If you've identified a great market, you're likely eager to get into business as soon as possible. However, there are pros of starting a business that should be first weighed against the cons. Often — but not always — buying an existing business in that market is going to be easier and more profitable in the first years, compared to starting from scratch.
Disadvantages of Starting a New Business From Scratch
Starting a business from scratch carries more risk than buying an existing business that is already producing a cash flow — and hopefully making a profit. An existing business already has relationships with suppliers and paying customers. It already has employees who are familiar with its operations, and all of those operations, including procedures and policies, are already running.
Directly related to this is the fact that it's much harder to get financing for a brand new business than it is to buy an existing business. However, not all businesses for sale necessarily give you this advantage. Entrepreneur recommends looking at a company's financial records over the past five years, including its tax records, to see if it's financially viable.
In many cases, an existing business already has the intellectual property you will need as well, such as patents, trademarks and copyrights. This leads to one last disadvantage of starting from scratch: the website. An established website has much higher search engine optimization (SEO) clout than a new one. It's also much more likely to have important links to other websites, leading customers to your business.
Finally, a brand new business comes with a steep learning curve, without any of the indicators of success that come with buying an existing company. If you haven't done your due diligence in researching the market or set aside enough capital to carry you through until you start getting clients, your business will likely collapse.
Advantages of Starting a New Business From Scratch
Before calling it a day, no pros and cons list can be complete without listing the advantages — and starting a new business has three important pros to add to that column. First is cost, which is likely the only advantage you need to know if you're on a shoestring budget. Each of the benefits of buying a company have a price tag attached to it. After all, nobody is going to hand you a verified client list for free. Equipment, inventory and other assets are all things you can buy on your own.
Secondly, you're starting on a fresh page. From its inception, everything can be done exactly as you like, which is a broad category of advantages for many business owners. There will be:
- no pushback from established managers and employees who resist change
- no incentive bonuses to keep experienced employees on board
- no old equipment to upgrade
- no delinquent clients to worry about
- no negative reviews online to haunt you
- no logos, signs, stationary, desks or even potted plants to stare at every day that you never really like
Thirdly, starting your own business carries with it a level of personal satisfaction that many entrepreneurs wouldn't trade in for the world. In fact, some might argue that if you buy a business, you're building on someone else’s work, and the only way to really start a business is to do it from scratch.
Starting a Business Compared with Buying a Franchise
For some, buying a franchise is a middle ground between buying a business or starting a business from scratch. In terms of cost, this is often the case, as franchises can start at just a few thousand dollars. Because franchising licenses vary considerably, you'll need to examine exactly what is being offered for the price.
The freedom of making your own decisions can be limited by your franchise contract, such as where your franchise will be located, what signage and marketing materials you can use, what products or services you can offer and what prices you can set. On the other hand, the franchiser's head office will likely provide you with marketing materials, licenses for their intellectual property, and training. According to Forbes, franchises usually give you access to better pricing from suppliers due to increased purchasing power.
Before making any decisions, take a good look at the market you're considering. If you can find a franchise opportunity or someone willing to be bought out, weigh your options carefully. Compare the startup costs of doing it yourself to the costs and potential jump-start in revenue that buying a business or a franchise can provide.
