Generally speaking there are two ways you can get into business. You can buy a business or you can start a business. In comparing and considering the two options, I liken it to buying an established house versus building a house.
In buying an established quality house, you go through the process of finding, financing, settling and moving in. Instant gratification, comparatively speaking.
If you chose to build a house, it will take months, maybe even years before you really get to enjoy it. You need to find a block to build on, go through a design and costing process, work out how much you can afford to spend, appoint a builder, get the house built, finish off with landscaping, decorations and furnishings. Gratification and enjoyment comes much later.
Buying versus starting a business is very similar.
There are pros and cons for each option and enough discussion points on this topic to fill a 5 day seminar, so I am going to give you a summarised version to get your thinking juices flowing.
Which is the better option? Having started three of my own businesses I’m certainly familiar with this route. Having valued and advised on many business acquisitions and sales I have seen what works well when going along this path.
Let’s look at buying first. The advantages of buying an established business are many including an existing customer base, systems and procedures in place, key personnel already on the team, supplier relationships set up, location and infrastructure secured, and most importantly: established cash flow.
If an established business has great fundamentals and has been built in such a way that the risk has been managed well, the value of the business will be higher. This means that to buy a business like this you will need to compete with other buyers and potentially pay a premium for it. Just as there is a market for houses, there is a market for businesses and the best businesses attract the most attention.
In short, you will need money to buy an established business.
The other route is to start up a business. Your upfront cash requirements may not be as much as buying an established business, but the dynamics of building a business is different, especially cash flow.
You’ll need to create your brand, build your market and customer base, buy the appropriate equipment, and find a location to operate from, design and implement systems, find the right people for your team and so on. All of these things will take time. There is a reasonable chance you will experience negative cash flow in the start-up and establishment phases.
In short, you will need money to start-up and build a business.
Either way, money will be needed for each option. In deciding which option is best for you very much depend on individual circumstances.
Questions you must ask yourself include how much capital do you have? What is your skill set? Are you bringing something new to market or is your field of expertise in an existing market? What will be your exit strategy? Why are you considering going into business in the first place?
All of these questions and more need to be considered when deciding on your path. Speak to your advisors as well as people who have experience in buying and establishing businesses. Do your research, find out was it the best option for you.