Both starting and buying a business have their own set of benefits and risks. This varies significantly depending on the type of business and reason for sale which we will explain and compare below.
We’ll look into both these avenues so that you can make an informed decision on whether to start a business or to buy an existing one.
Advantages of buying a business
It is considered less risky to buy a business than to start a business from scratch from a financier’s point of view according to Business Queensland. It is generally considered a lower risk if you purchase a well managed, profitable business that has been operating for years. The advantages listed below won’t always turn out true but will stand true in many of the businesses sold.
- Buying an established business means immediate cash flow.
- Do not need to go through the growing pains of starting up a new business.
- Plans, policies, and procedures in place.
- Financial history, easier to get financed.
- Goodwill, existing clientele, suppliers, equipment, plant and stock.
- Businesses may be undervalued due to owners need to sell fast.
Disadvantages of buying a business
Not every business sold is a viable business or good value for money. Some businesses are overpriced, unprofitable or under-performing. Some businesses seem like good value due to their low price tag but these types of businesses usually take dedication and resources to turn around.
- Plant and equipment may be in need of an upgrade.
- Potentially capital intensive to turn around business.
- Goodwill of business is due to the previous owner.
- Financial history is not an indicator of future success.
- Businesses may be overvalued based on previous earnings.
Advantages of starting a business
Depending on the business you are starting, it may be low risk, high risk or anything in between. Some businesses are extremely high risk due to the capital outlay required to get started. Most business owners will tell you that they made countless mistakes when they first started. This is true for all start-up businesses, and sometimes those business mistakes can be costly.
- Can be cheaper to start your own business if you know what you’re doing.
- You will learn everything about the business as you build it up.
- Your business success is dependent on your execution.
- No legacy issues from existing businesses.
Disadvantages of starting a business
Starting a business is glamourised but it can be extremely brutal. For those uninitiated, it takes countless work hours to get started.
- Outlay can be higher than buying a business due to plant, equipment, and stock.
- You start with no goodwill or clientele.
- No immediate cash flow or goodwill.
- Need to negotiate lease and council permits.
If you are deciding up whether you should start or buy a business, you need to work out what is important to you based on your individual circumstances. Everyone is different, so there is no single answer.
The best thing to do is to tailor your decision and strategy to your needs. At the end of the day, having a business is an alternative to working, and much like work, it makes it much easier to stay passionate when you enjoy the work that you do.
If you want to learn more about buying a business, feel free to check out our guides on buying a business.