What is the best way to start a business?
If you dream of becoming your own boss, you have two options: buy a business or start a business.
You can start a business with no money, or you can start one with a sizable investment. If you have a lot of money, you might be able to buy a business.
If you are part of the 9% percent of Americans who will take the plunge to become an entrepreneur, you have a decision to make.
Will you start a business from nothing or buy one?
But, which one is the better option for you and why?
Each option has its pros and cons.
Advantages of buying a business
- Easier – Starting a business from zero is a lot more difficult than buying an existing business and run with it.
- Safer – The failure rate of brand new businesses is much higher than established businesses. According to Bloomberg, 8 out of 10 entrepreneurs who start a business fail within the first 18 months. That is an 80 failure rate. The U.S. Bureau of Labor Statistics reports a 38.8 – 45.1% and the U.S. Census Data shows a 51.2% failure within the first four-five years. Regardless of which numbers you believe, we can agree that business failure rate is very high. Buying an existing business greatly increases your chances of success.
- Requires less creativity – When you buy a business, you are paying for a system with customers and revenue. You don’t have to struggle to go from zero customers with no revenue to a business that is up and running. The first couple of years is the most vulnerable time in the life of a business.
- Many options – At any given time there are about 1 million businesses for sale in the United States.
Disadvantages of buying a business
- Expensive – Buying a business is much more expensive than starting a business from scratch. In the long run, it might save you money, but it is an expensive thing to do.
- Risky – Many businesses in the market are in a downward spiral. They might have been mismanaged or neglected.
- Investment – The business might require additional investment for additional staff, equipment, improvements, or inventory.
- Location – You might buy a business that is in a bad location.
- Staff – When you start a business, you hire the staff, but when you buy a business, the employees come with the business. You might be buying into a business with untrained or under-performing staff.
- Trends – There might be industry trends that could reduce your market share and increase your competition.
- Seller – Most businesses rely too much on the entrepreneur – seller – which could result in the decline of the business under new ownership.
What kind of businesses can you buy? different size maturity full-time, part-time franchise
- Established business – If you can afford it, you can buy a well-established business with customers and healthy revenue.
- Full time or part time – If you are not ready to buy a full-time business, you might want to look into buying a small part-time one. It will be less expensive, and it will be lower risk.
- Early stage business – Many people start businesses that are listed for sale for a variety of reasons. The person who started the business might have lost interest. S/he might not have the cash or time to stick with it. You might be able to buy an early stage business at a bargain price.
- Franchise business – There are turnkey franchise opportunities in every industry you can imagine. It is a great option if you want to buy into a system. If you are happy plugging into an existing business model with little flexibility, it might be the right option for you.
- Asset sale – Unfortunately, there are businesses that can’t make it, but there are valuable assets. This might be a viable option if all you need are assets. For example, a machine shop might no longer operate a business but the owner would be willing to sell you tools, machines, and inventory.
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