Buy A Business Or Start From Scratch

A commonly held belief is that it is better to start your own small business rather than buy a business already in existence. The reasoning is that entrepreneurs shouldn't incur the extra expense of paying for goodwill. It's also said that buying a small business is merely acquiring someone else's problems.

But in most cases, the best strategy for someone wanting to own his or her own small business is to acquire one that is already well established. Here are five principles to consider when making the decision about how to get into business.

1. Value of immediate income: Even though the entrepreneur starting from scratch will avoid having to pay someone else for "goodwill," there still is the cost of setting up and operating the company with no income to offset expenses. Sometimes it takes a year or so before a new company starts showing a profit. And in the majority of cases, someone buying a business can look forward to collecting income from day one, or shortly thereafter. Customers buying products or services already exist, and the company has the needed products in inventory or the support system ready to provide the services. Remember when making the cost comparison to calculate the revenue lost that is associated with starting a business that doesn't produce income for a while.

2.  What's the entrepreneur's time worth? While the DYI entrepreneur is making arrangements with suppliers, deciding on product offerings, and setting up the marketing, service and other functions, the new owner of an ongoing company can focus more on learning the business and developing tactics for boosting revenues and profits. The owner's time is money and it usually is a better use of time to focus on building up what's already there, rather than establishing the relationships and creating the mechanisms so the company can begin to generate income.

Many entrepreneurs prefer to find their own location, negotiate the lease, line up vendors, interview and hire employees and establish the systems and infrastructure needed to operate. But these processes often take more time than anticipated--time that might be better spent making sales and improving efficiency of an established business.

3.  Cost of capital equipment: If the kind of business being considered does not require much in the way of a cash investment--a brokerage for example, or if the equipment in an existing purchase candidate is old and out of date, there might be no strong reason to take over someone else's enterprise. Certainly not if it involves buying machinery that doesn't contribute to the business. But if capital assets of the business being considered are involved in the company's success, it's a better deal to buy a business with its used fixtures and equipment priced at the market or under-market rate usually allocated to such assets, rather than incurring the cost of new furniture fixtures, and equipment, along with the expense of installation and set up.

4. Training and consultation: Even investors in a business they know how to operate can benefit by taking over an existing company, if only for the consulting and training they usually can get for from the seller. And this assistance is likely a vital part of a deal, when a buyer is getting into an enterprise for which he or she lacks experience. Why do franchisees who want to expand to more outlets often prefer buying a business from other franchisees rather than create a new business to operate under the franchisor? It's because the seller can provide important insight into handling the customers, exploiting the opportunities for growth and managing the current employees.

5. Financing the business: There are business buyers who resist buying a business because they don't like the idea of working for the seller--that is, having to pay some of their income to the person who sold the business. What they are forgetting is that those payments are possible to make, thanks to the revenue generated by the business. Besides, seller financing usually comes with the best terms available. Starting from scratch often requires a loan from a small business bank, or from a finance company associated with the firm that provides the equipment needed in the business. And that's usually a high-cost loan calling on the borrower to pledge assets in addition to the equipment and fixtures being used in the business.

Yes there are businesses for an entrepreneur to get involved with that are better to start from scratch than to purchase. But those are the exceptions. In most cases, if a person ready for his or her own business evaluates the options using the five ideas presented here, the choice usually will be to buy a business already in existence.

Peter Siegel, MBAAbout This Contributor:  Peter Siegel, MBA is the Founder of BizBen.com and the Director of the BizBen Network. If you are searching to buy a California small business make sure you are a part of the BizBen ProBuy Program for Business Buyers.  If you have questions about buying a business, getting SBA Loan pre-qualified or about the Business Buyers Success Program please feel free to phone Peter Siegel direct at: 866-270-6278.


Categories: BizBen Blog Contributor, Buying A Business, How To Buy A Business


Comments Regarding This Blog Post


This is a short and to-the-point comment on why it is usually better to buy a business rather than to start a new one. While all the other reasons discussed by Peter, Craig, and Bob are certainly valid, a very important and often critically-valuable "asset" that comes from buying an existing business is the benefit of the founder's or previous owner's mistakes. While "learning from mistakes" is potentially THE most effective educational experience, it is always preferable to learn from other peoples' mistakes whenever possible. While it is important to know from the seller's experience what "worked," it is equally if not more important to learn what didn't work.

