Should You Start or Buy a Business? Here’s What to Consider to Make the Right Decision

If you are looking to get into the world of online entrepreneurship, you may be wondering whether you should start or buy a business. After all, the decision to start a business from scratch vs buying an existing company is an important one with many long-term implications. If you are trying to make this choice for yourself, there are several important things to know before determining your path forward. 

In this article, we discuss:

• The pros and cons of starting a business
• The pros and cons of purchasing an existing business
• Financing options for starting versus buying a business
• How to determine whether you should start or buy a business

The Pros and Cons of Starting a Business

The decision to start a business is an exciting step for any entrepreneur. While it holds the possibility of immense personal and financial rewards, it also requires a lot from the business owner. As such an important decision, it pays to know the pros and cons of starting a business before setting out on this path. 

Pros

Compared to buying an existing company, starting your own business has several key pros. These include

• More affordability
• More brand control

In general, starting a business from scratch is more affordable than purchasing an already established business. Of course, there are exceptions to this rule, but when you start a company you have the option to choose a business model and product that allows you to minimize your initial investment. This may be especially important if you’re working with a small-business budget. 

Finances aside, starting a company from the beginning allows you to have more control over the direction and voice of your brand. If you purchase a company, the brand is already more or less established. By creating your own business, you have the freedom to pursue your own business idea and take your brand in whichever creative direction you wish.

This creativity and flexibility, along with the knowledge that you created something from nothing, often provides owners with a sense of personal satisfaction as they start, build, and grow their business from the ground up. 

“In general, starting a business from scratch is more affordable than purchasing an already established business.”

Cons

While starting a business brings obvious benefits, both tangible and intangible, it also presents challenges when compared with buying a business. These include 

• Increased risk
• Significant time commitment
• Increased effort to establish brand awareness
• More skills required

Whether you are starting a SaaS business or an ecommerce store, creating your own business entails a significant risk of failure. In fact, most new businesses do not make it. However, many entrepreneurs find that the risk is worth the potential reward. 

Starting a new business is usually not easy. While the business will always require time and energy, the initial stages require a lot of hard work and are often the most demanding on the owner. 

Starting off, it is likely that nobody will know about your business or care about your products outside of your family and friends. Getting your business and brand out to the world will require a significant push initially. It is important to know this push can take time, money, and energy.

Lastly, as the owner of a new company, you will be required to wear many hats and master a number of disparate skills. You likely will find yourself designing your product, creating your packaging and marketing plan, managing a supply chain, and more. While this can be exciting and fun, it can also be a bit stressful and demanding for some. 

“Getting your business and brand out to the world will require a significant push initially.”

The Pros and Cons of Purchasing an Existing Business

Purchasing an existing business is a worthy path to becoming a successful and happy business owner. In fact, many entrepreneurs decide to go this route. If this is something that you are considering, it is important to be aware of the pros and cons associated with buying a business. 

Pros

Buying a business brings many benefits compared to starting one from scratch. These include 

• Proven concept
• Known brand name
• The ability to focus on the big picture
• Financial flexibility
• High ROI potential

By buying a successful business you have the peace of mind that comes from knowing the business model, product, and operational capacity are all proven. Existing customers like the product, and the business works. While no business venture has zero risk, this knowledge helps eliminate some of the risk and uncertainty from the equation. This is especially true in today’s market. 

Likewise, you are purchasing a brand that has already established its presence and built its customer base. This saves you the energy and resources required to get the business off the ground. 

Since a lot of the initial steps have been completed and the business operational framework is in place, it allows you to put your time and energy into focusing on the big picture. This may include driving growth or launching new products. 

During the initial phases of a business, most or all of the revenue is usually put back into the business to address issues or drive growth. By purchasing the right established business, you will have greater financial flexibility. This means the business will be able to pay you, the owner, while still having the resources to drive growth. 

