Buy vs. Build - The Ultimate Decision

You may be thinking to yourself, “why would I buy a business instead of starting my own?” and unsurprisingly, this is something we get asked all the time. Everyone wants the legacy of “I built this business from the ground up” but scaling a business is arguably more impressive than starting one yourself.

When confronted with this question we don’t think that there is an answer that is correct for every situation. To determine the best option, you must be able to see the long-term outcomes of either possibility as well as assess the short-term prospects for the business and how that will impact your finances.

Typically, buying an existing business has a much higher rate of success than starting a business from scratch. Statistics state that 70% to 80% of start-ups are not around by year three or at best, year five. There are many reasons for this. Existing businesses already have established:

✓ a proven track record

✓ cash flow from loyal customers on day one of new ownership

✓ advantages of a position in the marketplace

✓ mentorship from the seller of the business

✓ more favourable financing available

✓ existing staff already in place

Also, the previous owner has made mistakes that you, as the new owner, won’t do because you will have access to the valuable knowledge they have gained about the business.

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Consider your two options:

OPTION 1

If you were to start a business from scratch, you will invest time and money to get started. Let’s say the amount of money is $100,000. Now for the amount of time things get a little less predictable. There is the time it will take you to find suppliers, build your website, create your branding, find a space, do your leasehold improvements, get your initial advertising done, and so on. All this time you probably won’t have an income, or if you do, it will just take you a lot longer to open due to the fact that you are pre-occupied with other tasks. Once you’re open… money will start coming in but your business plan says you won’t be cashflow positive (revenues are more than expenses) for 12 months.

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OPTION 2

Or, you can buy an existing business. Spend maybe a week or two without an income between the time you give notice and leave your employment, until the time you take over the business. You will then have an income from day one if your sale is structured properly – which if you use a respected Brokerage, it should. Each day forward you will work on understanding your business deeper and making the efforts to grow it. This all from the same $100,000 you could have started your  own business with.

For those reasons and a few more, even if you have a killer idea, you would probably be better off to buy an existing business and add those ideas to the operations of that business, rather than start from scratch.

To learn more about businesses that are for sale, or to speak to an Intermediary about your options, book a meeting with us here.