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To Buy Or To Start a Business That Is the Question

To Buy Or To Start a Business That Is the Question

By BRAD PALMER

In Shakespeare’s Hamlet, in the opening line of the Nunnery scene, when contemplating suicide, Hamlet asks “to be or not to be, that is the question”. Hopefully, you are not contemplating suicide, but you may be contemplating whether or not to buy or start a business. For many prospective entrepreneurs, that is the question – to buy or to start.


Weighing Risk

Generally speaking, it is almost always less risky to buy a business than to start one. It may look less expensive to start a business until you factor in the working capital that will be required to get the business to the point of profitability. When you buy a business, you are really buying an established cash flow. You are also purchasing the customer or client base that is generating that cash flow.

Accordingly, buying an established entity is almost always less risky than starting a business. Many prospective entrepreneurs have taken the waste of time courses in entrepreneurship that glosses over this. Building a loyal customer base is the most difficult part of starting a business. This is the reason people buy a business.

Underestimating the Difficulty

Prospective entrepreneurs almost always underestimate the difficulty, expense and time required to build a loyal customer base. They underestimate the competitiveness of the market they are entering as well as the fact that customers that are buying from an established business for a long period of time do not easily make a change. By underestimating the time required to build a loyal customer base, they run of cash before they have even gotten started.

Nevertheless, there are circumstances and situations whereby starting from scratch is the logical approach. If you do decide to start a business as opposed to buying one, I suggest that you ask yourself the following questions.

  1. Uniqueness – Is there something unique about the business that I am planning to start. Really unique. Not kidding yourself unique.
  1. Capital – Do you have sufficient capital to support yourself and the business for at least three years. If you do not have sufficient capital, you are probably going to fail.
  1. Marketing – Getting some businesses off the ground requires extensive networking on the part of the promoter. Not everyone wants to go to networking meetings at seven in the morning, or wine and dine people, that they may not really like. If doing this is not consistent with your personality, you are probably better off starting a business where the promotion of it is more passive or buying an existing entity.

Most importantly, do a great deal of self-assessment, both of yourself and the market you are planning on entering.

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