Contributor: Business Appraisals, Valuations Advisor

I was involved in starting a chemical manufacturing business. We (myself & two other shareholders) had to incorporate the business, rent a facility, buy equipment, build and install other components, modify some of the equipment that didn't work exactly right, set up an accounting system and an office area, hire employees and on and on. We did all the construction work ourselves as we didn't have the extra money to hire outside help. I was the first to work full time and the other two shareholders came on board when we could afford to pay them. It took us a number of years before we made a profit. I was younger then and could handle the 6 or 7 ten hour days per week that it took to get started.

My point is that it is much much easier to buy an existing business than it is start from scratch.


  Helpful Resources To Assist In Selling And Buying California Businesses

Elizabeth McGovern: Escrow Services - SF Bay Area

McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.

Brad Steinberg, Broker - Laundromat Specialists

Laundry specialists - founded in 1968 by three laundry professionals, PWS is a family-owned corporation. Through the years it has grown to become the largest vended laundry equipment distributor in the United States. Call Brad Steinberg at 323-721-8832 to sell or buy a coin or card laundromat.

Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services

Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 800-864-0420.

Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses

Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.

Janet Carrera - Escrow & Bulk Sale Services - SF Bay Area

Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.

Helen Yoo: Escrow & Bulk Sale Services - Southern California

New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.

Diane Boudreau-Tschetter: Escrow And Bulk Sale Services

California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.


  Related Articles, Events, Blog Posts, Discussions, Videos, Interviews

What Factors Are Considered In Valuing A Small Business? Advisors Weigh In

Valuing a small business is not guess work. It's not what some other businesses of the same type may have or may not have been sold for, it's not even what a business owner "feels" they want or deserve. It is a formula based on many factors. Peter Siegel, MBA from BizBen & others discuss this topic.

Financing Advice: Showing Add Backs To Get Business Acquisition Financing

When seeking business acquisition financing, it helps to review a seller's addbacks as a source of funding to service the debt service. But explain them correctly. Peter Siegel, MBA business acquisition financing expert and advisor at 866-270-6278 covers this topic on financing a business purchase.

Thinking Of Selling My Business: What Factors Create Value And Drive Price?

There are a lot of misconceptions about what enhances the value of a business. The following factors in this Discussion Post on BizBen are aspects of a business that really drives its value and pricing. Business owners thinking of selling should check these out these factors before selling.

Absentee Run Small Businesses - Is That Really A Possibility For Buyers?

Is buying a absentee run small business really a possibility? Peter Siegel (BizBen ProBuy Director) gets asked this question a lot in his consulting sessions with business buyers. Read more about what other Advisors and Intermediaries feel about this topic on this popular BizBen Discussion!

Tips For Faster SBA Loan Approvals For California Small Business Purchases

In this article on BizBen, business purchase financing advisor and SBA loan broker, consultant Peter Siegel (Business Purchase Financing Expert/Advisor & the ProBuy Program Director at BizBen) at 866-270-6278 shares his views of getting SBA loan financing faster for business purchase financing.

What Should I Do If Other Buyers Are Trying To Buy The Same Business As Me?

Buying a small business is hard enough when there is no competition, so how might a buyer navigate the process when there is additional competition from other buyers? Potential small business buyers are offered a few key ways that a buyer can beat out other potential business buyers in this article.

I am Buying A Business: Should I Buy The Property As Well? A Good Decision?

There are advantages and disadvantages to owning commercial property. Here are a few questions to ask when it comes to deciding whether or not to buy the property along with the business. Peter Siegel, MBA with the BizBen ProSell Program reviews this issue with potential sellers and intermediaries.

