BUY OR START UP?

“Business is the new rock and roll” Peter Jones [Dragons Den] 2006.

Over the last few years, entrepreneurial spirit has been celebrated in the media like never before. High profile television shows such as Dragons Den, The Apprentice, Tycoon, and a host of others have made the concept of owning or starting up a business an extremely ‘sexy’ topic

Before embarking further on the business ownership journey, it is essential to put aside the glamorous media imagery and to go back to basics about what your expectations and aspirations really are and whether your circumstances, means and personal abilities make this a realistic goal, or simply a day dream.

Whether you are considering starting a new business from scratch or purchasing an existing business, it is critical to be brutally honest with yourself.

  • Are you really suited to owning your own business?
  • Are you prepared to work up to 70 hours per week in the early years?
  • Will your family be happy to help out in the business and will you be able to fulfill any current or future parental responsibilities?
  • Are you solvent and have a good recent credit history / proven track record of repaying loans and credit cards?
  • How will any existing financial commitments be made if you have slow initial revenue from your proposed new business.

If you are satisfied that you really are up to the task and that the timing is right, then you need to consider the pros and cons of setting a business up from scratch versus buying an established business.

START UP V BUYING AN EXISTING BUSINESS/GOING CONCERN

Buying an existing business

Pros

If you elect to buy an existing business, from your first day of ownership you will normally have:-

  • Instant cash flow via an existing client base and ongoing marketing.
  • The assistance of trained staff (or if there are no employees, input from the old owners for a transitional period if you negotiate the deal correctly).
  • Existing relationships with suppliers, distributors etc. 
  • Assuming you have done your homework on the company (due diligence) you will be selling tried and tested products at an immediate profit.
Cons
  • Reduced reward - you will normally have to pay handsomely for a really profitable going concern, frequently the equivalent of many years' future profits.
  • Considerable time input in finding, viewing and assessing opportunities to buy, many of which may prove to be dead ends.
  • Considerable expense (in terms of legal, accountancy, surveyors and bank arrangement fees) and the risk that the deal may fall through with nothing to show (costs for buying a small business can be many thousands of pounds.)
  • Risk of changes in the marketplace, government interference or new competition adversely hitting your business, making it less profitable and making it difficult to pay off your business acquisition loan, or get a return on your original investment.

Start up

Pros
  • Taking an intangible idea and making it into a physical reality can be highly rewarding, almost analogous to parenthood (it is no coincidence that entrepreneurs often talk of their businesses in terms of being their "baby").
  • If grown organically it may be possible to start a business with a very modest capital outlay, sometimes on a part-time basis -  allowing a low risk entry route and scope to supplement your income from other sources during the early life of the new business.
  • Potentially very high reward for your efforts if successful
Cons
  • Generally considered a more risky option and this is backed up statistically by very high failure rates for start-ups in the UK and worldwide.
  • Many new businesses take several years to return a profit; this can make life hard in the early days and may not be an option for people with families and mortgages to support.
GUIDE
STEP 2