While buying a business can require more up-front investment, it also has the potential to yield a higher return compared to other investment options. 

“By buying a successful business you have the peace of mind that comes from knowing the business model, product, and operational capacity are all proven.”

Cons

Purchasing a business does entail some challenges compared to starting one from scratch. These include

• Greater financial investment
• Potential for a stressful buying process

Depending on the size of the business you purchase and your method of financing, buying a business is often more expensive than starting one on your own. This does not necessarily need to be a deterrent, however. We will discuss financing options in the next section. 

In addition, buying a business can be a stressful process in and of itself. When selecting a business, it is important to take full advantage of the due diligence period to clarify that you are purchasing a business that fully meets your criteria. 

Many entrepreneurs find that a business Advisor helps the buying process by knowing what questions to ask, assisting with negotiations, and ensuring a smooth transition process. 

“Depending on the size of the business you purchase and your method of financing, buying a business is often more expensive than starting one on your own.”

Financing Options for Starting a Business Versus Buying a Business

Whether you are starting or buying a business, you will likely require some start-up capital. As discussed before, however, buying a business often requires more initial financial investment than starting one. Fortunately, there is a range of business financing options available regardless of whether you are buying or starting a business. 

SBA loans and other small-business loans

Many entrepeneurs start new ventures with the assistance of a Small Business Administration (SBA) loan. This type of loan is backed by the SBA, a government agency whose mission is to strengthen the economy by providing support to small businesses. 

There are a variety of SBA loans available depending on your needs. You can use an SBA loan to start a new business or fund the purchase of an already existing company.

SBA loans aside, banks offer a variety of small-business loans. Speak with a lender to determine which start-up loan may be right for you. 

Personal wealth

For some, it is possible to fund a new business or business purchase with their existing personal wealth. Of course, this option depends on your unique financial situation and goals. 

Family and friends

One of the most common ways individuals acquire funding for a new business is through their networks. Family and friends may be happy to provide a loan either out of goodwill or with some expectation of realizing a return on their investment. 

Not everyone has this option. But for those who do, it can be a direct way to finance their new business or purchase an existing company. 

Seller financing

Seller financing is only possible when purchasing an already existing business. With this financing method, the current owner of the business agrees to accept a limited up-front payment at the time of purchase, with the remainder of the balance being paid over an agreed-upon period of time. 

For example, let’s assume you are looking at purchasing an Amazon business and have a budget of $200,000. However, you find an attractive business listed for $1,000,000. If the owner agrees, it may be possible to make a down payment of $200,000 and pay back the balance over the course of several years. 

Seller financing can be attractive to the owner as they may be able to benefit from the future growth of the business. 

Regardless of your financial situation, there may be financing options available to you. 

“There are a variety of SBA loans available depending on your needs. You can use an SBA loan to start a new business or fund the purchase of an already existing company.”

How to Determine Whether You Should Start or Buy a Business

The decision to start or buy a business is an important one, and there is no universal right or wrong answer. Your decision will hinge on your goals and financial situation. 

“Getting clear on your personal and professional goals will help you determine whether buying or starting a business is right for you.”

Consider your goals

Start by considering what your goals are. Are you looking for an immediate cash flow in order to escape your current job? Buying an established business may be right for you. Or, are you looking for the personal satisfaction and creative outlet that starting your own business can provide? 

Getting clear on your personal and professional goals will help you determine whether buying or starting a business is right for you. 

Consider your financial situation

In addition, you must get clear on your current financial situation. This includes any resources you personally have to start a business as well as your access to other financing opportunities. 

Getting clear on your finances will help you understand whether or not you have the ability to purchase a business. If resources are tight, you may want to consider one of the business models that requires less up-front investment. 

Some entrepreneurs may also take into account the best US states in which to start their business. This may be a small consideration, though, compared to your overall goals and financial situation.

Ultimately, it comes down to what you want to achieve, the experience you want to have, and the resources available to help you get there.