Find Out Why 80% Of California Business Buyers Never Find And Buy A Business

First the dreaded statistic: 80% of all California business buyers looking to buy a small to mid-sized business in California never end up doing so! Peter Siegel, MBA BizBen Founder And Director at 866-270-6278 covers successful tactics all business buyers of small businesses should utilize.

See All News, Tips And Events


Steve Erlinger Coin Laundry Broker
Redwood Escrow Bulk Sale Services
Southern California Legal Services For Buyers And Sellers
Escrow Services From Helen Yoo New Century Escrow







Auto Related
Business Services
Children Related
Communication Related
Computer, Internet Related
Construction Related
Entertainment Related
Financial Services
Health, Beauty Related
Home Improvement Related
Maintenance Related
Manufacturing Related
Media, Publishing Related
Pet Related
Photography/Video Related
Real Estate Services
Restaurant, Food Related
Retail Related
Service Related
Sports Related
Transportation Related
Travel Related
Wholesale Related

Auto Body Shops
Auto Repair Shops
Bakeries
Bars, Sports Bars
Cafe Restaurants
Car Washes
Cleaning Services
Clothing, Apparel Stores
Coffee Shops
Convenience Stores
Deli Restaurants
Discount, Dollar Stores
Dry Cleaners
eCommerce Websites
Fast Food Restaurants
Florists, Flower Shops
Full Service Restaurants
Gas Stations
Gift Shops
Gyms, Fitness Facilities
Home Health Agencies
Hotels/Motels
Ice Cream Shops
Juice, Smoothie Shops
Laundromats
Liquor Stores
Markets, Marts
Nightclubs
Pizza Restaurants
Postal, Shipping Stores
Preschools, Day Care
Print Shops
Salons, Beauty Shops
Sandwich Shops
Smog Test Only Shops
Smoke Shops
Spas, Med Spas
Sushi Restaurants
Tire Shops
Towing Services
Vending Routes
Wireless, Cellular Shops
Yogurt Shops

Alameda
Alpine
Amador
Butte
Calaveras
Colusa
Contra Costa
Del Norte
El Dorado
Fresno
Glenn
Humboldt
Imperial
Inyo
Kern
Kings
Lake
Lassen
Los Angeles
Madera
Marin
Mariposa
Mendocino
Merced
Modoc
Mono
Monterey
Napa
Nevada
Orange
Placer
Plumas
Riverside
Sacramento
San Benito
San Bernardino
San Diego
San Francisco
San Joaquin
San Luis Obis
San Mateo
Santa Barbara
Santa Clara
Santa Cruz
Shasta
Sierra
Siskiyou
Solano
Sonoma
Stanislaus
Sutter
Tehama
Trinity
Tulare
Tuolumne
Ventura
Yolo
Yuba

0 to $99,999
$100,000 to $249,999
$250,000 to $499,999
$500,000 to $999,999
$1 million to $2 million
over $2 million



BizBen - Where California Deals Get Done! 888-212-4747
7172 Regional Street #364 · Dublin, CA. 94568
BizBen · Copyright © 1994 - 2017, All Rights Reserved

                 
Sign Up Today - For Our FREE BizBen Weekly Email Newsletter
Includes The Best Info On Buying, Selling, Valuing, Financing California Businesses:
Articles, Blog Posts, Podcasts, Videos/Vlogs, Discussions, Q&A, Workshops, Webinars,
Resources. Watch For An Email Confirmation After Signing Up Above. Thank you.


Please confirm your registration by clicking the link we've sent to .

If you can't see it, please check your junk mail folder.

If you have any problems registering, or need assistance with your new BizBen User Account please phone BizBen Customer Support at 888-212-4747.



First Name:*
Last Name:*
Email Address:*
Confirm Email:*
Create Password:*
Confirm Password:*
Phone:
(   
 


You Are A:
Individual
 
Intermediary
 

Email Address:
Password:
 
Search BizBen.com

500 New & Refreshed Detailed Postings Daily
Over 2500 Resources Available On BizBen
Since 1994. Where California Deals Get Done!
Financing Advice: Showing Add Backs To Get Business Acquisition Financin...
Before Buying A California Business, 10 Questions You Should Ask Yoursel...