Advantages of Buying an Existing Business vs. Starting One from Scratch
Imagine it! Running your own business, calling the shots, and serving your community with pride. Whatever your reasons for wanting to be an entrepreneur, your first instinct might be to launch a start-up.
In some cases, starting your own company may be wise. But before you automatically reinvent the wheel, have you considered the advantages of buying an existing business instead?
When you purchase a small business rather than start one from scratch, you avoid the painful, costly headaches that mark the birth of many new companies. And let’s not forget the dire risk of failure. Statistics from Innovation, Science, and Economic Development Canada show that only about 65% of new business start-ups survive their first five years.
If you can afford to purchase a company that’s already operating, you’ll benefit from the hard work and wisdom that’s already gone into the business. Think of the time, energy, and money the current owner or founder has already invested to solve the problems that arose in the business’s early days.
Let’s look at the advantages of buying an existing business, as well as the disadvantages.
Did You Know...
When you buy rather than start from scratch, you avoid the painful, costly headaches that mark the birth of many new companies.
Advantages of Buying an Existing Business
A proven business model, cash flows on day one, and a premises or facility that’s already built and ready to go—does that sound good to you? Plus, your employees, suppliers, and customers will be handed to you on a silver platter.
Maybe you’ve always fantasized about being a founder. But with a start-up, you’ll be setting foot on some pretty shaky ground. A typical start-up scenario is two or three initial years of negative cash flow, unforeseen challenges that never seem to end, and long, frustrating hours of hustling for your first customers.
Want to avoid these risks? Here are some reasons you might want to look at businesses for sale rather than start your own undertaking:
- The business is already up and running.
- The market already knows about the business and has attracted a customer base.
- Assuming you run it well, an existing profitable business stands a good chance of showing financial returns immediately.
- Getting financing is often easier for a proven business with an existing cash flow.
- You can gain excellent market knowledge from an established business, especially if you’re new to the industry or location.
- You may inherit valuable legal rights, such as patents or copyrights.
Disadvantages of Buying an Existing Business
But for the following reasons, buying a small business may not be up your alley:
- You’ll need to invest a sizeable chunk up front. With a start-up, you can often develop a business plan and test your idea for next to nothing.
- The established business model may or may not align with your vision. If you start a new business, you’ll have the opportunity to create a new market or establish a new niche.
- The existing brand, culture, or history may hinder your ability to execute your vision.
- From your initial preparation, to pursuing options, to making a successful offer, to due diligence, to finally closing on the deal, buying can be a long and arduous process.
- If you’re a seasoned buyer who’s expanding your current venture, it may be tough to integrate your new acquisition into your existing operations.
- While the sale or transition is taking place, valuable employees may choose to move on.
Wondering what to do? Decide carefully because you wouldn’t want to throw all your savings into a business venture that's not right for you.
Thoroughly weigh all your options, consider the advantages and disadvantages of buying an existing business, and get educated on the ins and outs of becoming a business owner. Our Business Buyer’s Brilliance program can help you develop the business acumen you need to get started.
If you’re buying in Toronto, in the GTA, or elsewhere in Ontario and think buying a business might be the better course of action for you, Transitions Business Brokers can help you gain the knowledge, skills, and confidence to make your business ownership dreams a reality.
Start getting educated! Explore our Business Buyer’s Brilliance program today.