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Is It Easier to Start a Business or to Buy One
Whether you want to start a business or buy one, there are pros and cons for each approach.
If you decide to start a business from scratch, or if you decide to buy an existing one, the most important thing is to choose a business that is a good match to your criteria.
We deal with many serial business owners who are experts on how to start a business. They are people who will buy businesses, build them up and sell them. Often the business is in the hospitality sector, but not exclusively so.
We also deal with people who look to buy businesses that are a good match to their skill set. They tend to see opportunity where others may see difficulty. They will investigate a business and discover that the marketing is terrible, the pricing is wrong, or the current systems are ineffective.
The appeal of fixing a broken business
Fixing businesses is attractive to the right kind of buyer because of these problems. Quite simply, there is nothing that can’t be fixed! New systems can be introduced, the marketing can be invigorated, and expensive products can be cheaply sourced from elsewhere. In short order, they see what needs to be done, fix it and build the profitability of the business.
Certainly, these people have the skills to start a business from scratch. However, they realise there are many advantages to buying an operating business. They’re getting existing clients, existing products, existing trade, existing staff, existing brand awareness, and existing systems. From day one, the business is earning money.
Hurdles when you start a business
If I start a business tomorrow selling widgets, there will be significant time period where I’m not earning money. Instead, there will be a large initial monetary outlay. I'm paying staff. I'm paying for an office. I have to buy the raw material to make the widgets. Then I have to find customers willing to pay for them. During all that time, the business is not making any money.
It's the same situation when opening a cafe from scratch. Cafes are very location-based businesses, and quite often there will be nothing available in a premium location, or you will have to pay a premium price to buy into that location. The costs involved in fitting out an empty space to work as a cafe are astronomical. Often businesses are bought for their assets—if not for the location—simply because it would cost more to buy all their assets brand new.
The bottom line is that if you have the skill sets, it tends to be cheaper, quicker and easier to buy an existing business than it is to build one up from scratch.
LINK NSW, Director
For further information about this article, contact your nearest LINK Business Broking Office.