When baking a cake, you can gather all the ingredients and mix it up yourself, or you can buy one that’s already been baked. Starting a home business offers the same option. You can assemble your business from scratch, or buy one that is fully formed. You just need to decide which option is best for you. Here are the pros and cons, and some things to think about as you determine what business to start, and whether or not you should go it alone or buy an existing business.
Here are five good reasons why buying an existing business is a better option than starting one from scratch:
1. Immediate Cash Flow
If you’ve started a business from scratch before, then you will know that the first three or so years are very difficult, and that’s if you make it that long! The outlay of cash to begin your new venture and the loss of regular income when you first start up are difficulties that may take the enjoyment out of your new endeavour. Existing businesses can often provide excellent cash-flow from the moment you walk in. The instant cash flow can also mean you can invest in improvements in the business straightaway.
2. Getting finance can be easier for an existing going concern business
An existing business seller should have the ability to provide you with a set of financial accounts that a bank can rely upon to provide you the financing to purchase the business. This historical performance helps the banks to lend more comfortably. Today’s economic environment of low interest rates provides you with a great opportunity to leverage your home, investment property and the business you are purchasing to help you secure financing.
3. A strong team of employees
Good businesses almost always have good employees and to run a business of any real size requires staff. Employees allow for a smoother transition into the business, they often have well established relationships with customers and suppliers, they provide a shoulder to lean on, and they’ll probably teach you a thing or two! Not to mention, employees give you the ability to take a well-earned holiday from your business when you want or need one.
4. The seller can provide training
Most business sales involve a transition period where the outgoing seller will provide assistance and training in the running of the business. This transition period is often very helpful as it provides the new buyer with introductions to existing customers and suppliers, and effectively hands the business over to the incoming purchaser. The seller can also be an invaluable resource into the future and may even offer to stay on as a paid employee or a volunteer mentor for an agreed term after the purchase.
5. It’s all set up for you
Setting up a new business often means overcoming many obstacles small and large that can often get in the way of running the business. Buying an existing business often means all the set up work is done for you – suppliers, marketing, location, staffing, branding, systems etc. Sure you may want to stamp your own mark on the business by making some changes, but when you buy a good existing business, many of the changes you make may be small such as renewing the décor, adding some new products, changing the prices or increasing the marketing.
Pros of Starting a Home Business From Scratch
There are many benefits that come from taking your idea and forming it into a business including:
- Greater amount of control over your idea and how you manage your business.
- Ability to be more creative.
- Opportunity to use your unique knowledge, skills and passion to create your vision.
- Low start-up, especially for service-based businesses.
- Easier time recouping loss or expenses.
Cons of Starting a Home Business From Scratch
Like everything else in life, there are a few negatives to starting a business from scratch, including:
- You’re responsible for all aspects of the business including the product or service development, creating the marketing plan and promotional materials, distributing your products, etc.
- You need to create your own systems and plans for organizing and running your home business.
- It can take longer to achieve success because of a longer learning curve and starting at zero.
Pros of Buying a Home Business
If you’re not sure you want to start from nothing, there are many different ways you can buy a business, including buying an existing business, joining a business opportunity or direct sales company, or buying a franchise. There are many benefits that come from buying a business, such as:
- Brand recognition, especially when buying a direct sales or franchise business.
- The products and services already exist, as does the marketing plan and promotional materials.
- Operating systems are already in place.
- Expert help and training available to teach what you need to know and do, as well as answer questions.
- Faster path to profits and reduced risk of failure because the business has a history of success.
Cons of Buying a Home Based Business
There are a few drawbacks to consider when buying a home business, such as:
- Cost of purchase. While direct sales business are affordable, buying an existing business or franchise can cost thousands of dollars. Plus there’s the purchase of any special equipment, inventory and marketing materials.
- Less control over how the business is run. While having an existing plan you can follow is helpful, it can also limit how you run your business. Many direct sales companies and franchises have rules restrictions you’re required to adhere to.
- There may be hidden issues, especially buying an existing business that might be struggling financially.
Deciding Which Option Is Best for You?
There is no one best option when it comes to home business. You can only determine what is best for you.
Some things to consider include:
- Interest: Choosing a business idea should first come from finding an option that you have a knowledge of and/or interest in. Too many people search for what will pay the most, but you should always choose passion over profit. Running a business that doesn’t excite you, or that you don’t like, is a sure way to fail. Once you have an idea, you need to research how to start it, including whether or not you should start from scratch or invest in buying a business. The answer could be made for you if there is no business to buy.
- Cost: What do you have to invest in your business? Starting from scratch or direct sales is usually the most affordable, while buying an existing business or franchise can get expensive.
- Control: Do you prefer to set your rules and do what you want? Then a scratch business, or possibly buying an existing business is best. If you’d prefer tap into an existing structure and system of business, buying a direct sales or franchise business might be a better option.
- Training: You can get books, take courses and/or get a mentor to start a scratch business, but generally, buying a business offers training included in the deal.
- Operation: Finally, you need to decide how and where you want to work. Do you want to run your business 100 percent online? Would you rather meet with clients in person. You can create from scratch or buy online businesses, but many direct sales and franchises require in-person work, even if they have online resources.
- Time: Are you hoping to run your business part-time or full-time? Do you need to operate around a schedule, such as home schooling? Most home businesses, even those you buy, offer flexibility, but not all. You’ll want to consider start-up and management time as you research your business options.
Becoming your own boss always involves a risk. When you buy a business, you take a calculated risk that eliminates a lot of the pitfalls and potential for failure that come with a start-up.