Buying a business rather than starting up – is this a better route?

In partnership with BusinessesForSale.com, we explore whether buying a business an existing business is better than starting your own

To many people, becoming a business entrepreneur means setting up your own business and beginning to trade in your own right.

But while this is what plenty of entrepreneurs actually do, many others choose to buy an existing business as a means to becoming an independent business owner.

So which option is best? In reality, the answer usually depends upon your own circumstances and expectations:

Option one: buying a business

With buying an existing business, the first problem you may encounter is actually raising money for the purchase. By implication, buying a profitable business implies that it has a value. So, if you wish to take advantage of a ‘going concern’ as a source of income, you will need to be able to afford to do so.

However, even though raising money to buy any business is rarely plain sailing, you will find banks and other lenders much more likely to offer a loan against an existing business. Provided you have solid evidence that your chosen business for sale is profitable and forecast to remain in good business health, any lender should see this as a reasonable investment.

What this means is you must always ensure that any business you intend to buy is financially stable. And in addition, you must be able to show potential lenders how you plan to both make a living and repay the loan once you start trading.

If you are intending to set up in business as an outlet for your creativity, then buying an operational business may not always be your best option. Much will depend upon how well the existing business framework meets your needs and your medium-term plans.

Provided there is a reasonably good fit, the chances are you may well succeed. For example, if you take over a popular but fairly nondescript café in a rundown city area, it may not be wise to attempt to immediately transform the premises into a fine dining destination. But if you know that part of the city is ‘on the up’, you might well justify taking over the business as it is with a view to gradually moving upmarket as the area improves.

Your own business experience will impact upon any business venture you plan. Furthermore, your relationship with lenders, suppliers and even perhaps your customers, will also be affected by your track record in business (or lack of one).

So, if you have trading experience, and qualifications too, you may be free to choose between the start-up and buy a business routes. But as a novice your best bet might be to buy an operational business with a ready-made income – and preferably one where you will be supported by skilled staff.

Option two: starting your own business

Striking out on your own is not for the faint-hearted and will always make the heaviest demands in the early years as you struggle to get established. One barrier will be financing: lenders are rarely keen to fund an embryo business which cannot show any past trading figures. Those entrepreneurs who are able to fund a substantial part of the start-up costs from their own resources may be better placed for getting a top-up loan, but this can still be challenging.

If your reason for going it alone is to do things your way, then a start-up will offer you plenty of creative freedom. But how well you do in terms of generating a profit will ultimately depend upon how well you have researched the market and whether you are able to create and market your product or service at the right price.

Working for yourself, you may be able to get by without much experience of trading in your chosen sector. So much will depend on your ability to market the benefits and appeal of a fresh approach. Nevertheless, you can expect it to take a while before your gathering reputation earns you the respect (and perhaps the income) you may feel you deserve from the outset.

Whichever option you choose, you are sure to need good business advice and you must be prepared to thoroughly research the pros and cons of any opportunity or pathway before you commit. In either case, an entrepreneur who understands the risks and rewards of any decision will always be in a much better position to make a rational, informed judgement.

Jo Thornley is Head of Brand and Partnerships at Dynamis.

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