Market and Industry Investigation
The number one reason people opt to own their own business rather than work for someone, according to U.S. News & World Report, is the satisfaction that comes with being their own boss. This is true even though entrepreneurship generally comes with higher stress, longer hours, and more risk. (http://money.usnews.com/money/blogs/outside-voices-small-business/2009/01/12/why-do-people-become-entrepreneurs ) Sometimes the motivation is the desire to create a job for themselves or possibly for family members, long term financial planning, or a particular passion or interest.
Once the decision is made to take the leap, in addition to deciding the type of business, a prospective business owner may consider two very common routes to ownership: starting the business from the ground up, or buying an existing business. Proponents of buying an existing business will say that it provides immediate cash flow, along with market position. If the purchased business can demonstrate a sufficient level of cash flow, it is usually easier for the buyer to obtain financing to purchase the business than to finance a start-up. Typically the business comes with experienced employees and an established customer base, both of which reduce the immediate need for expertise and time investment by the buyer.
On the flip side, you are paying for that existing income stream, so the initial cost may be significantly higher. If you can afford to support the business in its early days and delay drawing a salary, starting from the ground up may be a better option. While you won't get the benefit of someone else's experience, you also won't inherit their bad habits.
The decision whether to build or buy should also take into consideration the prospective owner’s experience, capital availability, personal credit history, interests and demonstrated skills. It also should factor in things like the level of difficulty involved in breaking into a particular industry, capital requirements involved in either buying an existing business or the costs of a startup, the competitive environment, location and specific market demographics. This is not an exhaustive list- although it might be exhausting.
In the weeks to come, we’ll take a look at various aspects of buying an existing business, considering along the way how the process might differ if the future business owner were to have chosen the path of a start-up.