Buy an Existing Business or Start a New Business from Scratch?

Consider the pros and cons of buying an existing business vs. starting a brand new business. The decision to buy an existing business is much different from starting a new business from the ground up, and while there is no ONE right answer that fits each person, your own clarity about your approach to business will help you make the best choice for you. Discover how your investment of time and money, as well as relationships with customers, vendors, and employees, figure into your decision to start a new business OR buy an existing business.

Video Transcript

Should you buy a business or start a business from scratch? That's a question I'm asked many times. And let's just think about some big picture issues. Starting a business from scratch, what are some of the downsides? Well, you have to do everything from the start, including all of the marketing to begin to bring new customers in because you start out probably with zero customers to begin with.You have to design all of the systems that are going to run the business, figure out how the accounting programs are going to work. Take care of creating the business structure, hiring employees, finding vendors that are going to provide you the things that you are going to sell or provide you the things you need to operate within your business and so forth.So, there's a lot of downsides because there's a lot to do. Some of the upsides, though, are that when you create your own business from scratch it is your business. It has the imprint of your character, the culture that you want to build, employees that you've hired that you feel will be the best for the business.Customers that you want to do business with, vendors that you want to do business with and so forth. You get to shape it the way you want it to look. And likewise when you start up that business, you have the option of starting out slowly, not incurring a lot of debt. Remember the more debt you have in your business, the fewer options that you have, because you've always got the burden of that debt hanging over you that you need to repay.So, there can be some real good reasons for starting a business from scratch. What about buying a new business? Well, one of the advantages interest in buying a business is that it already has the customers, and the employees, and the vendors, some reputation, and so forth. So you start out right away making some money and that can be a good thing.The downside, though, is it generally costs a lot of money. When you're trying to buy a business, many times those trying to sell have an over-inflated idea of what their business is really worth. And so, it's a difficult negotiation to try and find a good business, that you really have a passion for, that you can get at a price that makes sense.But if you can, that can be a great opportunity. The other downside is, that you have to raise generally quite a bit of capital to buy the business. There are times in the economy, like right now, when it's very difficult to get business loans from banks and other organizations. Sellers aren't all that excited about carrying the debt on the purchase of the business.So, raising enough capital to buy the business can be a difficulty. The other difficulty that a lot of people don't think about, is when you buy a business you're buying that culture, the way the other business owner ran his business, how he chose to work with his employees and customers and so forth, and that may not be the culture that you want within your business.And so it often takes 2, 3, 4 years for you to change the culture of the business you bought to a culture that you're comfortable with, that are dealing with customers dealing the way that you would want people to deal with customers, getting rid of the customers that don't make sense for you to work with, and adding more customers that you do like.To move on some of the employees that don't fit with your idea of how you want to serve your customers and replacing them with others. And it can be an agonizing time for a lot of people to work through that because it is a difficult process. There's a lot of change and you have to be willing to hang in there for those two, three, four years to make that cultural change.And so, that's a huge thing that I see with people buying businesses. Don't underestimate how much work it's gonna take to make that move. And if you make it too fast you may alienate your employees and costumers in a way that destroys your business, so we have to be careful about that integration, and have a plan for how we're going to get it done.But, those are just a couple of thoughts on buying a business vs. starting one from scratch.