September 6, 2022 | Buying

Buying an Existing Business Vs. Starting From Scratch

Share This Post:

Entrepreneurship comes in many different forms. For some, it begins with an idea, for others it starts with the drive to be your own boss. The road to operating your own business is also different for everyone. Maybe you start from scratch, or maybe you take over an existing business and make it your own. 

What are the pros and cons? Should you start a new business from scratch? Or should you buy an existing business?

Here is a closer look at what you can expect: 

Starting From Scratch is Often Less Expensive 

Building a business from the ground up often involves less investment upfront. You can take things slowly and accumulate products and grow over time. When most people think about starting their own business, it’s usually the start-from-scratch method they picture. 

And although starting from scratch may cost less upfront, there are definite advantages to buying an existing business. Since existing businesses are already established, lenders might be more willing to finance the purchase of an existing business over a new idea. 

Are you thinking about selling a restaurant? Read our guide on preparing a restaurant for sale right here.

Buying an Existing Business is Less Hassle

If you just want to hit the ground running with your business, buying something that already exists might be the right option for you. An existing business likely already has its own location, inventory, and processes in place. 

In addition to its own location and inventory, if applicable, an existing business also has something else that it hard to find–customers, brand awareness, and track record just to name a few things. These items are not tangible, but rather things that come with time and experience in the marketplace. 

Other things to consider when buying an existing business is the logistics. You won’t need to spend time or money on things like:

  • Finding or training staff 
  • Establishing your cash flow
  • Finding a location 
  • Bolstering inventory

While you likely will still need to spend money on marketing, your marketing dollars will also be optimized when buying an existing business that already has a great brand reputation. 

What about franchises? Are they the best of both worlds? Read more about pricing and inflation with franchises right here.

However, You Are Still Buying Someone Else’s Dream 

If your dream is to own and operate your own business that comes from your own ideas and your own invention or product, it might be better to start from scratch. Yes, buying an existing business could give you access to patents or various copyrights, adding to your profits, but if your entrepreneurial dreams stem from your own ideas and your own creativity, you might feel stifled coming into an existing business. 

Trying to find the best business idea for you? Check out these blogs to get inspired:

Buying an Existing Business Does Not Guarantee Success

Although an existing business will give you a little more bang for your buck, you still need to be careful. An existing business doesn’t guarantee success and you will need to carefully consider all the angles before making a decision. 

Think about the type of business you want to operate. For example, restaurants and clothing boutiques are completely different animals and might suit a specific type of person. Are you passionate about fitness? Maybe a yoga studio is more your speed. The options are endless, but it’s important to choose the right business for you. 

It’s also important to choose a business that is in good standing. Some questions to ask a seller before buying an existing business include:

  • Why are you selling the business?
  • How long have you owned the business?
  • What are the business assets and liabilities?
  • What is your annual revenue and profit margin?
  • How much do you pay yourself?
  • Are there any licenses or permits that need renewal? 

Should You Work with a Commercial Real Estate Agent? 

A commercial agent who specializes in working with business owners is key to these types of transactions. They know the right questions to ask, and can help you find a business that is right for you and also a solid investment. 

They protect your best interests throughout the transaction and broker a fair deal for you. This type of commercial real estate agent can also help you with the logistics and negotiations. For example, are you thinking about buying a restaurant? It pays to have someone in your corner who can help look at the kitchen equipment and tell if it needs to be replaced or not.

Whether buying an existing business or starting from scratch, you will benefit from working with seasoned professionals who know the ins and outs of starting a business. 

Are you thinking about starting your own business? We’re happy to help! Contact us here or email [email protected] to get the process started today.