Why Start From Scratch? – Buy an Existing Small Business Instead

When most people begin to think about going into a small business for themselves they only think about developing an idea for themselves.  That can be both challenging and fun.  When the business is up a going good there is a great sense of personal satisfaction in knowing that the whole think is “your baby.”

However, there are some distinct disadvantages to starting a small business from scratch.

Here are a few:

1.  You have no track record or business reputation to go on.  Just establishing a realistic    first-year sales projection for your small business can be dicey at best.

2.  Marketing your new small business.

3.  Establishing cash flow

4.  Hiring good employees

5.  Establishing a customer base for your new small business.  This usually takes a lot of marketing time, effort, and money.

If you’re not comfortable with the uncertainty of the above, you may want to consider other options to becoming an owner of a small business.

1.  Buy an existing small business

2.  Buy a franchise – a “turn key” operation.  A great source to use to learn about franchising is a book named The E-Myth Revisited by Michael E. Gerber.

3.  Buy a business opportunity

Based on your own small business background, you personality, your skills and your resources, the options above may offer a greater peace of mind and comfort level plus significant advantages when compared to starting from scratch.

In most cases – and especially if you do not have a small business background, buying an existing small business is less risky than starting from scratch.  Here are just some of the reasons.

1.  You have instant cash flow and profits (we should expect this anyway, or you may not want to buy a non-profitable company unless there are extenuating circumstances that you will be able to correct.)

2.  Procedures, systems, and policies are in place, i.e., you don’t have to reinvent the wheel.

3.  Many times its easier to get financing for an existing small business than for a new one.

4.  Traditional lenders such as banks are generally more comfortable in dealing with a small business that has a proven track record.  But banks and lenders of that ilk expect mounds of paperwork when applying for a loan and prime credit – and often it takes months to get even get a yes or no answer about your loan application.  There are usually restrictive covenants that you need to be aware of when using traditional lending institutions to finance your new small business.

5.  You may inherit patents, copyrights, or other legal rights from your new small business that may be extremely valuable to you.

There are some downsides to buying a small business, though.  Here are some that you need to be cognizant of:

1.  Buying a small business may be more costly that starting from scratch.  Can you afford it?

2.  There’s no such thing as a sure thing.  We’ve all heard that.  Buying an existing small business is no exception.

3.  Be very cautious when buying an existing small business or you might get stuck with outdated obsolete inventory, defiant and uncooperative employees who are resistant to any changes you might want to make, or outdated distribution systems.

Caveat Emptor!  Let the buyer beware!