Start from scratch or buy an existing business
Start from scratch or buy an existing business? Faced with this question?
Here are some points to consider, when making an informed decision. How will each of these items affect your decision
1) Location 2) Set-up Time. 3) Cost 4) Cash-flow 5) Reputation 6) Risk
Lets have a look in detail at these points;
a) Is the location a sought after location that the current business is in or can it be easily replicated? Test this by sitting outside or across the street and observing foot traffic. Compare this to any other location you may be considering.
b) A busy road may have lots of traffic but is any of it stopping or able to stop? What are the parking options?
c) How does the current lease you would takeover compare to a new lease? Sometimes less is more on a lease
2) Set-Up Time
The time it takes to find a suitable location plan and execute the fit-out and actually open the doors is a point often missed in new ventures. This can take anything from 2 to 6 months. Buying an established business can short cut this and save you both time and money.
Often with an established business you pay only part of the fit-out cost and generally have income from day one. When comparing the two options remember to factor in fit-out time,
delays and always add 20% to your initial budget to get finished. Compare the buy or make on this basis and you may want to buy…
Starting from scratch can actually be very draining. The customers do not generally knock down the door, so even an under-performing existing business can save you time to reach cash-flow break-even and this can be a massive saving. Often 6-12 months. Plan your business growth with realism not optimism.
Buying an existing business means there is an existing presence on the internet, facebook etc, which means you save months if not years in building your online reputation. There is also the real world presence that may be positive or negative. Often the negatives will disappear when you put up the under new ownership banner and goodwill will often carry forward.
Risk is a complete unknown when starting a new business and often owners ignore this risk. With an existing business there is also risk, but much of the initial risk has been removed. There are customers, they do spend money and there is cash-flow. The proof of concept is already there, so is cashflow.
My personal experience is that, after 2 months in a business you have purchased you know where it is heading. In a fresh start it can take 12 months to get this level of understanding. That’s another 10 months of risk.
So if you can buy what you want, do, if you can’t then be prepared for a long development period and potentially a lot of pain.