Advantages and Disadvantages of Buying verses a Start-Up (Item #6)
Which do you think is better, buying an existing business or starting from scratch. The individual seeking a business and their situation can only determine this question. Both have advantages and disadvantages that must be considered.
Starting a business from ground up can be very rewarding both financially and self-achievement. The risk of failure is much greater. According to Michael Gerber, the author of “The E-Myth Revisited” 40 % of businesses fail in the first year and 80% fail in five years. These percentages can be quite sobering and discouraging at the same time.
However, purchasing an existing business reduces this risk with certain ventures. Individuals should consider the following reasons that minimize the loss:
· Proven Concept – an established business helps reduce the unknown factor. It also may be easier to get financing for an established business over a start-up. You can also see if the current way is working
· Brand – By purchasing an existing business then you are buying an established name. The customers understand the business.
· Relationships – You automatically have a customer base established. In addition, some agreements provide that the previous owner will help with the transition.
· Focus – The foundation for an existing business is established so the efforts now can focus improving and growing.
· People – Well-trained employees are in place to help with the business.
· Cash Flow – Start-up owners typical starve doing the initial year due to all the expenses but buying an existing business the cash flow is level or predictable.
· Risk – Some individuals may not want to pay for the established business because of the cost. They had rather take the risk on a lesser amount of money.
Entrepreneurs can purchase an existing business or they can purchase a franchise or do a start-up. The question then becomes, which will work best for the individual. In tough economic times, it is critical to consider the amount of cash outlay versus the benefits.