The concept of starting a business is fairly straightforward; create a product or service and sell it to you customers. In reality, there is much more nuance navigating how to structure your business, finding reliable vendors, leasing or buying equipment and property, buying raw materials and most importantly, connecting with, and making a sale to, your customers. According to the Bureau of Labor Statistics 50% of businesses fail within their first 5 years. Depending on your outlook on life, you can also read that statistic as 50% of businesses succeed over their first 5 years! A small business is extremely vulnerable when just starting out and a single bad decision can end the life of a business prematurely.
The benefit of buying an established business is that much of the ‘legwork’ of starting and cultivating relationships with customers, vendors, and employees is already done for you and the business has proven that it has a reliable stream of income. Profitability and predictability are the driving factor of why buyers are looking to acquire businesses rather than start them because they are proven ideas backed by a business with strong fundamentals. Starting a business might cost you less on day one, but over the life of the business it might end up costing you more to grow the business to the same level as you could have if you bought the business. Another option to consider is financing the purchase of a business. In some cases you might be able to put 10% down and finance the remainder of the purchase, so you can multiply your buying power and buy a business that is generating a higher level of profit. Deciding whether to buy a business or start a business is highly dependent on your skillset, level of patience and expectation of income.
In order to determine if buying a business or starting one is a better fit for you, here are some key questions to think about:
How much money will it take to start my business vs buying an existing one?
How long will it take until my business is profitable?
What is my opportunity cost from leaving my current job?
What can I do differently so that I can break into this market?
Do I know enough about the industry to compete and grow against established businesses?
What is my skillset? Am I detail-oriented? Can I manage people? Can I make a sale?
Starting a business is a noble challenge, but if the opportunity presents itself, buying a business is a way to secure your financial future and build meaningful wealth without enduring the higher potential for mortality of a business that is just getting started.