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Why Start A New Business When You Can Buy An Existing One

By Edited Nov 13, 2013 5 9

There are thousands of new businesses created every year in the US. I applaud the people who take extraordinary risks and sacrifices in order to start a new business and make it successful. Starting a new business from nothing and building it up into a successful entity is not an easy endeavor. If it was easy then everybody would be starting a new business.

Here are the obstacles that start-up business owners are faced with.

Setting The Business Up

With a start-up business you have a ton of administrative tasks that you must take care of. You have to set up the business structure. You have to decide if you want to structure the business as a sole proprietorship, limited liability company, or corporation. You have to get a sales tax permit. Depending on what type of business you are in you will have to get different licenses and permits to be in compliance with your local and state government. You will have to set up a new bank account. If you will be hiring employees, then you will need to get an EIN from the IRS. In addition to that, you will have to set up new relationships with suppliers and vendors.

Getting New Customers

When you are starting a new business from the ground up you have absolutely no customers in the beginning. Without customers or sales nothing else matters. As a result, start-up businesses have to spend a ton of money on marketing, advertising, and promotions. Start-up businesses also have to deal with gaining the trust of new customers.

Cash Flow Problems

Since most start-up companies have little to no customers at first, they have no cash coming in to support the operation of the business. Essentially, the company is operating the business at a loss (no profit). If this goes on long enough, then the start-up business will have to close its doors.

Build Up A Track Record (Financing)

It is very difficult to get financing for a start-up business if it has no customers and no existing cash flow. Banks and investors are not easily impressed by business plans with pro forma financial projections. Why? Pro forma projections are figures that are based on future expectations rather than past performance. Now if you were able to show investors actual sales that were made in prior years and pro forma projections based on those sales, then you will have their attention.

Of course it is possible to overcome all of these obstacles in time, but what if you were able to eliminate or reduce them altogether.

The way to accomplish this is by investing in an existing business. Why start up an entirely new business from scratch when you can simply take over an existing business? You should recognize that whether you are operating a start-up business or existing business, they both require the same amount of hard work, sacrifice, and effort in order to be successful.

Why You Should Buy An Existing Business

Here is why you should consider investing in an existing business.

Everything Is Already Set Up

With an existing business all the administrative tasks are taken care of. The current business owner is simply transferring ownership and day-to-day operations over to you. You do not have to worry about going through the painstaking process of applying for different licenses and permits. You do not have to worry about setting up new relationships with suppliers and vendors. You do not have to worry about hiring an entirely new staff.

You Already Have Customers

With an existing business you already have customers. Of course you always want to get more customers, but it is always good to start with something. Essentially, when you buy an existing business you are buying the rights to their existing customer base.

No Waiting For Cash Flow

Since you already have an existing customer base, you have some cash flow coming in. When you are buying an existing business you are also buying the rights to its existing cash flows.

You Actually Have A Track Record (Financing)

If you have an existing customer base and cash flow coming in, then you will have an easier time getting financing from a bank or investor. When a bank or investor asks to see your financial reports you will be able to give them actual numbers that can be verified by the bank.

If you are a person looking to be in business for themselves, then you should not overlook the opportunity to invest in an existing business or company. Understand that starting up a new business is not necessarily a bad option, it's just not the only option.


Buy An Existing Business
Credit: A screenshot of the BizBuySell website.


Jan 31, 2013 12:14am
Good article, and I agree.
Jan 31, 2013 5:43am
Thanks SincerelyT. I appreciate the love.
Jan 31, 2013 4:57am
makes sense - the only problem is that since you're just starting with the business the idea is that you probably are not aware of potential pitfalls, so you should carefully pick.
Jan 31, 2013 5:52am
You are absolutely right Jeja. By no means would I advise someone to buy an existing business without doing their due diligence. There is risk involved with both existing and start-up businesses. However, I think that having existing cash flow allows you to some cushion to make some mistakes.
Jan 31, 2013 7:41am
Yeah, I must agree with you. That should be an acceptable trade off. Sounds good.
Jan 31, 2013 7:41am
Yeah, I must agree with you. That should be an acceptable trade off. Sounds good.
Jan 31, 2013 12:04pm
So where does one search for businesses up for sale? What's the picture of?
Jan 31, 2013 7:29pm
You can find businesses for sale at:

-http://www.buybizsell.com (screenshot/picture)

You can also find businesses for sale on Craigslist as well.

Hope that helps.Thank you for pointing that out. I will add this information into the article.

Thanks again.
Jan 31, 2013 3:36pm
This comment has been deleted.
Feb 28, 2014 8:30pm
Thanks for the great article.
Might I suggest that you write about the process of purchasing a business as an add on to this article.
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