While creating your own business from scratch seems to have caught our collective interest, it’s not the only way to be your own boss. Depending on your skill set, time of life, and financial situation, buying a business may be a better option for you. Or, the opposite might be true.
To help you decide whether you’re the entrepreneurial type, or someone who would thrive jumping into an already established business, we’ll cover the pros and cons of each below.
Starting your own business
Becoming an entrepreneur is a bit like hopping on a roller coaster – there are many highs, plenty of lows, and sometimes, all those twists and turns can make you feel queasy.
One of the lows of entrepreneurship is the sheer amount of effort it takes to build something from nothing. Especially in the beginning, creating a business from scratch is a lot of work. It can consume days, nights and weekends. Some entrepreneurs almost disappear for those first three years under a pile of work, with no end in sight.
Ask yourself: Do you have the time?
So, before you consider starting your own business, make sure you are at the right place in your life to take on that kind of time-commitment.
Then, of course, there is the risk. After only five years, about 30 per cent of new businesses will fail. That’s a thirty percent chance five years of sleepless nights, long days and total commitment will be flushed down the drain. That’s why it takes steady nerves and the willingness to put some parts of life on hold to truly ‘make it’ as an entrepreneur.
However, for the right person, those lows are matched or exceeded by the highs of creating something entirely from scratch.
High risk = high reward
Alongside that risk of loss, entrepreneurs have the chance to bring an ephemeral idea to market, and grow it to fit their vision of success. This includes everything from the product/service they create, to defining their company culture and vision. This makes building a business an incredibly creative and rewarding endeavor.
Because entrepreneurs create something from nothing, starting a new business is often much cheaper than purchasing an existing business. Some small businesses can be started with a small sum of money.
With that small investment, the right person at the right time can create a multi-billion dollar company. In other words, the return on investment can be staggering.
If the creativity, freedom and ROI appeal to you, and you are in a place in your life where you can afford the hours of work and risk, you may want to become an entrepreneur.
Buying a business
Unlike entrepreneurship, buying a business is more like taking a nice German sports sedan onto the highway. It’s safer, comfortable – though there are likely still a few bumps in your path liable to trip you up.
One of the greatest benefits of buying a successful business is that it allows the buyer to bypass much of the startup phase work by beginning from a place of prosperity. This doesn’t mean buying a business is easier, or that there’s no work involved, but it does mean that if a buyer does their due diligence and purchases a successful business, they are stepping into success.
This success includes:
- A proven business model
- Instant cashflow
- Assets needed to run the business
So, with the right management, that business is poised to continue to prosper. Having all that success behind you also makes a huge difference when you’re seeking funding. While banks can be notoriously difficult when you have nothing to show, having a successful business makes getting financing much easier.
Ask yourself: Can I manage that price tag (and baggage)
With all those positives, buying a business may seem like jumping onto a golden brick road to success. But, bypassing that stress and work comes with a much larger price tag than starting a business from scratch. That cost is one of the greatest hurdles to buying a business. Of course, how large that price tag is depends on the business, including its size and how profitable it is.
The next great hurdle to finding success as a business owner is the transition. With an already existing business, there’s already a culture and vision in place. That means, you don’t have the freedom to create your own version of the company without working with the team that’s already in place. This can result in power struggles, fractured teamwork and even members leaving – all of which can make for a bumpy first year.
If you are in a place in your life where you are ready to make a major investment to bypass the stress of building a business, buying may be the best option for you.
The next steps to move forward
No matter which option you choose, it’s important to remember that having the right team behind you will increase your chances for success in the long term.
For entrepreneurs, that means hiring a team of committed individuals who are onboard with your vision and who are able to work together.
For business buyers, it means consulting with accountants, lawyers, industry professionals and a business valuation specialist to make sure your purchase is in your best interest.
Need someone to talk to?
Whether you choose to start your own, or buy an existing business, it’s prudent to take time and think about which option is best for you based on your – and your family’s – needs.
At Bayview, we’ve worked with both entrepreneurs and clients who have bought a business and built our own. We’d be happy to share our knowledge with you to help you create a better, more prosperous future for your family.