to build an established audience when starting a new business, so this is a huge advantage.
Disadvantages of Buying a Business
While buying an existing business is a fast way to find success as an entrepreneur, it does come with its own set of challenges. Consider these disadvantages of buying an existing business before making the decision about which type of business ownership is right for you.
- High price tag. Though not always, buying an existing business is typically one of the more expensive ways to become a business owner. It makes sense because you’re typically purchasing all of equipment, inventory, etc. in one large transaction. Being able to afford this purchase isn’t impossible, but you may have to get creative when it comes to small business funding.
- Due diligence. Purchasing an existing business is a big investment — one that can have a great return. However, you need as much information about what you’re buying as possible before you pull the trigger. This means contributing a lot of time and attention to reviewing a business’s history, finances, etc. before you sign. You should consider hiring an attorney and a CPA to help you review the available information and ensure you understand what you’re committing to.
- Change management. Experienced staff can serve as a huge help to you as the new owner of an existing business, but change is never easy. You’ll need to pay special attention to managing seasoned staff and seeing that the transition is a smooth one.
Advantages of Starting a Business
If there’s a passion you want to pursue, starting a business can be one of the most rewarding ways to become a business owner. Obviously, no one will tell you launching a brand-new business is easy, but there are a lot of advantages to starting a business compared to other options.
- Creative freedom. Compared to other business ownership avenues, launching a new start-up business will give you the most flexibility and creative freedom. From product and service to company culture, you’ll have the ultimate say in how you shape your company when starting a new business.
- Flexible budget. Starting a business is rarely a low-budget adventure. However, starting a new business gives you the control to ultimately determine your budget. If you need to cut costs, you can make decisions such as remaining your only employee, setting up a home office, etc.
- Flexible schedule. One of the main questions to ask yourself when debating if you should start or buy a business is how the new business will fit into your lifestyle. If you need to keep working your day job, starting your own business as a side hustle may be the way to go. More often, buying a business will require more time and attention from the start.
Disadvantages of Starting a Business
Starting a new business is one of the most exciting challenges you’ll ever pursue, but it is just that — a challenge. When deciding whether you want to start a new business from scratch or buy an existing business, keep these considerations in mind.
- A lot to learn quickly. When it comes to learning new things quickly, you’ll need to take the ‘drinking from a fire hose’ approach if you’re starting a business from scratch. There are a number of resources available for launching startups, but it takes a lot of time and energy to absorb the information you’ll need to be successful.
- Responsibility. No matter which avenue you take to become a business owner, there will be a lot of new responsibilities on your plate. But starting a new business means making every single decision — all of which will impact the success of your company. Some people love this challenge, but some see it as a disadvantage of start-up life.
- Managing expenses. Often, managing the ongoing and unforeseen expenses of a new business is more challenging than when purchasing an existing business. The due diligence and financial review available during the existing business purchasing process is not available as you launch a start-up. You need to carefully budget for unexpected costs — keeping in mind that it often takes years before start-up owners can draw a salary.
When you’re debating what kind of business ownership is right for you, try not to dwell on whether buying a business is a good idea or if launching a new start-up business is a good idea. The truth is that there are advantages and disadvantages to both. The key to success is determining which choice is right for you, your leadership style, your budget, and your lifestyle. There’s no wrong or right way to become an entrepreneur — if you know that’s what you want, explore all of your options and go for it.