Still on the fence about whether to hang your own shingle or lay claim to someone else’s? This guide breaks down the pros and cons so that you can decide whether to buy or start a business.
What’s the difference between buying vs. starting a business?
When you buy a business, you take over ownership of an existing venture. You often inherit its tangible assets, such as equipment, inventory, cash and property. You also inherit its intangible assets, including its brand cachet and intellectual property. What’s more, you get its workforce.
When you start a business, you launch it from the ground up. You must think up a viable business idea. Then you must pull together the necessary assets and people to run a successful venture.
The pros of buying a business
The benefits of buying a business include:
- Built-in revenue stream. The revenue an existing business draws from its assets acts as a safety net. You can rely on it to keep the business afloat while you get your bearings. If revenues exceed expenses, you’re already profitable from day one of ownership.
- Loyal customer base. It can years to build a customer base. But the process happens in an instant when you buy a business that already has a growing customer base.
- Established policies. It takes time and lawyers to develop a bullet-proof legal and operational framework. Such policies will already be in place when you buy a business.
The cons of buying a business
The drawbacks of buying a business include:
- High costs. From equipment to property, every asset a business owns adds to its valuation. You may have to pay many times more for an established business than you would need to invest in a new business.
- Hidden problems. Some flaws of the business might not show themselves until after you take ownership. These might include ongoing legal hassles or crumbling infrastructure.
- Less control. This applies to those who want a high degree of creative control in their business. These people may view inherited infrastructure as an albatross around their necks.
The pros of starting a business
The benefits of starting a new business include:
- Lower costs. You will dictate how much you want to spend to start a new business. The business will not come with a predetermined valuation.
- Fewer “gotchas.” You will not have to pay the price for the mistakes of prior owners. The mistakes your business makes will sometimes be your own. But they will likely be more palatable and manageable to you as a result.
- Fresh start. Customers or clients will have no preconceived notion of how you operate. You will get to shape how others view the business. This can be liberating.
The cons of starting a business
The drawbacks of starting a new business include:
- No existing revenue stream. Your business will be worth nothing on day one. You will have figure out how to make money. You will have to make it soon if you have financial commitments to manufacturers or vendors.
- No customers or clients. You will have to put in the hard work of finding your first paying customer or client.
- Harder to get financing. It is often harder for a business without a history of success to secure funding from a lender.
Should I buy or start my business?
You will experience both successes and challenges whether you buy or start a business. The decision of whether to buy or start a business comes down to your budget and preferences. Consider buying if you have more capital and want the safety net of existing revenues. Start anew if you want more creative control for less cost or if you want to avoid pre-existing problems.
MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.